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Why "Competitive Devaluation" Doesn't Work
Submitted by Jeffrey Snider via Alhambra Investment Partners,
More bad news for the rest of the world, or at least the world’s economists, that has been anticipating the US economy as a means by which to expel negative economic forces. The idea of decoupling is not just something that suggests the US economy is moving contrary to all the rest, but also the sole source of hope for anything but a dramatic decline once again. Outside of the Establishment Survey and the unemployment rate, there has been nothing to suggest that any such divergence has existed. The most pertinent data, especially trade data, has been unambiguous in actually pegging the world’s declining fortunes to the lack of actual growth of the US economy.
While that was “good” enough to describe the rut that had befallen in 2012, most recent months, especially the dismal nature of January’s updates across a broad cross-section, increasingly suggest an end to even that nearly three-year furrow – but not in the direction that payrolls anticipate.
The latest trade data from the Census Bureau surpasses the ugliness we have come to expect of the elongated cycle. Both imports and exports fell year-over-year in January, as weakness, contraction even, is now universal in terms of US demand for foreign goods and foreign demand for US goods. Trade has ground to a startling halt.
On the export side, the drop was by far the worst since 2009. That may suggest another reason for the Chicago PMI’s dramatic collapse of its own, which would be very concerning since it would mean that far more than just the energy sector is contracting under the weight of lack of “demand.”
This steep (and steepening) decline began somewhere around August, which completely fits within the timeframe of the “dollar” and the view of the global economy provided by related “dollar” liquidity and commodity prices, especially oil. In terms of US GDP, this is a negative factor as exports fell much faster than imports.
For the rest of the world, they care little about US GDP as the decline in imports means less business overall (doesn’t matter the “dollar” exchange rate). Our biggest trade partners, especially China, are already under economic pressure from the lack of any true recovery after the Great Recession, but are now coping with the potential for even worse trade levels.
Using a closed system approach, as most economists do, you can actually expect that exports and imports would diverge and the US could “decouple” and lead a global resurgence. Realistically that was never an option as the relation of global trade, linked by the “dollar”, has continually suggested since 2012 an eventual dislocation that applies universally. The slowdown in China is directly related to the slowing levels of US “demand”, which in turn is transmitted to other nations that would import US goods. The system is wholly contained of all trade, and thus global trade itself is perhaps the key barometer of the global economy.
That offers one reason why “competitive devaluation” doesn’t actually work, as it is not a zero sum game (one country gaining at the expense of another) but rather currency “wars” subtract from the whole altogether (both countries lose). The entire point of currency destabilization is exactly that, and business transpires less and less under more extreme versions of instability – intentional or not.
No matter how you want to view all this, January was perhaps the worst month for US trade since the Great Recession. For domestic production, which will matter at some point for even the payroll reports, the serious decline in exports is a most distressing development. For the rest of the world, as if it weren’t clear enough already, the US is not coming to save the day – US consumers have never fully rebounded and are now growing even more cautious (savings rate) or have even less to spend (“disinflation” or not).
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Cleanest Dirty Shirt Bitches!!!
how can anyone say this scheme doesn't work? the devaluation scheme has worked brilliantly since it was unleashed by nixon in 1970. that is 45 years and still going with duct tape and wire coat hangers keeping the contraption together. it will break down and a new one will be built. it will be much like the old one but with led lights.
And lots of blood, guts, and violence.
Don't leave that part of the transition out.
Algo's trade positive integers.
Same reason the Ayn Rand competitive devaluation of wages doesn't work. You need someone to buy your shit to have a functioning economy. Same zero sum game problem. Don't pay workers and the "productive class" will be left with selling to itself eventually. Competitive devaluation of currency, like Rand's entire philosophy regarding workers, is nothing more than a blueprint for neo-feudalism.
Yeah, statist-Keynesian flying debt monkeys are soooo much better.
Back when I was digging holes in the hot Florida sun $15.00 an hour was damned good money. Now people want it to be minimum wage.
