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kojax
Post  Post subject: Tariffs vs. Currency Exchange Rates - what's the difference?  |  Posted: Tue Jun 26, 2012 5:24 am
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Either way, every country's goal is to maximize exports. What does it help for them to do so by attempting to artificially devalue their own currency (creating the equivalent of a universal tariff on all imports), rather than just having ordinary tariffs?

The only difference I can see is that you would likely have to ruin your own economy if you want to devalue your own currency. Doesn't that just create a situation where everyone is competing to be the worst failure, so their currency will be lowest? How is it any surprise the world is in a recession?


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marnixR
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Tue Jun 26, 2012 5:52 am
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mind you, the introduction of the euro in most of the EU has made the option of devaluation an impossibility, and see what problems it has caused - if greece had been allowed to devalue its currency the greeks would have been the poorer for it, but it wouldn't have dragged the rest of europe into the mire

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iNow
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Tue Jun 26, 2012 2:18 pm
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kojax wrote:
Either way, every country's goal is to maximize exports. What does it help for them to do so by attempting to artificially devalue their own currency (creating the equivalent of a universal tariff on all imports), rather than just having ordinary tariffs?

If you were to travel to Chile, and every $1 you had was worth $10 in Chile, you'd be able to buy more. You'd visit, you'd spend more, and the Chile economy would be better off because more people like you would be more motivated to spend. This would have a net benefit to the Chilean economy, a net increase to the GDP, and all because of a slight devaluation.

Also, by devaluaing a currency, it allows the debt levels held by that nation to be worth less in real dollars. If I have $10 in debt to you, then when your currency is devalued I can pay off that debt more rapidly and with less pain. That $10 doesn't represent such an incredible loss to my own savings since the exchange rate between our currencies once your currency has fluctuated and worth less than it was when we entered into the agreement/contract.

It doesn't ruin an economy to temporarily deflate the currency. Quite the opposite, really. It drives investment from other countries. It increases revenues through payments for labor, manufactured goods (just look at why China is so powerful... they deflated their currency and everyone started buying stuff from them since they could get more for each dollar spent), and increased tourism and shopping.

This is not why the world is in a recession. The world is in a recession because investments flooded into European countries formally seen as unsafe investments. When those unsafe countries joined the Euro, they were seen as safer investments and cash poured in. Exports were inflated, housing was purchased and inflated, etc.

Normally there are small shocks to the system and these imbalances are not detrimental. However, the collapse of Lehman Brothers and the rest of the banking crisis was a HUGE shock to the system... credit dried up... the economy seized... and all of that investment stopped. The revenues those countries (like Greece) relied on to finance their activities ended between two sunrises... In a snap... a flash... boom, it was gone. The trade balance (huge revenues through investments) those countries enjoyed for so long suddenly went away, yet all of the expenditures being financed through those revenues were still in place.

This didn't happen because they devalued their currency. It happened because their source of revenue dried up overnight.

The problem was then magnified as everyone started saving and paying down debts at the same time. Everyone stopped spending at once, and this caused a self-reinforcing downward spiral where demand continues to weaken and then MORE people start saving and spending less causing demand to decrease even more...

Your comments about devaluation are moot. Devaluation will help these countries come back, including the US (it will spur large investments, put people back to work, consequently increasing tax revenues, increasing demand, and putting more people back to work...). Additionally, the single best thing that could happen in Europe would be for Germany to allow a bit of inflation... so the debts owed them by other countries would decrease in real terms... The $10 owed to Germany would suddenly be more like $5 and easier to pay off and achieve balance again.

These are fairly basic concepts found in any Econ 101 book. They are correct, even though so many people are choosing to ignore them and make up explanations on the fly... explanations consistently showing to be wrong, misguided, and unhelpful.

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Wed Jun 27, 2012 6:08 am
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I understand how having a devalued currency is beneficial. It's just unfortunate what you have to do in order to achieve it. Why make that the only option? Isn't it foolish to limit one's own options?

Maybe I should rephrase the question: do you know of any non-suicidal ways to devalue a country's currency? Is there any way other than just screwing up so badly that your currency falls to reflect the level of economic failure? Failing in order to succeed just doesn't seem like a very sound strategy.

I can only think of one non-suicidal approach off hand. China buying up debt in the USA is a good example. By extending us loans in our own currency, they prevent those dollars from getting exchanged, which keeps their own Yuan/Renminbi low. Technically it's a bubble, because the exchange rate only stays low if they never actually try to cash in on those loans. If they started cashing them in for Yuan/Renminbi and thereby revalued their home currency, the apparent worth of the loans would diminish. That could be a very big and sudden loss for them.


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iNow
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Wed Jun 27, 2012 6:23 pm
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kojax wrote:
I understand how having a devalued currency is beneficial. It's just unfortunate what you have to do in order to achieve it. Why make that the only option? Isn't it foolish to limit one's own options?

It's not the ONLY option. However, other options (like lowering the interest rate) have already been performed and proven not to be substantial enough to mitigate the massive nature of the shock we experienced. Another option is fiscal stimulus. That would help tremendously, but is difficult politically.

kojax wrote:
Maybe I should rephrase the question: do you know of any non-suicidal ways to devalue a country's currency?

Yes, I think most ways are not suicidal. I think there are exceptions, but as a rule this can be done very effectively and with minimal negative impact.

kojax wrote:
Is there any way other than just screwing up so badly that your currency falls to reflect the level of economic failure?

I'm not sure I understand your question. This can generally be handled at the level of a central banking institution, and does not rely solely on chaos as you've implied.

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Thu Jun 28, 2012 5:16 am
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iNow wrote:
kojax wrote:
I understand how having a devalued currency is beneficial. It's just unfortunate what you have to do in order to achieve it. Why make that the only option? Isn't it foolish to limit one's own options?

It's not the ONLY option. However, other options (like lowering the interest rate) have already been performed and proven not to be substantial enough to mitigate the massive nature of the shock we experienced. Another option is fiscal stimulus. That would help tremendously, but is difficult politically.


For a fiscal stimulus to work you have to borrow money. If you borrow money, then someone will be the lender. If China is the lender, then their home currency will benefit by being devalued relative to the dollar when they lend us the dollars instead of exchanging them for Yuan to spend domestically.

Basically, lending can work as a patch to the trade imbalance. Instead of buying enough American goods to balance out the dollars/yuan exchange rate, they buy a bunch of American IOU's. It has the same effect as if they had purchased goods (except Americans don't directly make any money off of the transaction like they would if actual goods had been purchased.)

I'm pretty sure the reason Europe is going to Austerity measures is because they're starting to see what it does to their exchange rate when they borrow.


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kojax wrote:
Maybe I should rephrase the question: do you know of any non-suicidal ways to devalue a country's currency?

Yes, I think most ways are not suicidal. I think there are exceptions, but as a rule this can be done very effectively and with minimal negative impact.

kojax wrote:
Is there any way other than just screwing up so badly that your currency falls to reflect the level of economic failure?

I'm not sure I understand your question. This can generally be handled at the level of a central banking institution, and does not rely solely on chaos as you've implied.


It's all well and good to hope the central banks will "think of something", but I don't see how they can. Exchange rates are set by simple auction (bids vs. offers). If more of your currency is being offered than bid for, your currency is devalued and you have an easier time selling to foreign markets.

I don't see how any government or central bank would ever be able to exercise meaningful control over that, unless it just goes around buying foreign currencies in bulk. And how long could it keep that up?


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iNow
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Thu Jun 28, 2012 3:19 pm
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kojax wrote:
For a fiscal stimulus to work you have to borrow money. If you borrow money, then someone will be the lender. If China is the lender, then their home currency will benefit by being devalued relative to the dollar when they lend us the dollars instead of exchanging them for Yuan to spend domestically.

Basically, lending can work as a patch to the trade imbalance. Instead of buying enough American goods to balance out the dollars/yuan exchange rate, they buy a bunch of American IOU's. It has the same effect as if they had purchased goods (except Americans don't directly make any money off of the transaction like they would if actual goods had been purchased.)

You're quite plainly oversimplifying a complex situation. Right now, the cost to keeping unemployment high in real terms is higher than the cost of borrowing... Especially given the extremely low borrowing interest rate. By engaging in what you propose, you're actually INCREASING the long term deficit and making the situation worse in the long-term.

kojax wrote:
I'm pretty sure the reason Europe is going to Austerity measures is because they're starting to see what it does to their exchange rate when they borrow.

Whatever the reason they're going to austerity measures, ALL indicators suggest it's merely making the situation worse.

kojax wrote:
I don't see how any government or central bank would ever be able to exercise meaningful control over that, unless it just goes around buying foreign currencies in bulk.

Your personal incredulity fails to serve as a convincing argument.

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Thu Jun 28, 2012 5:14 pm
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iNow wrote:
kojax wrote:
For a fiscal stimulus to work you have to borrow money. If you borrow money, then someone will be the lender. If China is the lender, then their home currency will benefit by being devalued relative to the dollar when they lend us the dollars instead of exchanging them for Yuan to spend domestically.

Basically, lending can work as a patch to the trade imbalance. Instead of buying enough American goods to balance out the dollars/yuan exchange rate, they buy a bunch of American IOU's. It has the same effect as if they had purchased goods (except Americans don't directly make any money off of the transaction like they would if actual goods had been purchased.)

You're quite plainly oversimplifying a complex situation. Right now, the cost to keeping unemployment high in real terms is higher than the cost of borrowing... Especially given the extremely low borrowing interest rate. By engaging in what you propose, you're actually INCREASING the long term deficit and making the situation worse in the long-term.


The process by which currencies value against each other is exactly as simple as I'm making it. However, describing how that auction system behaves can be very complicated because many factors can influence the bidders'/offerers' decisions.

Very low interest rates indicate that people are trying to hold onto their USD rather than spend them. Whether that's because they're trying to manipulate the value of their home currency (by buying up our currency), or they're simply trying to put their money "under the mattress" so to speak, the last thing we want to do is encourage them. As long as wealthy citizens refuse to spend their money, there's no way for others to earn it back from them. That's the problem with the whole "1%" thing the occupy movement was complaining about. Too much wealth gets accumulated in one place and then it stops circulating because the 1% doesn't want consumer goods. They want to invest it instead of spend it, .... which would be great in moderation.

Having the government borrow from the 1% and then spend the money in their place looks like a nice workaround on the surface. It looks like everybody is winning. The 1% get to have their safe investment, and the people get to have jobs filling the demand.... except it creates the obvious problem that the money now has to exist in two places. It's like one of those "paradox machines" in the Dr. Who series that allows two separate time lines to coexist. Trying to both spend and invest the same dollars, instead of choosing one or the other.

iNow wrote:
kojax wrote:
I don't see how any government or central bank would ever be able to exercise meaningful control over that, unless it just goes around buying foreign currencies in bulk.

