patrick.net

I was talking to someone else earlier on Facebook, I said where does this end. His clever reply, "The Mussolini Gas Station."

China may act now, don't you think?

Skilled labor in China commands $300/month.

The dollar needs to fall against the yuan by a factor of TEN.

Of course, this will increase their buying power in the world -- oil, minerals, etc -- by a factor of ten too. This will have some unfortunate follow-on consequences for us, and some beneficial boons to the Chinese.

A dollar will always buy a dollar. Though you only got a quarter's worth of stuff in 1990 compared to what a dollar could buy in 1965, and since 1990 that quarter has lost a dime's worth of buying power.

Life has gone on, has it not? Without inflation, there's going to be a long slow grind ahead.

http://research.stlouisfed.org/fred2/series/CMDEBT

Traci says

I was talking to someone else earlier on Facebook, I said where does this end. His clever reply, “The Mussolini Gas Station.”

A facile comment that lacks any understanding of the situation we're in. Our problems lie inward not outward. The rich are too rich and the poor are too poor. There is a fix for this, but the rich aren't going to like it. Without this fix, there is no prosperity in our future. Just more poverty for more and more people as the 20th century becomes a memory.

China may act now, don’t you think?

China has already gone on a buyer's strike of US debt:

China, Mainland
Aug 2010: $868.4B
Aug 2009: $936.5B

Our true friends, Japan, UK banking centers, and Canada have upped their game $100B, $350B, and $70B respectively.

http://www.ustreas.gov/tic/mfh.txt

Kevin says

Relative to the Euro, peso, or anything else the buying power is the same.

Not for oil. Not for global equity investments that take USD. Plus with a strengthening yuan China can start paying in yuan and the built-in appreciation will be . . . appreciated.

Labor markets need not be exactly equal

And $3,000 per month would still be well below skilled labor here in the US, where $50/hr is eg. the Toyota "non union" total wage.

Troy says

Kevin says

Relative to the Euro, peso, or anything else the buying power is the same.

Not for oil. Not for global equity investments that take USD. Plus with a strengthening yuan China can start paying in yuan and the built-in appreciation will be . . . appreciated.

Yes, for oil, and most other things that matter. RMB would have to increase relative to most other currencies too, but other countries aren't pursuing devaluation policies. If that happens, China's export industry is dead.

Labor markets need not be exactly equal
And $3,000 per month would still be well below skilled labor here in the US, where $50/hr is eg. the Toyota “non union” total wage.

You completely missed the point. What I'm saying is that countries CAN still be competitive with substantially different labor costs, as long as we're talking the same order of magnitude.

A $36,000 a year job would be pretty decent money in many parts of the US.

I don't think it'll even come to that though. Once an average Chinese factory worker makes around $150/wk (approximately one half of the US minimum wage), you'll begin to see factories reopening in the US.

That's a ways off though. The average factory worker at a Foxconn plant today is making about $150 a *month*, maybe $2000 a year if they're lucky. At current wage growth rates, it'd take 15-20 years to get there.

Of course, with dollar inflation, things could happen much faster, and we might reach the equilibrium point in less than 10 years.

Here's a question for everyone:

Would you rather have factories in the US producing ipads, with workers making roughly half of minimum wage today, or would you rather gamble that at some point in the future, Chinese consumers will want to buy American services and heavy machinery?

Troy says

http://www.ustreas.gov/tic/mfh.txt

This only accounts for 3.5 trillion dollars of our current national debt, who holds the other 10 trillion dollars? I found a graph that lists the US government holds half of it's own debt and I predict most of that is Social Security, 5 trillion dollars or so.

http://www.treasurydirect.gov/NP/BPDLogin?application=np

shows the gummint holds $4.6T in accounts. $2.5T of that is the SSTF.

It strikes me as faintly ridiculous to worry about CURRENCY.

For China, the strategic thinking is about long-term control of RESOURCES.