Now why would that be?
I realize I'm arguing with a brick wall on this, but I'll bet you made the $15.00 an hour before Greenspan, Rand's disciple and co-author, did his magic. He saw the problem and replaced wages with easy debt to keep the machine running for a while. Meanwhile, both Teams embraced free trade agreements (consistent with Rand's teaching) which further gutted middle class income by encouraging offshoring to low wage countries. And inflation (which Greenspan openly admitted was his goal) has made $15/hour barely a living wage, and certainly not good money.
Actually it was the late 70's through the 80's, Volcker to Greenspan. I started in that "other" utopian time under Carter the First when Keynesians said stagflation was unpossible!
Yet, there it was.
I was lucky (and busted my hump) middle class youngsters these days, not so much.
So Volcker a Rand disciple too?
Let me get this straight. You made $15/hour digging ditches back in Volcker days and admit it was really good money back then. And you need to set up a strawman that "they" want $15/hour to be minimum wage now (it's actually $7 something, less than half of what you made, with a purchasing power of probably another 50% less), in order to make your point?
I never said it was minimum wage, there was brains involved when the hole was dug. After a while I hired someone else to dig my holes. I'm pointing out that what was good money back in the day is todays "preferred" minimum wage.
Thats some serious currency destruction in only 35 or so years and it had jack all to do with Ayn Rand.
There are two issues: 1) wage destruction, which is very much a Rand concept, and which has very much occurred; and 2) inflation, which was created intentionally and admittedly by her disciple, Greenspan. But keep focusing on what they say and not what they do/the result of what they do.
Ayn Rand was not an economist. Or a banker. She was an anti-statist and appreciated laissez-faire capitalism for what it is.
Thats why you hate her so much, isn't it?
Her "anti-statist" message seems to have been lost on Greenspan. Why I hate her so much is because of what her teachings have done. What she said has no relevance unless you live in a fairy tale.
How many regulations do you think are on the books right now Rand and what is that statist performance rate? Just take a wild guess and while you're at it, give me a round estimate of how much that costs in REAL WAGE EARNERS money for compliance.
Or are you one of those idiots who think regulatory cost is not passed on to retail consumers as a hidden tax?
Regulations as used today are primarily used to destroy small business. But speaking of de-regulation, how did that work out for the banking sector? I seem to recall that Greenspan said that banks would self-regulate. Laissez-faire, right? And since you're avoiding the subject, how is wage-arbitrage via free trade agreements working out for the middle class?
"Regulations as used today are primarily used to destroy small business."
Agreed, thats statism, isn't it?
"But speaking of de-regulation, how did that work out for the banking sector? I seem to recall that Greenspan said that banks would self-regulate."
Greenspans an idiot, not an interested observer or engaged in philosophy but I do appreciate you're zealotry, that he and he alone is responsible for the sorry state of the currency. Instead of EVERY chairman since Hamlin.
"And since you're avoiding the subject, how is wage-arbitrage via free trade agreements working out for the middle class?"
You're really not going to bring up "free trade" after NAFTA are you? There is free trade and there is FAIR trade.
Which are you for and why don't you help get some of the regulations out of the way? By "law" its damned near impossible to chrome a cars bumper here, so plastics better, right?
You responding to me: "But speaking of de-regulation, how did that work out for the banking sector? I seem to recall that Greenspan said that banks would self-regulate." Greenspans an idiot, not an interested observer or engaged in philosophy but I do appreciate you're zealotry, that he and he alone is responsible for the sorry state of the currency. Instead of EVERY chairman since Hamlin."
Me again: So how did de-regulation work out for the banks?
Glass–Steagall?
Talk to your boy Bubba, he was the last line of defense. If you're sittin around thinking ANY banker worth a damn would carry subprime loans on their books you've got fucking rocks in your head. They were forced (the ones who said it was unsound) to do it and the only ones who made money were the crony-socialists on Wall Street who knew implicitly that YOU would be hooked for "the bill".