Your personal incredulity fails to serve as a convincing argument.


Your apparently blind faith in the matter isn't any more convincing.


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iNow
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Jun 29, 2012 3:26 am
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You've made many assertions and failed to support each. You then suggested I was arguing on blind faith. Why should I bother continuing this conversation? If you're convinced of your position and unwilling to entertain alternative viewpoints, then it's a waste of time. I've shown you the respect to consider your perspective, and I explained why I thought it was wrong. If you're unable or unwilling to reciprocate, I have no interest in continuing.

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Sun Jul 01, 2012 9:18 am
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I've been trying to figure out what you mean by saying I don't present evidence. I think you prefer "for instance" type references. X happened before Y, therefore X caused Y. Of course that amount of simplicity doesn't always describe real events, but I can see how it's better than just describing the pattern. And it allows a better description.

I'm going to go point by point through your last big post. The evidence is right there. Anything I present will be redundant until I construct my own narrative (for example, I might narrate the progression of China's economy from the mid 80's to present to show how currency tricks work.)

Where I think you and I mostly disagree (though only slightly) is about how currency exchange rates are manipulated. I see it as a simple auction, bids vs. offers. So the only way to make a lasting change is to find a way to buy up lots of foreign currency. You are correct in stating that manipulating inflation inside one's own economy can affect it also.

iNow wrote:
kojax wrote:
Either way, every country's goal is to maximize exports. What does it help for them to do so by attempting to artificially devalue their own currency (creating the equivalent of a universal tariff on all imports), rather than just having ordinary tariffs?

If you were to travel to Chile, and every $1 you had was worth $10 in Chile, you'd be able to buy more. You'd visit, you'd spend more, and the Chile economy would be better off because more people like you would be more motivated to spend. This would have a net benefit to the Chilean economy, a net increase to the GDP, and all because of a slight devaluation.

Also, by devaluaing a currency, it allows the debt levels held by that nation to be worth less in real dollars. If I have $10 in debt to you, then when your currency is devalued I can pay off that debt more rapidly and with less pain. That $10 doesn't represent such an incredible loss to my own savings since the exchange rate between our currencies once your currency has fluctuated and worth less than it was when we entered into the agreement/contract.



Up to this point, I had no disagreement with you. Clearly devaluing a currency is good in the current global system. In effect, it's like having a tariff across the board, covering everything the other country wishes to sell to you, while having a subsidy on your home production when it is sold to their consumers. Using ordinary tariffs, the other country would be free to tariff you back, but when it's a favorable currency exchange rate the effect is wholly beneficial to one side.

The downside: the other country will attempt to manipulate its home currency back against yours. You'll constantly be in a competition for "who can get their currency lower?", which may get in the way of other economic objectives (or may not, depending on how lucky you are about the other matters.) Not because it directly conflicts with having a good economy, but I mean for the same reason as you might find it difficult to flip a pancake whilst standing on your head and whistling the national anthem.

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It doesn't ruin an economy to temporarily deflate the currency. Quite the opposite, really. It drives investment from other countries. It increases revenues through payments for labor, manufactured goods (just look at why China is so powerful... they deflated their currency and everyone started buying stuff from them since they could get more for each dollar spent), and increased tourism and shopping.


It doesn't always ruin an economy to deflate the currency. It depends on what else is going on. Sometimes you need to inflate it for reasons that have nothing to do with your currency exchange rate. At those moments you'll end up having to choose whether to screw all the businesses that depend on export, or screw the businesses that need to you inflate.

Fewer degrees of freedom means you have less ability to maneuver. With tariffs, you're only changing one thing when you adjust them, instead of two things.


Quote:

This is not why the world is in a recession. The world is in a recession because investments flooded into European countries formally seen as unsafe investments. When those unsafe countries joined the Euro, they were seen as safer investments and cash poured in. Exports were inflated, housing was purchased and inflated, etc.


Why do you think those investments happened? Why were there so many people just dying to lend?

My answer is: Countries such as China were trying to unload foreign currencies in order to keep their home currency low. As long as we're all competing to devalue our home currencies, there will always be hordes of lenders willing to take an unsafe bet.

Think about it. After you've gone out and bought up a fist full of dollars/euros/rubles... etc in order to keep your home country's yuan low, what will you do with them? Will you throw them under a mattress? You can't spend them on tangible goods because that will affect your trade balance. I think you would invest them anywhere you can so they won't go to waste. Including unsafe places.

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Normally there are small shocks to the system and these imbalances are not detrimental. However, the collapse of Lehman Brothers and the rest of the banking crisis was a HUGE shock to the system... credit dried up... the economy seized... and all of that investment stopped. The revenues those countries (like Greece) relied on to finance their activities ended between two sunrises... In a snap... a flash... boom, it was gone. The trade balance (huge revenues through investments) those countries enjoyed for so long suddenly went away, yet all of the expenditures being financed through those revenues were still in place.

This didn't happen because they devalued their currency. It happened because their source of revenue dried up overnight.


Ok, so in my version, a bubble popped. All these reckless investors had put so much money in so many unsafe bets, that when the first major collapse happened, they weren't ready for it.

According to my version of events, similar collapses will continue to happen as long as globalization continues because we're creating too much of an incentive for people to hold onto currency (investing it wherever they can) instead of spending it.

Usually, knowing an investment is risky is a deterrent to investors. But, if that disincentive is countered by a strong enough incentive (such as the need to devalue their home currency by holding and not spending foreign currencies), they'll do stupid things, because the alternative is to let the money sit and do nothing.

Quote:

The problem was then magnified as everyone started saving and paying down debts at the same time. Everyone stopped spending at once, and this caused a self-reinforcing downward spiral where demand continues to weaken and then MORE people start saving and spending less causing demand to decrease even more...


I won't disagree with you on this. Once the initial conditions were in place, the downward spiral was pretty much inevitable.

However, globalization had quite a hand in putting those initial conditions in place.


Quote:
Your comments about devaluation are moot. Devaluation will help these countries come back, including the US (it will spur large investments, put people back to work, consequently increasing tax revenues, increasing demand, and putting more people back to work...). Additionally, the single best thing that could happen in Europe would be for Germany to allow a bit of inflation... so the debts owed them by other countries would decrease in real terms... The $10 owed to Germany would suddenly be more like $5 and easier to pay off and achieve balance again.


You realize, don't you, that for Germany to do that would be the same as if they simply forgave half the debt? Most investors are smart enough to realize that if their ROI is smaller than the rate of inflation, then they are losing money (unlike most workers, who often do not realize that if their salary increases by less than the rate of inflation, they're taking a pay cut.)

To be clear: I don't disagree that devaluing one's currency creates a good result. I only disagree that it can be achieved without sacrificing something (possibly something more valuable.)

However, if every country on Earth were to simultaneously devalue its home currency by the same amount, the result would be nothing. No benefit. No liability. If every country on Earth sacrifices something to achieve that, then they will have given up something for nothing.


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iNow
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Sun Jul 01, 2012 2:35 pm
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kojax wrote:
Clearly devaluing a currency is good in the current global system.

The difficulty, however, is that it loses efficacy if everyone tries doing it at once. If everyone devalues at the same time, it doesn't help since the benefit comes from the effect of outside currencies that were not devalued in parallel... Yet this bad economy is a global problem right now, so the changes need to be specific and focused. For example, if Greece were not in the Euro, they could devalue their currency right now for huge benefit. Since they ARE in the Euro, devaluing the Euro doesn't help greece relative to their european neighbors.

kojax wrote:
It doesn't always ruin an economy to deflate the currency. It depends on what else is going on.

I agree, and that's precisely my point. It is, however, quite different from the original position you put forth above.


kojax wrote:
Why do you think those investments happened? Why were there so many people just dying to lend?

My answer is: Countries such as China were trying to unload foreign currencies in order to keep their home currency low. As long as we're all competing to devalue our home currencies, there will always be hordes of lenders willing to take an unsafe bet.

I think what you're arguing is a valid point, but entirely peripheral to the recent shocks in Europe.

kojax wrote:
However, globalization had quite a hand in putting those initial conditions in place.

We are one planet, hyperconnected by commerce and business and internet. If your economic doctrine relies on such idealizations that it cannot handle or account for the reality around us, it is your doctrine that is flawed, not reality.

kojax wrote:
You realize, don't you, that for Germany to do that would be the same as if they simply forgave half the debt?

Yes, I certainly do, but it still remains the least bad option available right now to help minimize unnecessary suffering en masse... Including for the germans themselves. If you play this out a little and look longer term than just this quarters revenues and losses, you see that forgiving the debt ... as hard as it is to accept politically and emotionally... is the single best thing they could do to prevent further catastrophe. In case you're curious, similar arguments apply to the issue the US is having with underwater mortgages... If banks forgave much of that debt, the returns they received from the economic upturn would far outweigh the loss of the forgiveness.

kojax wrote:
However, if every country on Earth were to simultaneously devalue its home currency by the same amount, the result would be nothing. No benefit. No liability. If every country on Earth sacrifices something to achieve that, then they will have given up something for nothing.

Yes, there is sacrifice involved. No, there are no good options at this point. The issue, however, is that out of the options we do have to consider many will make things better... They're just difficult pills to swallow. I would not and could not, however, agree with you that these sacrifices would be done for "nothing." That is remedially false, and speaks volumes about your values.

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Mon Jul 02, 2012 8:56 am
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iNow wrote:
kojax wrote:
Clearly devaluing a currency is good in the current global system.

The difficulty, however, is that it loses efficacy if everyone tries doing it at once. If everyone devalues at the same time, it doesn't help since the benefit comes from the effect of outside currencies that were not devalued in parallel... Yet this bad economy is a global problem right now, so the changes need to be specific and focused. For example, if Greece were not in the Euro, they could devalue their currency right now for huge benefit. Since they ARE in the Euro, devaluing the Euro doesn't help greece relative to their european neighbors.


Devaluing is the basis of competition. People are competitive. We ought to expect that they will all try their best to devalue as much as they can, and end up devaluing more or less in parallel. The only variations will be due to luck or proficiency.

It's just like how in a foot race or marathon everybody runs as fast as they can. Certainly some manage to reach higher speeds than the others but nobody just stands there.

If country A devalues their home currency in an effort to gain a trade advantage against country B, and country B devalues their home currency in an effort to gain a trade advantage with country A. ...... In the end, it's actually quite possible that neither currency changes in relative value. If one does pull out ahead, it may not be by much. They've still got to expend all the effort matching one another. That portion of the effort will have simply been wasted.


Quote:
kojax wrote:
It doesn't always ruin an economy to deflate the currency. It depends on what else is going on.