Example, they recently had zero compunction about cutting exports of rare earth minerals.
It is in their long-term national interest to preserve that for themselves, and free-market/globalist
BS doesn't even factor into that. If you did something like that over here you'd have idiots
talking about HOW DARE YOU INTERFERE in markets and control trade
blah blah blah....

China in no way holds the nuclear option. It only looks like a nuclear option, but it's a nuclear option that will detonate over China itself.

If they get into any pissing match right now and actually do something aggressive that requires the US to respond, it will escalate to a point where their currency comes under fire and tariffs are slapped on them, which is the same as kissing all their hard work good bye.

If they dump all US currency there will obviously be fall out, and the USD will undergo some very rapid changes and "iffy" policies. The US government will get through it, the people here will get through it. The USD might be in rough shape, but it will survive.

Now China on the other hand has just bit the hand that feeds it the most important thing - growth. A huge reduction in buying from the US and possibly other countries (I'm sure the US will bully Europe to toss some tariffs in there too) will essentially stop their growth.

As they've stated before, growth is the only thing keeping that country together. They have 800M unemployed rural people, waiting in line to get into the urban life style. If they had to sudden lay off people, or stop hiring, the whole thing collapses. They have stated they couldn't handle this situation, that it will destroy the government.

I'm no macroeconomist but it does appear China has two choices: accepting our inflation by continuing to monetize their USD inflows into yuan and then lending these USD back to us, or the Fed inflating the USD out from under them by printing.

What difference does it make between having People's Bank of China or the Fed hold $2T of US assets? People afraid of "printing" don't understand what happened last decade.

http://research.stlouisfed.org/fred2/series/CMDEBT

TechGromit says

Troy says

http://www.ustreas.gov/tic/mfh.txt

This only accounts for 3.5 trillion dollars of our current national debt, who holds the other 10 trillion dollars? I found a graph that lists the US government holds half of it’s own debt and I predict most of that is Social Security, 5 trillion dollars or so.

You are correct, almost half the debt is owed to the SS trust fund. This will never be paid back without massive tax increases or shutting down the entire defense budget. It's not going to happen. Wikipedia has a good chart from 2008. I don't think the proportions have changed that much.

bob2356 says

This will never be paid back without massive tax increases or shutting down the entire defense budget

Until recently I thought it would be necessary for the $2.5T balance to be "paid back" in the lifetime of the baby boomers, ie 2037 or so. That's what all the "trust fund exhaustion" estimates come in at least.

One alternative that I find interesting is the approach of just letting the balance ride (via a mild FICA tax increase) and continue to accrue compounding interest. The mathematics of this perhaps actually strengthen social security over the long haul. If we need to raise another $100B in FICA contributions to cover the gap the FICA rate would have to be raised from 12.4% to 14.4% or so. This is $100/mo on someone making $50K.

So the tax rise isn't that "massive". Perhaps this is what the PTB are working on to propose next year.

Troy says

bob2356 says

This will never be paid back without massive tax increases or shutting down the entire defense budget

Until recently I thought it would be necessary for the $2.5T balance to be “paid back” in the lifetime of the baby boomers, ie 2037 or so. That’s what all the “trust fund exhaustion” estimates come in at least.
One alternative that I find interesting is the approach of just letting the balance ride (via a mild FICA tax increase) and continue to accrue compounding interest. The mathematics of this perhaps actually strengthen social security over the long haul. If we need to raise another $100B in FICA contributions to cover the gap the FICA rate would have to be raised from 12.4% to 14.4% or so. This is $100/mo on someone making $50K.
So the tax rise isn’t that “massive”. Perhaps this is what the PTB are working on to propose next year.

I'm guessing it'll be a combination of raising the contribution cap for SS and raising the retirement age.

The SS trust fund debt will never be repaid.

Kevin says

I’m guessing it’ll be a combination of raising the contribution cap for SS and raising the retirement age.

Ha ha . . . d'oh !

The "ha ha" was because I don't pay Fica, as a California teacher.

The "d'oh" was when I remembered they are going to have to do something very much the same to me with my Califonia pension fund. That is raising the contribution and the retirement age. They also might make it a worse deal for new hires.