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Post by unlawflcombatnt on Jul 10, 2007 13:54:10 GMT -6
Euro reaches new all-time high above 1.37 dollars " The euro hit a record high of 1.3740 dollars Tuesday amid worries about the US economy, underscoring a debate among European leaders about how much control should be maintained over the single currency.
The British pound also hit a 26-year high of 2.0275 dollars ahead of a key speech by US Federal Reserve chairman Ben Bernanke.
Foreign exchange traders are concerned by the troubled US housing sector and analysts are also unsure of the outlook for inflation and jobs in the world's biggest economy...." The full article can be found at Euro reaches new all-time high above 1.37 dollars 43 minutes ago
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Post by beachbumbob on Jul 10, 2007 18:23:45 GMT -6
the world sees the US economic collapse coming....driving up the value of euros as refuge. Good god US is screwed bigtime. China is faced with a huge problem sitting on dropping dollars and a speculative stock market. another collapse in the making
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Post by rjfliberal07 on Jul 10, 2007 23:58:03 GMT -6
I would not be suprised to see the dollar fall much further with the U.S over reliance on imports when exporting is easily doable. I always though trade is best when one country can not produce enough of an item, like Japan. However, it seems the U.S can not export anything unless its labor cost associated with it is pennies on the dollar. This will not end well, because China insists on manipulating its currency to the detriment of the U.S worker.
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Post by unlawflcombatnt on Jul 11, 2007 3:46:43 GMT -6
However, it seems the U.S can not export anything unless its labor cost associated with it is pennies on the dollar. That's the crux of the matter. As long as American companies move their production facilities to cheap labor countries, then are allowed to export those same goods back in to the United States, we'll continue to have problems. I think this is even a bigger problem than currency manipulation. But it's also one that's technically much easier to fix. Just put tariffs on the goods made by American-owned, foreign-located companies. Use tariffs to make it unprofitable for American companies to use cheap foreign labor. It's something that certainly is under the control of the U.S. government (and, allegedly, the American people). We wouldn't have to depend on China to "fix" anything. We can make outsourcing to China unprofitable with out any help from them by using tariffs.
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Post by blueneck on Jul 11, 2007 4:28:02 GMT -6
I was reading an article that the Europeans are getting increasingly concerned about the losses of good paying jobs in the US, with new job creation on the lower ends - they see this as a future problem for them as it will cause a serious decline for the demand of Eurpoean goods in the US market - this is one of the factors in the rise of the Euro as European investors shift away from the US.
(Not likely to see anything like this article in the US press)
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Post by Ken on Jul 11, 2007 6:43:45 GMT -6
However, it seems the U.S can not export anything unless its labor cost associated with it is pennies on the dollar. That's the crux of the matter. As long as American companies move their production facilities to cheap labor countries, then are allowed to export those same goods back in to the United States, we'll continue to have problems. I think this is even a bigger problem than currency manipulation. But it's also one that's technically much easier to fix. Just put tariffs on the goods made by American-owned, foreign-located companies. Use tariffs to make it unprofitable for American companies to use cheap foreign labor. It's something that certainly is under the control of the U.S. government (and, allegedly, the American people). We wouldn't have to depend on China to "fix" anything. We can make outsourcing to China unprofitable with out any help from them by using tariffs. At this point any correction in that imbalance will be painful. The big players, WalMart, Kmart etc etc etc. are reliant on the peg. Al, other costs are rising. fuel and imprts from other than China. There is no pricing power a fact brought up by Bernanke yesterday. So any increase in the PPI will eat away at profits. Another interesting indicator is consumer credit. we are seeing the first signs that debt is transfering to Credit Cards rather then home equity. Yesterdays numbers on revolving credit show an increase of over 12B. That is revolving credit meaning greater credit card use as opposed to home equity. I would say we are pushing the end of that consumption cycle. If you hit the Yahoo Finance page finance.yahoo.com/There is a link to Faux news Business report with a Video clip titled "economic disconnect" Current polls show that the american people think that they are worse off than 5 years ago. Then we have the usual cast of fools citing stock market valuations and high home ownership rates as reason the celebrate.