I agree, and that's precisely my point. It is, however, quite different from the original position you put forth above.


Yeah. I'm starting to understand what you mean when you tell me I'm leaving important bits out.

Certainly the primary thing that we lose when we compete to devalue our home currency is the ability to use whatever financial tools we're employing, so they're not available to do other things. . Also whatever deliberate actions we take, those are areas where we're overriding the market. It might turn out that the market wanted to do something else and we prevented it.

I don't think the market of its own free will would have motivated investors to take the silly risks they took at the start of the century. They were impelled by the necessity of finding a parking place for all that currency they were trying to hold onto.


Quote:

kojax wrote:
Why do you think those investments happened? Why were there so many people just dying to lend?

My answer is: Countries such as China were trying to unload foreign currencies in order to keep their home currency low. As long as we're all competing to devalue our home currencies, there will always be hordes of lenders willing to take an unsafe bet.

I think what you're arguing is a valid point, but entirely peripheral to the recent shocks in Europe.


I think it's what preceded them. It's the powder keg that built up until a spark ignited it.

I agree that the shocks themselves are the big issue right now. However, if we only focus on dealing with them we're doomed to repeat history. I'd hate for us to borrow and spend our way out from under this only to have it happen again just as bad. We might not have enough credit to do it twice.



Quote:
kojax wrote:
However, globalization had quite a hand in putting those initial conditions in place.

We are one planet, hyperconnected by commerce and business and internet. If your economic doctrine relies on such idealizations that it cannot handle or account for the reality around us, it is your doctrine that is flawed, not reality.


My economic doctrine is that the ability of individual countries to impose tariffs is essential to regulating inter-national trade so that it doesn't all rely only on currency exchange rates. If not for these no-tariff treaties, a country that saw its currency devaluing relative to its neighbor would simply raise its tariffs.

That makes countries focus less effort on devaluing, because they know that if they do manage to gain the upper hand, the other country will be a "spoil sport" and simply raise its tariffs before they can cash in on the trade imbalance.

That's not bad. It's good. It keeps countries from competing in a self destructive way.

Quote:

kojax wrote:
You realize, don't you, that for Germany to do that would be the same as if they simply forgave half the debt?

Yes, I certainly do, but it still remains the least bad option available right now to help minimize unnecessary suffering en masse... Including for the germans themselves. If you play this out a little and look longer term than just this quarters revenues and losses, you see that forgiving the debt ... as hard as it is to accept politically and emotionally... is the single best thing they could do to prevent further catastrophe. In case you're curious, similar arguments apply to the issue the US is having with underwater mortgages... If banks forgave much of that debt, the returns they received from the economic upturn would far outweigh the loss of the forgiveness.


That's true. Also the banks do better to forgive part of a debt rather than risk the debtor declaring bankruptcy and paying them none of it.

Quote:
kojax wrote:
However, if every country on Earth were to simultaneously devalue its home currency by the same amount, the result would be nothing. No benefit. No liability. If every country on Earth sacrifices something to achieve that, then they will have given up something for nothing.

Yes, there is sacrifice involved. No, there are no good options at this point. The issue, however, is that out of the options we do have to consider many will make things better... They're just difficult pills to swallow. I would not and could not, however, agree with you that these sacrifices would be done for "nothing." That is remedially false, and speaks volumes about your values.


Think about how competition works in sports. If you're running a 2 mile race and your opponent pushes them self to the brink of passing out.... then you'd better push yourself to the brink of passing out also or you'll lose. The difference is that sports training is wholly beneficial. In the process of training to run we make ourselves healthier overall. There is sacrifice involved, but there is also a benefit realized even if you lose.

A successful economic system is also aimed at creating the beneficial side effects, not just the victory. Competition creates more efficient businesses, not because someone wins, but because of all the stuff that happens along the way to them winning. The guy who builds the best cell phone at the lowest price wins..... but he also builds a really great cell phone at a low price. That's a benefit even if you lose.

Competition to devalue one's home currency doesn't have that kind of beneficial side stuff happening. The winner is rewarded, but things they do in order to win usually aren't terribly helpful. It may not always be destructive either, but it often will be (either directly or indirectly). At best, we waste a lot of effort. At worst, we screw up our economies by interfering with them too much. Where is the "even if you lose" benefit?


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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Mon Jul 02, 2012 5:06 pm
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kojax wrote:
If country A devalues their home currency in an effort to gain a trade advantage against country B, and country B devalues their home currency in an effort to gain a trade advantage with country A. ...... In the end, it's actually quite possible that neither currency changes in relative value. If one does pull out ahead, it may not be by much.

Right, but my larger point in that exchange was that if country C... who is purchasing goods/services from countries A and B... also has to devalue its currency at the same time as countries A and B do, then effect is minimized and the benefit essentially washed out.


kojax wrote:
Quote:
kojax wrote:
It doesn't always ruin an economy to deflate the currency. It depends on what else is going on.
I agree, and that's precisely my point. It is, however, quite different from the original position you put forth above.

Yeah. I'm starting to understand what you mean when you tell me I'm leaving important bits out.

No worries. :)


kojax wrote:
Certainly the primary thing that we lose when we compete to devalue our home currency is the ability to use whatever financial tools we're employing, so they're not available to do other things.

I do not know what you mean here. Why would other options to deal with the crisis go away if they devalue their currency? They still have fiscal options and many more.


kojax wrote:
I agree that the shocks themselves are the big issue right now. However, if we only focus on dealing with them we're doomed to repeat history. I'd hate for us to borrow and spend our way out from under this only to have it happen again just as bad. We might not have enough credit to do it twice.

Fair enough, but I'm inclined to think that the cost of borrowing right now is lower than the cost of letting the situation continue to deteriorate.

Longer term, you and I are closely aligned. It's important to deal with deficits, and trade balances, and currency values in a way that ensures future strength. We don't disagree. Where the differing opinions seem to come in is with timing. You appear to want to do this now. I want us to take steps to get out of the current depression and not repeat the mistakes of 1937 where fiscal contraction was implemented too soon and the results were disastrous. Contract after stabilization, not before. Contracting now makes stability less likely, not more.

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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Wed Jul 04, 2012 2:35 am
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Peripheral, but related...

http://delong.typepad.com/sdj/2012/07/r ... reece.html
Quote:
As I say, four issues:

Q: Who pays for the fact that German banks lent money to Greek politicians who did not have a mandate to impose the future taxes needed to pay the money back? A: German banks and taxpayers.

Q: How is Greece to balance its taxes and government spending going forward? A: That's the Greeks' business.

Q: How is Greece going to balance its imports and exports going forward? A: Three possibilities: (i) continued depression, keeping Greece so poor they don't want to buy any imports; (ii) higher inflation in Germany so that Greek relative costs can gradually decline over time coupled with substantial aid from Germany to keep the costs of internal adjustment bearable; (iii) exit from the eurozone, default, devaluation, and the subsequent export boom.

Q: What happens if Greece chooses option (iii)? A: Germany faces the same dilemma then as it does now, only with Italy, Portugal, and Spain rather than Greece, and at ten times the size.

Sensible German politicians would choose option (3.ii). Senseless German politicians would try to push for option (3.i) and might well wind up with option (3.iii).

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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Thu Jul 05, 2012 6:21 am
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iNow wrote:
kojax wrote:
If country A devalues their home currency in an effort to gain a trade advantage against country B, and country B devalues their home currency in an effort to gain a trade advantage with country A. ...... In the end, it's actually quite possible that neither currency changes in relative value. If one does pull out ahead, it may not be by much.

Right, but my larger point in that exchange was that if country C... who is purchasing goods/services from countries A and B... also has to devalue its currency at the same time as countries A and B do, then effect is minimized and the benefit essentially washed out.


The problem here is that the most likely way they'll each go about devaluing their own currency is by buying up as much as they can of the other two countries' currencies and sitting on the money.

But, they can't just sit on it. They've got to do something with it or they're wasting it, so they're going to be looking around for anywhere they can invest it so it will earn interest while they're waiting to spend it (and they hope to never, ever, spend it.)

So, there are now two problems created here:

1) - Reckless investment. This is the worst one.

2) - A feedback cycle. If country A starts borrowing to bolster its stagnating economy, that immediately creates an investment opportunity for countries B and C, so they now have a place to park all those "Country A bucks" they've been holding onto. That will likely motivate them to increase the rate at which they purchase and hold onto country A's currency. (If all three start borrowing, then all three now have new places to invest, and will then choose to hold onto more of the others' currencies.)



Quote:
kojax wrote:
Certainly the primary thing that we lose when we compete to devalue our home currency is the ability to use whatever financial tools we're employing, so they're not available to do other things.

I do not know what you mean here. Why would other options to deal with the crisis go away if they devalue their currency? They still have fiscal options and many more.


All I mean here is that, for example of you are deflating your own currency to alter your exchange rate, the ability to deflate/inflate at will is a "tool", which you could use for multiple situations if you weren't being forced to use it to solve this particular problem. Sometimes you might want to inflate for a reason that has nothing to do with your international exchange rate, but you can't do that if you're already busy deflating in order to lower your exchange rate.

It's a juggling act, and it's good to leave every option open in case you need it. You don't want to need to deflate, because then you can't inflate if something comes up that demands it.

It's kind of like in Chess, when someone puts your king in check, and moving your queen is the only way to get him out of check. She might have been able to serve other strategic purposes if your king wasn't in check.

The Federal Reserve, similarly, might be able to help our economy in other ways if it isn't tied up trying to deal with our foreign exchange rates.

Quote:
kojax wrote:
I agree that the shocks themselves are the big issue right now. However, if we only focus on dealing with them we're doomed to repeat history. I'd hate for us to borrow and spend our way out from under this only to have it happen again just as bad. We might not have enough credit to do it twice.

Fair enough, but I'm inclined to think that the cost of borrowing right now is lower than the cost of letting the situation continue to deteriorate.

Longer term, you and I are closely aligned. It's important to deal with deficits, and trade balances, and currency values in a way that ensures future strength. We don't disagree. Where the differing opinions seem to come in is with timing. You appear to want to do this now. I want us to take steps to get out of the current depression and not repeat the mistakes of 1937 where fiscal contraction was implemented too soon and the results were disastrous. Contract after stabilization, not before. Contracting now makes stability less likely, not more.


Yeah. It looks like no matter which thing we do, we're going to create a runaway chain reaction. It looks like this is a question for which there is no good answer. We're damned if we do and we're damned if we don't.

There is one third option, of course, which is to simply reimpose our tariffs and isolate ourselves from this silly game until the rest of the world figures out it's a dumb game to play and quits playing it. Then both options would be good options.

Or ... actually, I guess borrowing and spending would be the better option if we did that. But only *if*.