Am I going too fast for you?
So the bankers did it because they were forced? You've got to be fucking kidding me. I suppose they made billions inadvertently? You must learn to separate ideology from observable fact.
Don't waste my time, they crowed about it...
http://www.nytimes.com/1994/08/26/opinion/justice-cracks-down-on-redlining.html
...that would be Janet Reno and the power of statists (like you) on the market...forcing loans, really Rand? Thats just bad form.
But its Farrrreeee! money!!!
Now go talk to all those poor people who got foreclosed on because of your "feel goodism" bullshit and tell me you are on the right side of this.
They got foreclosed on in large part because Greenspan gave away loaned money after globalism destroyed wages, and because he deliberately created a bubble designed to fuck over the middle class. You are arguing with someone else about a position I don't take. I guess that's what you do when you know you are wrong.
Ummm, Greenspan only had a hand in printing it. He didn't stick a gun in someones face and force them to lend it or take it.
That was the Community Reinvestment Act (sounds great, yet less filling, like I dunno...the Affordable Care Act?) Carter, Clinton, Reno, Rubin (ahem, Wall Street banker) and yes Bush.
But there is no doubt it was the state and its laws & regulations that not only allowed it but punished you if you didn't comply.
Bite me, it had nothing to do with Rand, just the opposite.
Later.
Government has negated almost all of the market constraints on the business of banking.
Honesty, transparency, competition, consequences, among others, gone. Banking is now just a tool used by the government for its own benefit.
But these laws were in essence to eliminate inequities that laissez-faire capitalism has been so cruelly foisted on us. Look at the CRA. It was passed as a result of national pressure to address the deteriorating conditions of American cities—particularly lower-income and minority neighborhoods. Look at Affordable Healthcare. Now through subsidies and fees levied on medical equipment manufactures, all may have access to insurance and better healthcare. And because we do not know what is good for us, these laws must be enforced strictly to achieve the desired outcome. Good intentions enshrined in law.
Too bad this shit just doesn't work but that doesn't matter to those that ram it down our throats time and time again because they never feel the effects. I hardly see Ayn Rand as the center player in all of this.
Miffed
Like many of your cohorts, you are focused on what you know. In your case, it is healthcare. But ask youself where the trillions have gone in the last 40 years. Bankers and MIC, or doctors/nurses? Easy answer. Bankers and MIC.
Why would this be so? Doctors and nurses have so much more to offer to humanity than bankers and MIC. Greenspan created the greatest banker wealth bubble ever known to man. He enabled endless wars against Eurasia. The bankers and MIC took the bubble and left us the soap scum. Greenspan co-wrote with Ayn Rand. They are both zionists. They convinced you that you should worship their philosophy. Think about it. Are you still looking for false prophets?
Healthcare and the MIC are the two most heavily regulated industries in the USA today. Hardly anything Ayn Rand would have envisioned. Though technology has increased my throughput ( private industry innovations, NOT government) my productive hours are dramatically consumed by compliance to government mandated regulation vs doing patient care.
I will never defend the bubbles created by Greenspan nor the propagation of endless wars to fuel the voracious appetite of the MIC. The .01% worship them because they have received their wealth because of these policies. They also have the most to lose if these policies end or deflation occurs in a meaningful way. Therefore they are responding simply in their own interests.
I need no false profit to worship and I don't understand why you distill this all down to the ideas of Ayn Rand who has implemented none of these actions, nor philosophically would be an advocate with the limited reading I have had of her books. Frankly I would love you to elucidate me on this.
Miffed
"And because we do not know what is good for us, these laws must be enforced strictly to achieve the desired outcome. Good intentions enshrined in law."
Thats precisely how the progs see it Miffed, any good intent precludes and outweigh any and all ramifications of any law they come up with, no matter how many people screamed at them at the time to stop WTF they were doing or how many hapless sheeple's lives were destroyed.