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Post by unlawflcombatnt on Jul 11, 2007 13:23:42 GMT -6
Regarding pricing power, the only thing even maintaining it is the continuing rapid growth of credit. The annualized increase in in Personal Consumption Expenditures in May was $56 billion. In contrast, the annualized increase in total Personal Income was only $47 billion, while the annualized increase in Disposable Personal Income was only $37 billion. Thus the annualized increase in Personal Consumption Expenditures was $19 billion more than the increase in DPI. This parallels May's increase in Consumer Credit of $12.9 billion. At present, consumer spending increases are being financed largely through increased credit and borrowing. And pricing power would be even weaker than it currently is without the contribution from consumer credit.
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Post by Ken on Jul 11, 2007 14:35:00 GMT -6
IMO that 12.9B in revolving is pivotal. we have run out the liquidity provided by home appreciation
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Post by blueneck on Jul 11, 2007 17:16:10 GMT -6
I heard a report this morning on NPR that the only way to stop currency manipulation, level the currency "playing field" and moderate currency fluctuations is for all the major currencies to return to a precious metal standard
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Post by jeffolie on Jul 11, 2007 17:28:28 GMT -6
Bucky (the dollar) continues to decline and is now at a new low - again. This is now getting to be extremely serious and is threatening the 80 level with some authority. The equities markets are ignoring this - for now - but you'd be wise not to! Clearly, the bet is that we will bounce off that level and it will serve as support, as it has before. While this sounds all fine and well the risks here are enormous if 80 falls. market-ticker.denninger.net/
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Post by blueneck on Jul 11, 2007 17:39:34 GMT -6
Doesn't a weaker dollar at some point help domestic exporters?
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Post by unlawflcombatnt on Jul 11, 2007 18:56:49 GMT -6
Doesn't a weaker dollar at some point help domestic exporters? Yes, and it helps domestic producers by increasing the price of imports they must compete with. But it would take a lot of dollar depreciation to compensate for 26 cents/hour North Korean labor or $4/day Chinese labor.
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Post by Ken on Jul 12, 2007 6:38:37 GMT -6
A weaker dollar will help exports. From a competitive standpoint I can only give you personal experience. As a cost accountant for a michigan manufacturer I prepare quotes and price products. Since we operate on mass production and standard cost models Direct labor is calculated on output per hour and is a relatively low cost compared to raw material. We are talking pennies. We operate at around 85% capacity and I doubt any foreign manufacturer can consistently operate above that and we all pay (foreign and domestic) about the same thing for steel. I suppose that is where the productivity argument comes into play. How much idle labor does the plant have?
In some industries, where operations are labor intensive we would be at a serious disadvantage.
Im just spitballing here but it is from experience.
If I want to increase productivity output per labor hour, we invest in equipment. Something we recently did. A machine operator can now run 5 machines as opposed to 4. That will reduce our overtime requirements and the return from those potential expenditures justifies the investment. Unless of course I own a plant in another country and we do.
If yuo own a plant in China and a plant in the US and use the same calculations it would be hard to justify the investment because the Chinese, Koreans or Mexicans for that matter dont have healthcare benefits, pension expenses or overtime for that matter. The plants are relatively new so the equipment is newer and in many cases more productive. That means that we essentially robbed what would have been a domestic capital expenditure and put it in Korea, Ireland or whereever.
Now that I have rambled on for a bit I have some questions of my own.
Economic models imply that in order for US labor to maintain quality of living we must keep improving productivity and that requires capital however from the babbling I just did above it seems that capital investment decreases as foreign competition rises.
That would explain the drop in doemstic capital investment we have seen throughout the past 5 years
Foreign competition is a misnomer as it is labor that is competing for capital and not companies. Companies can just buy their competiton with enough leverage
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Post by Ken on Jul 12, 2007 7:47:54 GMT -6
I heard a report this morning on NPR that the only way to stop currency manipulation, level the currency "playing field" and moderate currency fluctuations is for all the major currencies to return to a precious metal standard I doubt you will see that. Manipulation (US Dollar based foreign economies) drives bond prices up and yields (interest Rates) down and that is exactly what Wall Street wants. valuations are done based on sustainable growth models. essentially, speculators can justify higher PE ratios by capitalizing profits at current market interest rates. Here is how it works First let's look at the S&P/Barra Large Cap Growth Index. Net income stood at $12.6 billion in 94/Q4, with an average Treasury bond yield of 7.96%. So the capitalization stood at $158 billion ($12.6 billion divided by 7.96% equals $158 billion).