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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Thu Jul 05, 2012 1:58 pm
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kojax wrote:
The problem here is that the most likely way they'll each go about devaluing their own currency is by buying up as much as they can of the other two countries' currencies and sitting on the money.

But, they can't just sit on it.

Sure, they can, but they can also invest it in infrastructure spending like building roads, bridges, solar power plants, schools, parks, etc.

kojax wrote:
The Federal Reserve, similarly, might be able to help our economy in other ways if it isn't tied up trying to deal with our foreign exchange rates.

They can walk and chew bubble gum at the same time, my friend. It's not like they can only do one thing and all other options suddenly evaporate because they are focused on QE. I'd be curious to learn why you seem to think otherwise.

kojax wrote:
There is one third option, of course, which is to simply reimpose our tariffs and isolate ourselves from this silly game until the rest of the world figures out it's a dumb game to play and quits playing it.

I don't think that's possible, nor really a valid option at all. I know ideologically it has a strong emotional valence with the libertarian mindset, but given the reality on the ground it's pure fantasy. To clarify, I want you to understand that when I read that comment from you, I see it like you're suggesting that, "If we poison our air too much, we'll simply prevent ourselves from breathing ever again and that will make it all better." It's like cutting off the nose to spite the face, IMO. :)

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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Jul 06, 2012 5:01 am
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iNow wrote:
kojax wrote:
The problem here is that the most likely way they'll each go about devaluing their own currency is by buying up as much as they can of the other two countries' currencies and sitting on the money.

But, they can't just sit on it.

Sure, they can, but they can also invest it in infrastructure spending like building roads, bridges, solar power plants, schools, parks, etc.


Hiring workers from where? If I'm holding a billion Chinese Yuan, I can't use those Yuan to build a bridge in California. The workers will not want to be paid in Yuan.

If I convert it to Dollars to pay them, then I'm not holding the Yuan, which means I'm allowing them to be exchanged rather than holding onto them. In that case, they'll have an impact on my home country's currency value.

Quote:
kojax wrote:
The Federal Reserve, similarly, might be able to help our economy in other ways if it isn't tied up trying to deal with our foreign exchange rates.

They can walk and chew bubble gum at the same time, my friend. It's not like they can only do one thing and all other options suddenly evaporate because they are focused on QE. I'd be curious to learn why you seem to think otherwise.


The reason anyone can walk and chew bubblegum at the same time is because one activity uses your legs and the other uses your teeth.

Your domestic fiscal policy has to be either:

A) - Deflate
B) - Hold Steady
or
C) - Inflate.

It's really hard to do any two of those at the same time. Not impossible. You could perhaps create local inflation to one part of the economy and local deflation elsewhere.

Quote:

kojax wrote:
There is one third option, of course, which is to simply reimpose our tariffs and isolate ourselves from this silly game until the rest of the world figures out it's a dumb game to play and quits playing it.

I don't think that's possible, nor really a valid option at all. I know ideologically it has a strong emotional valence with the libertarian mindset, but given the reality on the ground it's pure fantasy. To clarify, I want you to understand that when I read that comment from you, I see it like you're suggesting that, "If we poison our air too much, we'll simply prevent ourselves from breathing ever again and that will make it all better." It's like cutting off the nose to spite the face, IMO. :)



It's like if you have a big space station and one room loses cabin pressure, so you close a blast door and seal off that room.

The real value of being able to tariff, however, is more of a MADD type effect. If the other country deliberately manipulates their fiscal policy in an attempt to force an unfavorable exchange rate on you, they can anticipate that you will simply respond by imposing large tariffs and effectively cutting off trade (or at least depriving them of the benefit of being able to undersell your local businesses). Sure, they could then impose tariffs back, but the final effect is that both countries have been deprived of a trading partner.

It's somewhat like a nuclear exchange. Nobody would win, therefore nobody ever attempts it in the first place.

The problem with the current system where we leave everything up to the exchange rate, is it can end up very much like Hawley-Smoot, where the economy has to rapidly adapt to huge, sweeping changes to its import/export abilities. It sounds all social-darwinian-survival-of-the-fittest, but you've got to consider that no sane investor would ever realistically want their money floating around in that market. If it's subject to too large and frequent of price shocks, they're faced with a very high probability of their investments washing out completely in a single quarter.

http://en.wikipedia.org/wiki/Smoot%E2%8 ... Tariff_Act


They could also make a windfall profit, but how do you set up the loan to ensure the windfalls cover the wash outs? When a company declares bankruptcy, you often lose your whole investment. To make that up in another investment, you'd need a 100% or greater return on the other investment. If 75% of your investments are succeeding, and 25% are washing out, then a 33% return would be enough to cover the washouts and break even (you'll need it even higher if you want to keep up with inflation, of course). Other, more complicated combinations are going to work out using essentially the same formula. Just add up the investments, with their returns, and subtract the losses..... but it's going to pretty much always work out to a high interest rate. Uncertainty is terribly expensive.

If you keep things stable, however, then there will only ever be a very small percent of the investments going bust.


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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Jul 06, 2012 5:18 am
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kojax wrote:
Hiring workers from where? If I'm holding a billion Chinese Yuan, I can't use those Yuan to build a bridge in California. The workers will not want to be paid in Yuan.

Are you unfamiliar with the concept of exchange? Is this a serious point?

kojax wrote:
Your domestic fiscal policy has to be either:

A) - Deflate
B) - Hold Steady
or
C) - Inflate.

You can also invest, and divert, and regulate, and all manner of other things. Your list is incomplete.

kojax wrote:
It sounds all social-darwinian-survival-of-the-fittest, but you've got to consider that no sane investor would ever realistically want their money floating around in that market.

And yet they invest in it each day. Again, your position seems blind to the reality on the ground. Great as an ideal, but far too disconnected from what actually happens in the markets each day.

kojax wrote:
If you keep things stable, however, then there will only ever be a very small percent of the investments going bust.

The economy is inherently unstable, no matter what your ideology. It is an enormously complex dynamic system of trades and purchases and sales and investments and savings and creation and destruction. Stability is an illusion. At best, we find momentary equilibrium, but not stability IMO.

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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Jul 06, 2012 1:03 pm
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iNow wrote:
kojax wrote:
Hiring workers from where? If I'm holding a billion Chinese Yuan, I can't use those Yuan to build a bridge in California. The workers will not want to be paid in Yuan.

Are you unfamiliar with the concept of exchange? Is this a serious point?


If I'm holding Yuan, in an attempt to devalue the Dollar by buying up Yuan, and then I exchange those Yuan for dollars.....

Then I just undid what I was trying to do.
Quote:
kojax wrote:
It sounds all social-darwinian-survival-of-the-fittest, but you've got to consider that no sane investor would ever realistically want their money floating around in that market.

And yet they invest in it each day. Again, your position seems blind to the reality on the ground. Great as an ideal, but far too disconnected from what actually happens in the markets each day.


Really? You're seeing a lot of venture capital investors out there? I'm not. Interest rates are incredibly low, but it's for other kinds of investment. Over the last few years we've seen a lot of businesses close their doors because they simply can't get loans or float bonds to keep themselves liquid.

http://woodwardhall.wordpress.com/2009/ ... recession/


http://bizfinance.about.com/od/investor ... stries.htm

How smart would it be to give someone a 20 year loan knowing their business depends on export/import using exchange rates that are likely to fluctuate wildly? Even China isn't a good investment these days, because they're having trouble keeping their currency pegged.

Quote:
kojax wrote:
If you keep things stable, however, then there will only ever be a very small percent of the investments going bust.

The economy is inherently unstable, no matter what your ideology. It is an enormously complex dynamic system of trades and purchases and sales and investments and savings and creation and destruction. Stability is an illusion. At best, we find momentary equilibrium, but not stability IMO.


That's just silly. Of course the economy can experience varying degrees of stability. Certainly the absolute ideal of perfect stability is unattainable (just as the absolute ideal of a zero crime rate is unattainable.... but we still trouble ourselves to hire police.)

Businesses have to be able to promise some amount of consistency in their dealings with customers in order to establish and maintain business relationships. An unstable exchange rate makes it nearly impossible to afford to give them a stable price.


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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Jul 06, 2012 1:40 pm
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kojax wrote:
If I'm holding Yuan, in an attempt to devalue the Dollar by buying up Yuan, and then I exchange those Yuan for dollars.....

Then I just undid what I was trying to do.

Not necessarily. If you borrow in Yuan in order to make payments in your own currency, and you successfully make those payments, then you quite clearly did not undo what you were trying to achieve. I think it's unreasonable to assume we would only borrow in another currency to manipulate the value of our own. That tends to be a peripheral result, not the intended one. There are, of course different situations where different approaches will be taken, but you seem to assume that we'd never borrow to make payments and would only borrow to artificially change the value of our currency. Again, this is not a realistic stance to take.


kojax wrote:
Quote:
kojax wrote:
It sounds all social-darwinian-survival-of-the-fittest, but you've got to consider that no sane investor would ever realistically want their money floating around in that market.

And yet they invest in it each day. Again, your position seems blind to the reality on the ground. Great as an ideal, but far too disconnected from what actually happens in the markets each day.


Really? You're seeing a lot of venture capital investors out there? I'm not.

Yes, I am, and your personal incredulity is hardly a valid argument to the contrary.

kojax wrote:
Interest rates are incredibly low, but it's for other kinds of investment. Over the last few years we've seen a lot of businesses close their doors because they simply can't get loans or float bonds to keep themselves liquid.

I'd attribute this problem moreso to lack of demand for their products and services. That is why their doors closed, lack of demand for what they are selling, not because banks were nervous and not loaning money. That happened, too, don't get me wrong. I'd be ignorant to argue otherwise. However, I'm mostly saying that you're looking at symptoms here and not root cause. The root cause was low demand, not low rates of lending. The low rate of lending had a much bigger impact when it came to attempts to grow ones business, expand, or make capital investments, but it was the lack of demand (and consequently lack of revenues) that has caused so many businesses to make that difficult decision to close.

Also, just because the amount of venture capital investments went down during this depression does not mean there was none taking place whatsoever. Your argument is essentially that there is no investment. I said there is, and I am right as per your own sources. Decreased investment is not equivalent to none, which your position requires in order to remain viable.


kojax wrote:
Quote:
The economy is inherently unstable, no matter what your ideology. It is an enormously complex dynamic system of trades and purchases and sales and investments and savings and creation and destruction. Stability is an illusion. At best, we find momentary equilibrium, but not stability IMO.


That's just silly. Of course the economy can experience varying degrees of stability.