They will still sit here to this very day and say "But the intent was good! Those mean ole (insert whatever here) ______ co-opted the law and thereby the pristine regulatory body of the state for their own greedy profits!"
And its like...wut? Again, the puzzled look comes across our faces of trying to sort through how they can say that and not realize what they are themselves saying...AS THEY ARGUE FOR MOAR LAWS & REGULATIONS!!!
They're simply unreachable Miffed, swallowed up in a morass of ill-defined intentions of their own making perpetually seeking scapegoats.
Yes , Albert Einstein quote on insanity does come to mind.
I guess the final answer really lies with agreeing to disagree. Thus, the only solution i can see is simply deciding the country in two. Those with free market, laissez faire capitalism on one side and the progs on the other. At some point, after some shuffling back and forth by the unsure people, there will be a basic determination of success. This was the great advantage of the States where laws could be enacted on a small basis while others watched the effects. Now that we are under one whip in a centralized government mad with control, the only hope is revolution. I used to think just a constitutional convention would be enough.
Miffed
You keep making stupid comments and asking stupid questions as if government isn't involved all of the economic calamities.
For 10,000 years government has been organizing and running society, and for 10,000 years it has been evil, destructive, and the source of failure.
Government affects everything and fucks up everything. It's really that simple
You recognize that we've had government for 10,000 years, yet you suggest that the answer lies in the words of a Jewish author who spawned Greenspan.
Finally a concise rebuke of the Theory Of Relativity!
But no, that guy didn't spawn Greenspan. Nor did anybody else other than his physical parents.
The sins of the co-authors.
What happened to " Team Spirit"?
I can start a fire wth a "bow drill" and find my direction by drawing a circle & waiting 15 minutes.
We're on the same team
Wow. You were making $15 bucks an hour in the late 70's digging holes in the hot Florida sun?
Were you operating an excavator?
Don't beat around the bush LTER, simply state clear and simple that you want to disallow competition, to stop the vile competitive devaluation of wages.
Just like any other good socialist and/or statist.
That's what war is for. The big reset easy button. Count on it
Currency devaluation is dire because it is coupled with free trade.
THE ACTION CAN FLOW INTO OTHER MARKETS.
Now break the free trade connection you can devalue, you will only affect your own economy trying to obtain a balance internally but it can no longer cross national boundaries.
YOU CAN'T HAVE FREE TRADE / OR A GLOBAL SINGLE CURRENCY BLOCK WITHOUT A GLOBAL FEDERAL UNION JUST LIKE THE EU / EUROZONE.
IT IS THE SAME CONCEPT WITH THE SAME ISSUES yet we try to bring together free trade and currency manipulation.
Renminbi this
Martin Armstrong says BIG BANG in 2015.75 !!!!!! Whatever that means.
Sure it's lose-lose. No one is creating wealth but rather destroying it.
Seems like people are working out what Ricardo was on about hundreds of years ago. Ricardian rent. Study it and you will understand deflation.
Wait, what are you talking about. Mutual devaluation doesn't work BECAUSE it is a zero sum game. There is nothing to gain in a zero sum gain. Obviously if you have to steal share, it's not growth, at least not globally.
The point is that apart from not working, competitive devaluation is destructive in itself. When it has no proper purpose such as balancing account deficits, what are you actually doing? Just creating hyperinflation (somewhere down the line), that's what.
Financial terrorism through FRAUD only works if everyone doesn't do it. I think I said that about 3 weeks ago. Things are accelerating and everyone is shooting a hole in everyone elses boat. Yo better start swimming or you'll sink like a rock for the times they are a changin.
Does this mean I should be on the lookout for American refugees on tyre tubes bobbing across the ocean towards the great Southern Land?
If you do it too much - it's called collusion or price fixing.
If you like your foreign trade you can keep your foreign trade.
Time to get rid of the "you didn't build that" economic agenda!