Net income for this group stood at $39.3 billion in 99/Q4, with an average T-bond rate of 6.25%. So the capitalization stood at $629 billion. Therefore, between 1994 and 1999, capitalized corporate profits for large cap growth stocks increased 31.8% per year.
Guess what? The actual Barra Large Cap Growth Index appreciated in price by 31.9% per year between 1994 and 1999. So the actual performance of the index has done exactly what the point-to-point capitalized profits calculation said it should do. The above is from Kudlow. who is an ideologue so take it with a grain of salt. What really happens is that as the return on debt investment falls, capital will accept more risk and move to stocks. The other factor is the amount of capital pumping into the market. Low interest rates driven by Chinese demand for treasury debt, yen carry arbitrage, hedge funds and the array of leveraged purchases all drive stocks higher due to the traditional Friedman inflation model. Too Much money chasing too few investment opportunities. That is a very dangerous scenario whn the music stops and everyone starts racing for chairs. There are far too many on one side of a trade, in this case sellers with few or no buyers. The 29 crash is an example of this and we still havent learned that bubbles always burst and when they burst the downward pressure they create has a wealth destroying inertia that eats everything in its path.
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Post by unlawflcombatnt on Jul 12, 2007 16:00:01 GMT -6
Foreign competition is a misnomer as it is labor that is competing for capital and not companies. Ken, That's exactly what I thought. The so-called "competition" is American labor competing with 3rd world labor for capital. And it's difficult for American workers making $130/day to beat out Chinese workers for $4/day. Even if American workers were 10 times as productive as Chinese labor, the cost/unit of production would be less for Chinese labor. Thus, this labor competition would strongly favor Chinese labor. Furthermore, as you pointed out, it's the capital investment that makes workers more productive. Thus, an equal amount of capital investment would make Chinese workers as productive as American workers. Thus the cost/unit of production would even more strongly favor Chinese labor. The only real way to protect American jobs is to put tariffs on goods made in cheap-labor 3rd world countries, to reduce (or eliminate) the labor cost advantage, especially on goods made by American-owned foreign companies. The incentive to replace American labor production with foreign labor production needs to be eliminated. Not only for the benefit of American workers, but for our economy as a whole. If aggregate American labor/consumer income declines, the ability of Americans to purchase production declines. So far, the stagnation in wage-financed consumer spending has been offset by the increase in debt-financed consumer spending. This is clearly demonstrated in the decline in the "savings" rate (defined as Disposable Personal Income - Personal Consumption Expenditures). The increasing gap between consumer income and spending is not sustainable. Spending financed by home equity extraction is declining, and will continue declining. Though consumer credit-financed spending has recently increased, this is not sustainable either. We're heading for a severe slowdown in consumer spending, which will ultimately take down the economy as well. The only way out is to increase aggregate labor/consumer spending power. And the only way to increase that is through more employment and increased upward wage pressure. The only way out that I see is to reduce job loss from outsourcing, and to reduce labor "supply" increases through reduced illegal and legal immigration.
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Post by phantom on Jul 13, 2007 3:15:12 GMT -6
...Hmm, was this unexpected? I mean seriously, anyone who has studied the history of this stuff knows it's purposeful....I think all money problems can be attributed to the (non)Federal Reserve...
Think of how a dollar is worth about a PENNY compared to 1913, and how WAGES have not raised to compensate....this is treasonous, by design.
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Post by blueneck on Jul 13, 2007 4:32:10 GMT -6
Interesting - I used to work as a industrial engineer in a past life and did a lot of these sorts of costs and capacity analysis for the cost accountants - I would agree that the costs of production labor is a low percentage - usually around 10%, seldom more than 20% and for the most labor intensive operations around 30%. Material costs were nearly always higher than labor costs. The big gorilla was ALWAYS overhead - buildings, insurance, utilities, equipment, and of course executive pay. Automation of course reduces labor cost further, but does raise overhead so you do have to have the production to support the increase capacity and increased overhead.
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Post by Ken on Jul 13, 2007 6:08:02 GMT -6
The big gorilla was ALWAYS overhead - buildings, insurance, utilities, equipment, and of course executive pay. Automation of course reduces labor cost further, but does raise overhead so you do have to have the production to support the increase capacity and increased overhead. oh god yes...indirect allocations. My division is about 60 mil annual sales nad S G and A is always a killer. Cars, Planes, special bennies. All taht stuff is operating expenses and deductable
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