Then we agree here. You said that your approach was to "keep things stable." I was merely pointing out to you that the economy is global, it is complex, and there will be shocks to your system from others no matter what policy you put in place. Having a policy that prioritizes stability is fine, but you need to be able to quickly adjust and adapt when that stability is shattered. Many countries had solid balance sheets, low or nonexistent debt, steady exports and great revenues before the current depression... Yet even they suffered when the shocks in the rest of the system occurred. Stability alone is not enough, and when I read your words it sounds to me like you think it is. That's really where I'm directing the heart of my challenge. This is a topic that becomes disastrously removed from reality if we try to over simplify it.

Seeking stability is one thing. Being able to respond to the reality around us is another. That was my main point. The economy is inherently unstable. You can get closer to equilibrium, but there is no "one size fits all" approach that will protect us indefinitely like you seem to suggest. Returning to the gold standard, or becoming a jingoistic bunch of isolationists, or refusing to leverage the stability we find from adjusting the value of our currency sure won't. Look at Europe right now. The countries who have their own currency are doing fine relative those who do not have their own currency. It's not ideal to have to devalue your own currency, but it's sometimes the best of a group of bad options available to minimize the suffering and poverty of your people in both the short-term and long.

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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Sun Jul 08, 2012 8:28 pm
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iNow wrote:
kojax wrote:
If I'm holding Yuan, in an attempt to devalue the Dollar by buying up Yuan, and then I exchange those Yuan for dollars.....

Then I just undid what I was trying to do.

Not necessarily. If you borrow in Yuan in order to make payments in your own currency, and you successfully make those payments, then you quite clearly did not undo what you were trying to achieve. I think it's unreasonable to assume we would only borrow in another currency to manipulate the value of our own. That tends to be a peripheral result, not the intended one. There are, of course different situations where different approaches will be taken, but you seem to assume that we'd never borrow to make payments and would only borrow to artificially change the value of our currency. Again, this is not a realistic stance to take.


Ok, let's be clear what each other mean, then. Suppose I want to devalue USD. I would borrow USD, and go to the currency exchange and use those borrowed USD to outright buy Yuan. (Driving up the price of Yuan vs. dollars ... which is the same thing as driving down the price of dollars vs. Yuan.) Then my options with those Yuan include (not necessarily an exhaustive list, but the main options) :

A - I can purchase things in the Chinese economy. If China is exporting steel that would be beneficial to building an overpass in the USA, then my Yuan could go to use helping with that.

B - I can invest in the Chinese economy. Maybe build a factory there .... but this won't help Americans get jobs very well (indirectly perhaps.)

C - I can take out a loan in USD, using the Yuan holdings as collateral for the loan. Then I have USD in my pocket to spend locally to hire workers to build that overpass. However, this means I'm making payments on two USD loans. The one for the USD I exchanged to get my Yuan, and the one I'm now taking out again against the value of those Yuan.


Quote:
kojax wrote:
It sounds all social-darwinian-survival-of-the-fittest, but you've got to consider that no sane investor would ever realistically want their money floating around in that market.

And yet they invest in it each day. Again, your position seems blind to the reality on the ground. Great as an ideal, but far too disconnected from what actually happens in the markets each day.



I should have been clear in saying that I didn't think Venture Capital investment would ever go all the way down to zero, but I think statements like that are implied, so I often don't bother to make them. Econ is a statistical field. Statistics almost always have outliers. I should be careful not to say "nobody" when I really mean a smaller number.

When I say no right minded investor would invest, that doesn't mean there are no un-right-minded investors out there. Also there may occasionally be a situation where an entrepreneur finds a deal that's just plain so spectacular that the risk of currency exchange issues won't be enough to prevent it being profitable. There will never be more than a small number of such deals out there, so we can't rely on that to keep our economy rolling.

In addition to that, there is the stimulus packages, which very predictably make certain sectors of the economy profitable enough for long enough to justify at least a short term loan. Investors love predictability.

Quote:
kojax wrote:
Interest rates are incredibly low, but it's for other kinds of investment. Over the last few years we've seen a lot of businesses close their doors because they simply can't get loans or float bonds to keep themselves liquid.

I'd attribute this problem moreso to lack of demand for their products and services. That is why their doors closed, lack of demand for what they are selling, not because banks were nervous and not loaning money. That happened, too, don't get me wrong. I'd be ignorant to argue otherwise. However, I'm mostly saying that you're looking at symptoms here and not root cause. The root cause was low demand, not low rates of lending. The low rate of lending had a much bigger impact when it came to attempts to grow ones business, expand, or make capital investments, but it was the lack of demand (and consequently lack of revenues) that has caused so many businesses to make that difficult decision to close.


We both think the other is looking at a branch instead of a root.

A good thing to avoid is looking at sales at the store. It's not that commerce isn't important. It's just that too many market factors intersect at that point, and it becomes difficult to determine what exactly caused what.

Factories also have to consider the "demand for their product". During the 90's and early 2000's when China's currency was lower than it is now, those factories could be pretty much assured that nobody (by which I mean nobody but the statistical outliers) would demand their services. That means investors could also be assured that any money lent to those factories would not be repaid.




Quote:
The economy is inherently unstable, no matter what your ideology. It is an enormously complex dynamic system of trades and purchases and sales and investments and savings and creation and destruction. Stability is an illusion. At best, we find momentary equilibrium, but not stability IMO.


Complexity doesn't imply instability is necessary. Your human body is quite complex, and fairly stable by some measures.

Absolute stability would be an illusion, but comparative stability is not. Your body is more stable if you avoid meth amphetamines than if you use them.

Quote:
kojax wrote:

That's just silly. Of course the economy can experience varying degrees of stability.

Then we agree here. You said that your approach was to "keep things stable." I was merely pointing out to you that the economy is global, it is complex, and there will be shocks to your system from others no matter what policy you put in place. Having a policy that prioritizes stability is fine, but you need to be able to quickly adjust and adapt when that stability is shattered. Many countries had solid balance sheets, low or nonexistent debt, steady exports and great revenues before the current depression... Yet even they suffered when the shocks in the rest of the system occurred. Stability alone is not enough, and when I read your words it sounds to me like you think it is. That's really where I'm directing the heart of my challenge. This is a topic that becomes disastrously removed from reality if we try to over simplify it.


Most of those countries were hit by external forces occurring elsewhere in the global system. Left on their own they might have remained quite stable. If a country is totally isolationist, it becomes immune to those external forces. It could remain prosperous during a world wide recession. However, at the same time, it gives up some benefits it might obtain through trade. (Like the classic case of Cuba trying to grow its own wine in spite of bad soil for it..... they gain internal stability, but lose a lot of overall prosperity to get it.)

If we look at the Globe as if it were one country, it's actually a perfect isolationist economy. The globe never trades with anyone outside of its own borders. There are no external forces for it to be hit by, if it were to arrive at a stable state in the first place. However, internally it has no central authority, so I guess problems will continue to crop up from time to time due to that.

However, a basic tribal interaction is possible. There are only 196 countries in the world. It is understood in political science, that if you had a village composed of only 196 people, you really wouldn't need a lot of overarching government to maintain order. You just need a very well defined notion of individual rights, the most basic of which is the right to choose your own associations. Surrendering the right to choose associations would never work out.

Tariffs allow countries to control their interaction/associations with each other. If you think one country is acting anti-socially, you are free to not interact with that one country. It doesn't much affect your ability to interact with those countries which are acting in a way you like. This way, individual countries are free to decide that stuff on their own instead of having it dictated to them. Usually... the most anti-social members of the group are the ones who want to take that right away.

Quote:

Seeking stability is one thing. Being able to respond to the reality around us is another. That was my main point. The economy is inherently unstable. You can get closer to equilibrium, but there is no "one size fits all" approach that will protect us indefinitely like you seem to suggest. Returning to the gold standard, or becoming a jingoistic bunch of isolationists, or refusing to leverage the stability we find from adjusting the value of our currency sure won't. Look at Europe right now. The countries who have their own currency are doing fine relative those who do not have their own currency. It's not ideal to have to devalue your own currency, but it's sometimes the best of a group of bad options available to minimize the suffering and poverty of your people in both the short-term and long.


Actually, what is better than giving up the ability to adjust your currency, is having 2 or more redundant ways of achieving the same result. Redundancy is a really good thing when you want stability.

I don't think countries should lose the ability to adjust their currency. I think they should retain both the ability to adjust that, and the ability to tariff. That way, when one instrument goes wrong, the other compensates.

When I'm driving in a car with automatic transmission and I need to stop a moment to get out, I often use the parking break and leave it in neutral, just because I want to see if the parking break works. In most situations I don't need it, but I like knowing it will be there if I do. Safety on the road is essentially just another form of "stability". The more ways you have to achieve something, the less you have to worry about it if one fails.


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iNow
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Sun Jul 08, 2012 11:41 pm
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So, you think imposing massive tariffs will fix everything? How are you accounting for the effect that will have on the ~30% of our GDP that results from exports? How are you accounting for the retaliatory tariffs that would consequently be imposed on us? Are you considering how other more rogue nations will step in to fill any voids?

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marnixR
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Mon Jul 09, 2012 6:39 am
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i think it's a pretty well-known fact that tariffs slow down international trade - maybe not so much of a problem a century ago, but in the current global village it would only exacerbate the recession

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Tue Jul 10, 2012 6:46 am
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iNow wrote:
So, you think imposing massive tariffs will fix everything? How are you accounting for the effect that will have on the ~30% of our GDP that results from exports? How are you accounting for the retaliatory tariffs that would consequently be imposed on us? Are you considering how other more rogue nations will step in to fill any voids?


I'm not advocating that we instantly go from zero to 200mph in one second here. All changes have to be slow in an economy. The 30% we lose in exports will easily get made up for by those same companies gaining easier access to the domestic demand that the tariffs block other nations from accessing.

If we go slow, then any investments that have been sunk into export businesses will have time to pay themselves off before the businesses themselves become unviable. They will have time to readjust their strategies.

There's nothing inherently better about foreign demand as opposed to domestic demand. Demand is demand is demand. The problem is that, if your currency is the one that is least devalued, none of the demand out there, neither foreign, nor domestic, is willing to pay a price you can actually meet. It's kind of hard to create any kind of lasting economic growth if the market price is below your lowest possible production costs.

marnixR wrote:
i think it's a pretty well-known fact that tariffs slow down international trade - maybe not so much of a problem a century ago, but in the current global village it would only exacerbate the recession


What's so great about international trade? Domestic trade is still economic activity, and can be expected to represent a more stable and reliable form of growth.


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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Tue Jul 10, 2012 7:07 am
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I can see how, in cases where a country genuinely has the ability to offer us something we couldn't get on our own at a reasonable price, then international trade would be essential. But the rest of the time it's quite pointless.

I'm sure those foreign markets look like huge piles of gold, the likes of which we'd never find at home, but that's just the fundamental problem people always have of thinking the grass is greener on the other side. It's like how a lot of married men have trouble being faithful to their wives. Those other women around them that they haven't been with yet just seem so much better somehow.

But labor.... of all things.... labor can't really be superior in quality in one country over another, not unless their education system is just that much superior. It may seem that way, but if it does this is only because some essential factor or another is being ignored. If we benefit from trade at all, its either because the other country has a better established industry, or a natural resource, which we don't. Or (sometimes) because we have one they don't. Or (ideally) both.


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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Tue Jul 10, 2012 9:01 pm
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kojax wrote:
What's so great about international trade? Domestic trade is still economic activity, and can be expected to represent a more stable and reliable form of growth.


i'm sorry but these days you just can't live as if there's no other country on earth than the US
whether you like it or not, the global village is here to stay, which means international trade or nothing

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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Wed Jul 11, 2012 4:00 am
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Exactly. That's almost word for word what I was thinking when I previously mentioned that the approach being described is simply unrealistic and disconnected from reality.

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Thu Jul 12, 2012 12:32 pm
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marnixR wrote:
kojax wrote:
What's so great about international trade? Domestic trade is still economic activity, and can be expected to represent a more stable and reliable form of growth.


i'm sorry but these days you just can't live as if there's no other country on earth than the US
whether you like it or not, the global village is here to stay, which means international trade or nothing


In no possible sense was I suggesting that we do that. However, in any village or ordinary people, you are allowed to act as though an individual from that village didn't exist. You only interact with the people you feel like being friends with, but of course you are in a village full of people and you can't just ignore them all. That would be metaphorically akin to moving out into the hills and living as a hermit. Some people choose that option, but I don't think they're very happy.

Earth is a "village" of nations. Clearly we will do better for ourselves if we go out and make friends, and interact with the other "villagers". Just not all of them. Only the ones we want to.

Now, please stop trying to take my points and turn them into bizarre extremes. I do that to myself enough, when I forgot to word some things right. If you add to the effect, then I don't know what to do. It's going to make communication very difficult.


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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Jul 13, 2012 12:56 am
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Do you understand the concept of discriminating, or being selective about who you do and do not want to trade with openly? Closing our borders to everyone would be a waste of potential, because some of them have (and are willing to contribute) more to offer us than others.

Consider China. The advantage we should be getting out of their continual and determined devaluation of the Chinese Yuan is that we ought to be able to buy up all of their infrastructure really cheap. However, China is a command economy. Their government actively bars such sales from happening. If you want to own infrastructure in China, you have to go there and build it yourself. That means the USA is getting all the liabilities and none of the benefits of trading with them at today's currency values. We'd do a lot better for ourselves if we put up a tariff, and lightly tax the imports we accept from them. Too severe a tax would make trade next to impossible - which isn't quite the goal. Leveling the playing field (even partially) should be enough, and filling the tax coffers with some much needed revenue. (That way instead of "borrow and spend" to get a stimulus going, we could "tax and spend", while leaving American incomes available for rent and healthcare. )


Economics is based on mathematical logic, and that means you can't expect to benefit by going to extremes. Most math equations are balanced statements. The idea that any people in the field want to go to zero tariffs tells me they must be getting worse and worse at math.


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iNow
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Jul 13, 2012 3:26 am
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Standing firm against China to help our economic situation made sense in 2009 and early 2010, but does not any longer. The proposed benefits of doing so that you cite are quite minimal given the current situation (one that is made even worse as China's economy is quickly slowing in terms of growth in very significant ways right now), and the retaliatory response it would almost certainly engender would make our situation worse, not better... both in the short-term and the long.


Anyway, a lot of this discussion is about devaluing currency and handling trade issues... The four minute video at this link from just earlier today does a fine job of elaborating on this.

http://www.businessinsider.com/paul-kru ... cit-2012-7

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tridimity
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Jul 13, 2012 10:10 am

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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Jul 13, 2012 11:08 am

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One problem with extreme nationalism or autarky is that, typically, each country will have its own economic speciality. E.g. obviously some countries are abundant in particular natural resources such as oil or iron ore etc. The value of such primary resources is diminished when starved of the demand that comes from international trade. Of course this is an over-simplification, and the economies of most MEDCs are a complex and dynamic combination of secondary and tertiary sectors, but the principle still stands - different countries obviously have different things to offer to the global economy and only by working as partners can we ensure an optimal distribution of goods.

To do otherwise is economic suicide, in my opinion.

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Sat Jul 14, 2012 5:07 pm
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tridimity wrote:
One problem with extreme nationalism or autarky is that, typically, each country will have its own economic speciality. E.g. obviously some countries are abundant in particular natural resources such as oil or iron ore etc. The value of such primary resources is diminished when starved of the demand that comes from international trade. Of course this is an over-simplification, and the economies of most MEDCs are a complex and dynamic combination of secondary and tertiary sectors, but the principle still stands - different countries obviously have different things to offer to the global economy and only by working as partners can we ensure an optimal distribution of goods.

To do otherwise is economic suicide, in my opinion.


That's why it's important not to take this to the extreme. If I say that nations need to retain the right to tariff, that's kind of like saying that a car needs to have brakes. I'm not trying to say that the car should be stopped at all times. I'm just saying it needs to be able to stop when circumstances make stopping appropriate.

I agree that specialized trade can be really valuable trade. Of course, even if we're importing steel from another country, but that country also has really impoverished workers who will accept an unfair wage, and so they want to sell us cheap clothing textiles also...... we can tariff the textiles and leave the steel with no tariff. How are they going to retaliate to that? Put an excise tax on their steel to stop us from buying it?


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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Sat Jul 14, 2012 5:08 pm
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iNow wrote:
Standing firm against China to help our economic situation made sense in 2009 and early 2010, but does not any longer. The proposed benefits of doing so that you cite are quite minimal given the current situation (one that is made even worse as China's economy is quickly slowing in terms of growth in very significant ways right now), and the retaliatory response it would almost certainly engender would make our situation worse, not better... both in the short-term and the long.


I'm going to act like Mr. Krugman here and say: yeah. Circumstances change. China's Yuan devaluation is crumbing in their hands right now. If it falls all the way apart, we won't need to tariff them because their rising currency value will act like a sweeping tariff across the board, killing their ability to enter our markets all by itself.

Effectively, they've passed their own Smoot-Hawley tariff act all by themselves (only against their own exports), because they relied too much on something they couldn't really control.

Quote:

Anyway, a lot of this discussion is about devaluing currency and handling trade issues... The four minute video at this link from just earlier today does a fine job of elaborating on this.

http://www.businessinsider.com/paul-kru ... cit-2012-7


He's just like all the others. We spend to avoid a recession, and then when everything is back to normal we pay it down...... but it's the "when everything gets back to normal" part that kind of draws a cold chuckle here. What guarantee do we have that things ever will return to normal if we do this? Why wouldn't the same idiot investors make the same wildly speculative loans once people are borrowing again?

I agree that the government should take advantage of the low interest rates while they last, though. Or at least I would agree, if our system weren't borked. If there was any likelihood that the government would use the money to buy necessary infrastructure, instead of prisons it can't afford to run, or new military toys, then I'd be fully in favor of it. Also if we had good regulations in place to stop investors from just throwing their money away.

For example, if they'd start building long range HVDC power lines out of regions that have good hydro-electric power, and then setting up windmills and solar in those regions (with hydro to act as baseload and moderate the power spikes ... something hydro is quite exceptional at doing), we could begin phasing out fossil fuels in those areas. But nobody wants that right now, because then coal and natural gas would be in less demand.

But if the investment provides cheap electricity, then our industries will have an edge. Unfortunately, those industries which would benefit (and which we need very much if we want to fix our trade balance) are also the same ones that don't have very good lobbyists. I think you'll find that the political environment is the same across the board. The people who want to shut down economic growth have better lobbyists, and the government will be impelled to simply waste the money they borrow.


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iNow
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Wed Jul 18, 2012 5:27 am
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kojax wrote:
it's the "when everything gets back to normal" part that kind of draws a cold chuckle here. What guarantee do we have that things ever will return to normal if we do this?

None, but the lack of perfect scenarios does not mean we should remain here paralyzed sitting on our hands waiting and doing nothing. There are a number of very positive steps we can take, and the fact that each single step doesn't solve the whole problem or may result in some tiny percentage of downstream corruption is not a reason to avoid taking them.

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Mon Jul 23, 2012 3:44 am
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The problem is that here not "sitting on our hands" means borrowing money. If the plan doesn't work out, so we generate revenue to pay the money back, then we'll have to try something else and just be that much further in debt when we do.

What I see happening, and this may not match your perspective - which I will be curious to know more about - is every time there's a government stimulus, people go out and buy a lot of consumer goods from department stores, which creates a spike in employment as those stores need to hire more people, and ship more goods around, and pay overhead costs.... etc.

However, since a large portion of those goods are foreign imports, a substantial part of that money doesn't stay in the country. Each time a dollar bill cycles through the system (consumer-store-employee-consumer), a few cents go abroad each time and after a few cycles the whole dollar bill is gone. Then the store lays off those extra employees and everything goes back where it was.

While we may like to hope those extra cents would spur consumption in those foreign countries, thereby opening up markets for our domestic industries to sell to, ..... you must understand that the world is a big place. That stim package either has to spur all of Planet Earth's economies, or it will do us no good. This is why Austerity is taking over. Each country that wants to use stimulus packages is realizing that its efforts are ultimately futile because it can't contain that money in-country. And no one country is big enough to stimulate the whole world.

It's kind of like if your house shared its ventilation system with 195 other houses. So it's Winter, and you light a fire in your furnace. And you can't figure out why the fire isn't warming you up. Well, the reason is because the heat from that one fire is having to be shared by 196 houses. Not all of them are lighting their own fires. If all of them lit their own fires, then everyone would be warm.


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iNow
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Mon Jul 23, 2012 4:15 am
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kojax wrote:
What I see happening, and this may not match your perspective - which I will be curious to know more about - is every time there's a government stimulus, people go out and buy a lot of consumer goods from department stores...

Please provide actual examples of this happening, and also what percentage of overall stimulus expenditures went toward people going "out and buying a lot of consumer goods from department stores." It's foundational to your entire post. Shouldn't be hard to find numerous citations with actual numbers in support of this very specific point.

kojax wrote:
you must understand that the world is a big place. That stim package either has to spur all of Planet Earth's economies, or it will do us no good. This is why Austerity is taking over.

I disagree on at least two fronts. First, benefits from stimulus are trivially easy to demonstrate even when that stimulus doesn't "spur all of Planet Earth's economies." This is not an opinion I offer you, but a clear and self-evident fact. Second, regarding your point on austerity, I suggest that austerity is taking over for a different reason than "because stimulus only works when it spurs all of the worlds economies." It is IMO taking over because people are ignoring the lessons of history and turning a blind eye to all evidence that does not match their predetermined political ideology. It's much the same type of thinking that causes people to reject evolution despite the mountains of evidence in its favor, and the same type of thinking that causes people to reject anthropogenic climate change.

Why else might austerity be "taking over?" Mostly because policy makers are too often working from models that apply in non-depression scenarios / circumstances... such as when interest rates are are higher, more flexible, and have room to decrease. However, that's not the case right now. Right now, those interest rates are already pushed against the zero bound (some of them are even negative, and have been for a few years), and hence many of those models being used tend often not to apply. Again, those models they are using are great... in normal times... but these are not normal times we're currently facing... and people are failing to adjust based on the circumstances on the ground. An example about which I'm specifically aware is how people are failing to incorporate the IS-LM model in their thinking and projections. This model has proven over and over and over again these past 4 years to very accurately model what's happening in the economy, yet many of our policy makers are oblivious to it, or how failure to use it causes their existing models to fail.

kojax wrote:
Each country that wants to use stimulus packages is realizing that its efforts are ultimately futile because it can't contain that money in-country.

Rubbish. Complete and total nonsense. Direct 100% of stimulus to infrastructure projects... roads and bridges and classroom improvement... with the condition that all materials be made in country. You argue as if it's an impossibility when in reality it's quite simple.

Either way... Let's see some numbers... specifically in support of your specific point... as I requested above. What specific percentages of what specific stimulus activities have gone to nothing more than the purchase of "consumer goods from department stores?"

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Jul 27, 2012 11:52 pm
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iNow wrote:
kojax wrote:
What I see happening, and this may not match your perspective - which I will be curious to know more about - is every time there's a government stimulus, people go out and buy a lot of consumer goods from department stores...

Please provide actual examples of this happening, and also what percentage of overall stimulus expenditures went toward people going "out and buying a lot of consumer goods from department stores." It's foundational to your entire post. Shouldn't be hard to find numerous citations with actual numbers in support of this very specific point.


The ultimate goal of a stimulus is to give people an income. What do you think they do with those incomes? There are, of course, other things they spend their money on besides useless crap from a department store, such as food, housing, and transportation. Maybe some people might upgrade their apartment, or buy a nicer car, also.

Mostly, if you're increasing employment, then the picture depicted in this link here should be more or less unchanged (except that more people have incomes):

http://www.bls.gov/news.release/cesan.nr0.htm




Quote:

kojax wrote:
you must understand that the world is a big place. That stim package either has to spur all of Planet Earth's economies, or it will do us no good. This is why Austerity is taking over.

I disagree on at least two fronts. First, benefits from stimulus are trivially easy to demonstrate even when that stimulus doesn't "spur all of Planet Earth's economies." This is not an opinion I offer you, but a clear and self-evident fact. Second, regarding your point on austerity, I suggest that austerity is taking over for a different reason than "because stimulus only works when it spurs all of the worlds economies." It is IMO taking over because people are ignoring the lessons of history and turning a blind eye to all evidence that does not match their predetermined political ideology. It's much the same type of thinking that causes people to reject evolution despite the mountains of evidence in its favor, and the same type of thinking that causes people to reject anthropogenic climate change.


You mean like how you're turning a blind eye to all that does not agree with your ideology?


Quote:
Why else might austerity be "taking over?" Mostly because policy makers are too often working from models that apply in non-depression scenarios / circumstances... such as when interest rates are are higher, more flexible, and have room to decrease. However, that's not the case right now. Right now, those interest rates are already pushed against the zero bound (some of them are even negative, and have been for a few years), and hence many of those models being used tend often not to apply. Again, those models they are using are great... in normal times... but these are not normal times we're currently facing... and people are failing to adjust based on the circumstances on the ground. An example about which I'm specifically aware is how people are failing to incorporate the IS-LM model in their thinking and projections. This model has proven over and over and over again these past 4 years to very accurately model what's happening in the economy, yet many of our policy makers are oblivious to it, or how failure to use it causes their existing models to fail.


You know, you could also try giving those people the benefit of the doubt, instead of assuming you know the full extent of their reasoning for doing things.

What I'm trying to suggest is that, the "get out of the depression model" was based on the idea that, if you hire people to do a task, any task, even a very un-economically valuable task (such as fighting in a war - valuable, but not economically valuable), so they have incomes, then they will spend those incomes, and other people will get jobs providing for their needs.

However, when that system was used to get the USA out of the depression, most of the world's economies were horribly underdeveloped, and shipping was not as refined a technology as it is today. (Containerization didn't arrive until shortly after). Those people with their new incomes really didn't have a whole lot of options as to where they would spend it. It was the USA's massive production infrastructure, or Europe's shattered infrastructure, or..... you could buy bananas from South America. All alone, the USA still represented over half the whole world's GDP.

http://en.wikipedia.org/wiki/Containerization#Origins

If we try to use that same model today, we can't count on these new incomes to get spent domestically. Indeed we have to expect that a tremendous fraction of it won't be. That fraction will create jobs in other countries.


Quote:

kojax wrote:
Each country that wants to use stimulus packages is realizing that its efforts are ultimately futile because it can't contain that money in-country.

Rubbish. Complete and total nonsense. Direct 100% of stimulus to infrastructure projects... roads and bridges and classroom improvement... with the condition that all materials be made in country. You argue as if it's an impossibility when in reality it's quite simple.


Lack of infrastructure is not the problem we're facing as a country right now. Sure it would be nice to have more bridges, but we'd probably be in the same place even if we had twice as many of those things.

Quote:
Either way... Let's see some numbers... specifically in support of your specific point... as I requested above. What specific percentages of what specific stimulus activities have gone to nothing more than the purchase of "consumer goods from department stores?"


How about you support yours?

You can look at my above census link if you want to know what percent of the incomes paid out to the workers the government will hire under your plan goes to a place that is likely to end up out of country.

You're right that I'm oversimplifying when I say "department stores". There are a multitude of ways those paychecks end up flowing out of the country. I'm not going to make a comprehensive list, but I will concede "department stores" are not the whole problem all by themselves. They're just part of it.


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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Sat Jul 28, 2012 12:15 am
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I will try and illustrate this effect better.

Old version:

It's 1942. Suppose Jimbob make 1000 dollar fighting Nazis. Suppose he then spends 100% of that income, or 1000 dollars in the USA's economy. Those 1000 Dollars then become salaries for American workers. They collectively spend 1000 in the USA's economy, thereby creating incomes for another group of workers, who then spend it again in the USA's economy, thereby creating salaries that can be used to pay still another group of workers.

New version:

Now it's 2012. Suppose Jimbob makes 1000 dollars working on a bridge construction crew for the government (as part of a stimulus). Suppose he spends 90% of his income in the USA's economy, and 10% of it in foreign economies. The 90% or 900 dollars he spent in the USA's economy becomes salaries for other American workers. Suppose they spend 90% of their income in the USA's economy, and 10% of it in foreign economies. The now 81% or 810 dollars remaining of Jimbob's salary becomes salaries for still another set of American workers. Suppose they they spend 90% of their income in the USA's economy, and 10% of it in foreign economies. The now 72.9% or 729 dollars remaining of Jimbob's salary becomes salaries for still another set of American workers. Suppose they they spend 90% of their income in the USA's economy, and 10% of it in foreign economies. The now 65.61% or 656.1 dollars remaining of Jimbob's salary becomes salaries for still another set of American workers.

etc.

Do you see how the money from a stimulus can quickly dissipate? It doesn't actually matter what the exact percentage split is. Any substantial percentage of income will result in the same effect over a reasonably short length of time. As the money circulates, the benefit of the stimulus will dissipate.

Foreign economies will naturally buy from us too, but their spending will not be boosted by the stimulus so it won't represent any increase over what it was before. The stimulus only affects one part of the picture/consumer base. And as you can see from the example, the effect is pretty much always going to be short lived unless the percent of workers' income that gets spent on imports is very very small.


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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Sat Jul 28, 2012 3:23 pm
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kojax wrote:
The ultimate goal of a stimulus is to give people an income.

I think that is related to the goal, but is not the goal itself. Perhaps little more than personal opinion, but in my view the goal is to increase exchanges and transactions, and to supplement demand. The idea is that all other people who normal engage in commerce are... during times of economic distress like these... busy instead paying down debt and saving a greater percentage of their incomes to cushion themselves against disaster. That means purchasing of (aka demand for) goods and services drops, and the companies offering those goods and services lose revenue and can no longer afford to pay their workforce so lay them off. They don't need to pay employees to build or sell products and services that nobody is currently buying.

The challenge we face is that everyone is doing this at once right now. When everyone saves and focuses all expenditures almost solely on paying down debts then commerce itself comes nearly to a halt and demand itself plummets. This then has a self-reinforcing effect, wherein others also start saving and paying down debt and demand continues to fall. The idea of stimulus is to bring back that demand.

http://users.nber.org/~confer/2012/EFGs12/mian.pdf

What ultimately happens is that the government becomes a lender/spender of last resort. In normal times, this government spending would have all sorts of negative downstream effects... increases to our interest rates and increases to our deficit. We're in a very unique situation right now, however, given that aggregate demand is nearly nonexistent, and given that the interest rates are already essentially zero (and sometimes negative). This means that a failure to stimulate would actually result in MORE long-term deficit than the stimulus itself will create as the drag on the economy and lack of demand will further reduce revenues and hence cause the debt problem only to get worse. Those negative effects are also nullified by the fact that all countries are in roughly the same situation, so despite our extra spending we're still seen as a safe and secure investment. If you'd like, I CAN support this point with two or three recent papers that argue it far better than I ever could. Here's just one:

http://www.brookings.edu/~/media/Files/ ... ummers.pdf

kojax wrote:
You mean like how you're turning a blind eye to all that does not agree with your ideology?

What does this have to do with your argument for why austerity has become so common despite the vast swaths of evidence that it only makes things worse? How does this in any way address any of the specific points I put forth in response to your position? It doesn't.

I've made a very sincere attempt to support my disagreement with your points with specific reasons. I've considered your suggestions and given them respect, even when I think they are wrong and unsupported. In what way does that mean I am "turning a blind eye to all that does not agree with my ideology?" That is not fair of you to say, IMO, and I really have no patience for it.

If you think I'm failing to address or support a specific point or argument, then please be specific and ask me where and how, but just because you disagree with an argument I'm making does not mean it is unsupported.

kojax wrote:
What I'm trying to suggest is that, the "get out of the depression model" was based on the idea that, if you hire people to do a task, any task, even a very un-economically valuable task (such as fighting in a war - valuable, but not economically valuable), so they have incomes, then they will spend those incomes, and other people will get jobs providing for their needs.
<snip>
If we try to use that same model today, we can't count on these new incomes to get spent domestically. Indeed we have to expect that a tremendous fraction of it won't be. That fraction will create jobs in other countries.

I agree, a fraction of that money will create jobs in other countries. That is the nature of today's world economy. We can't wish it away or pretend it's otherwise. Even if we focus on construction and infrastructure jobs, those trucks and hydraulic shovels were built in other countries, and the metals were mined elsewhere, and the shipping industry brought them here, and that's the nature of our world today. Saying something is "made in the USA" or "made in China" is a total misnomer. It's designed in one place, mined in others, stamped in a third, and assembled in a fourth.

http://www.economist.com/economics/by-i ... misleading

None of that, however, means that putting construction workers in place to repair roads and bridges and putting solar panels on roofs and wind mills on plains and paint on schools won't give them income, won't have a positive effect when they spend that income, or no longer have to default on their loans and mortgages, or when when they can finally afford to send their kids to school. None of what you shared will take away from the multiplier effect, the increase in government revenues, and the reduction in home foreclosures that would all result from putting those people to work.

I guess I could summarize by saying that you should try to avoid sacrificing the good in pursuit of the perfect. If there's a better way, then I'm all ears, but thus far you've not shared a better way that is in any way practical or realistic, or which manages to properly scale with the scope of the problem.

kojax wrote:
Lack of infrastructure is not the problem we're facing as a country right now. Sure it would be nice to have more bridges, but we'd probably be in the same place even if we had twice as many of those things.

It would still put people back to work, and putting people back to work is the primary objective during a depression such as the one we're in. That's the point I feel you continue to miss. Even if we pay them to dig a hole and then fill it back in, they are working and that is the point. The value or importance of the work itself is quite peripheral to the point I'm making. We could pay them to paint ice cream cone images on restroom floors... They'd still be working, and that's why it's a positive thing, even though the lack of painted ice cream cones on restroom floors "is not the problem we're facing as a country right now."


kojax wrote:
You're right that I'm oversimplifying when I say "department stores".

Thank you. I appreciate you conceding that.

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Sat Jul 28, 2012 5:39 pm
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iNow wrote:

The challenge we face is that everyone is doing this at once right now. When everyone saves and focuses all expenditures almost solely on paying down debts then commerce itself comes nearly to a halt and demand itself plummets. This then has a self-reinforcing effect, wherein others also start saving and paying down debt and demand continues to fall. The idea of stimulus is to bring back that demand.

http://users.nber.org/~confer/2012/EFGs12/mian.pdf


What I need to try and understand from you, then, is how you think a stimulus would achieve this? It's a great goal, but the mechanism doesn't appear to be appropriate to it. It's like you're suggesting we use a screwdriver to loosen a bolt.

On the ground level, many people in the USA are terrified of losing their homes. The housing collapse isn't over for them, because they still own parcels of land that are worth less than the mortgage they took out to buy it. Give those people as much money as you want. They're still going to spend all of it on debt.

It's weird to think, but the economy might almost recover more in the long run if things were to stagnate so much that they all defaulted on their loans. A housing mortgage is usually intended to be a lifetime debt people only finish paying when they're like 60 or something. People knew that going in and accepted it. But right now, so many people are not comfortable with it, because the 30+ years of paying it down are like a sustained 30+ year screw up for them. Nobody wants to spend 30+ years overpaying for property that's worth less than what they are still buying it for.

It's kind of like your suggestion that Germany devalue its currency to effectively forgive half the debt they are owed. Just, in the USA, widespread bankruptcy is the easiest course to get there.



Quote:

What ultimately happens is that the government becomes a lender/spender of last resort. In normal times, this government spending would have all sorts of negative downstream effects... increases to our interest rates and increases to our deficit. We're in a very unique situation right now, however, given that aggregate demand is nearly nonexistent, and given that the interest rates are already essentially zero (and sometimes negative). This means that a failure to stimulate would actually result in MORE long-term deficit than the stimulus itself will create as the drag on the economy and lack of demand will further reduce revenues and hence cause the debt problem only to get worse. Those negative effects are also nullified by the fact that all countries are in roughly the same situation, so despite our extra spending we're still seen as a safe and secure investment. If you'd like, I CAN support this point with two or three recent papers that argue it far better than I ever could. Here's just one:

http://www.brookings.edu/~/media/Files/ ... ummers.pdf


I don't actually disagree with you that this happens.

I think one problem that we have in communicating is that I prefer to use numbers as evidence, and I especially prefer if they don't come from an editorial source. That's why I often post links to the US census or other government reports so you can see that the number haven't been "doctored" or otherwise misrepresented to make them appear more meaningful than they are.

When I describe using a "thought experiment" situation, of course I'll just make up numbers, in hopes that it will make the description easier to use. In science, we have to idealize sometimes, and just not forget what we idealized. However, the rest of the time, I use real numbers from a source I can trust, be it a respected news source or the government.

Quote:
kojax wrote:
What I'm trying to suggest is that, the "get out of the depression model" was based on the idea that, if you hire people to do a task, any task, even a very un-economically valuable task (such as fighting in a war - valuable, but not economically valuable), so they have incomes, then they will spend those incomes, and other people will get jobs providing for their needs.
<snip>
If we try to use that same model today, we can't count on these new incomes to get spent domestically. Indeed we have to expect that a tremendous fraction of it won't be. That fraction will create jobs in other countries.

I agree, a fraction of that money will create jobs in other countries. That is the nature of today's world economy. We can't wish it away or pretend it's otherwise. Even if we focus on construction and infrastructure jobs, those trucks and hydraulic shovels were built in other countries, and the metals were mined elsewhere, and the shipping industry brought them here, and that's the nature of our world today. Saying something is "made in the USA" or "made in China" is a total misnomer. It's designed in one place, mined in others, stamped in a third, and assembled in a fourth.

http://www.economist.com/economics/by-i ... misleading

None of that, however, means that putting construction workers in place to repair roads and bridges and putting solar panels on roofs and wind mills on plains and paint on schools won't give them income, won't have a positive effect when they spend that income, or no longer have to default on their loans and mortgages, or when when they can finally afford to send their kids to school. None of what you shared will take away from the multiplier effect, the increase in government revenues, and the reduction in home foreclosures that would all result from putting those people to work.


The question is on how much will stay in country. It might not be very much, because of it flowing essentially one way.

If I'm not mistaken, the idea of a stimulus is that you've got a certain amount of trade happening already, and you want to temporarily increase that trade to see if it will stay increased. For simplicity, let's imagine there are two countries, X, and Y. Country X wants to do a stimulus, so we can look at it from X's perspective. Suppose X's workers make 200 a week on average and has 500 workers (total salary 100000), and Y's workers also make 200 a week and has 500 workers, Also suppose on average X's consumers spend 10% of their money in Y's economy, and vice versa.

I'm going to leave out saving/investment even though I know they're there, and just assume all the money earned by the workers is spent to pay the other workers for stuff.

Week 1, X starts injecting it's stimulus money, spending 2000 to increase its workforce by 10, up to 510 now.

X's workers make 102,000, and spend 91,800 in their own economy and 10200 in Y's economy.
Y's workers make 100,000, and spend 90,000 in their own economy and 10000 in X's economy.

Total earnings by X, 101,800. Total earnings by Y, 100,200. Things look fine.

Week 2, X continues its injection of 2000 into its own economy, augmenting that 101,800 up to 103,800, resulting in a workforce of 519. Y's workforce climbs up to 501.

X's workers make 103800, and spend 93420 in their own economy and 10380 in Y's economy.
Y's workers make 100200, and spend 90180 in their own economy and 10020 in X's economy.

Total earnings by X, 103440, and by Y, 100560

So, I went ahead and built a spreadsheet to continue that, and by the start of the 14th week I have X's workforce is up to 594, and Y's workforce is up to 546. At this point on my spreadsheet, I turn off the stimulus (I'm assuming it only lasted one quarter, and then came to an end.)

So, Week 14:
X employment: 593.9 Y employment: 546.1

X's workers make 118780.1, and spend 106902.09 in their own economy and 11878.01 in Y's economy.
Y's workers make 109219.9, and spend 98297.91 in their own economy and 10921.99 in X's economy.

Total earnings by X, 117824.08, and by Y, 110175.92

Week 15:
X employment: 589.12 Y employment: 550.88

X's workers make 117824.08, and spend 106041.67 in their own economy and 11782.41 in Y's economy.
Y's workers make 110175.92, and spend 99158.33 in their own economy and 11017.59 in X's economy.

Total earnings by X, 117059.26, and by Y, 110940.74

You see how the jobs immediately begin to migrate? Free trade is an equilibrium generating effect. That's it's primary goal. It ensures that economic progress is always more-or-less shared by all.

Week 16:
X employment: 585.3 Y employment: 554.7

X's workers make 117059.26, and spend 105353.34 in their own economy and 11705.93 in Y's economy.
Y's workers make 110940.74, and spend 99846.66 in their own economy and 11094.07 in X's economy.

Total earnings by X, 116447.41, and by Y, 111552.59


----------------------------------------

Conclusion:

If I keep this going on out to week #26 (13 weeks after the 13 week stimulus ended), X's workforce is at 571.64, and Y's workforce is at 568.36. Admittedly most stimulus's are not perfect, so both numbers would have a likelihood of being smaller. Note that I was assuming both countries were of equal size, and spent 10% of their income in imports, so they had an even trade balance.

------------------------------------------



Do you yet see why I liken this to heating one's home? If your home's ventilation is connected to all the other homes (192 others, specifically), then as long as you have the heater turned on in your home you'll still be getting most of the heat. Once you turn it off, however, that heat dissipates until a thermal equilibrium is reached, where everyone's home is again at the same temperature. You can only temporarily receive an individual benefit. You paid the cost as an individual, but the benefit is equally shared among everyone.




Quote:
I guess I could summarize by saying that you should try to avoid sacrificing the good in pursuit of the perfect. If there's a better way, then I'm all ears, but thus far you've not shared a better way that is in any way practical or realistic, or which manages to properly scale with the scope of the problem.


If you take what I just posted seriously, then you will understand that it's not a question of "perfect". After a short time, all of the stimulus will fully redistribute. We'll keep only the same share that a communist world state would have awarded us.

It's not like only 10% or 25% of the stimulus is going to flow out of our borders. If we were 90% or 75% of the world's economy, then yes. But if we're only 30% of its economy, then ultimately 70% will be what we lose.

You just have to accept that the "stimulus" model is now an old model. It doesn't work anymore. It worked great the last time we really used it, but those conditions no longer exist. The lessons we learned from the Great Depression now have to be replaced by new lessons we learn now and in the future. We need a new strategy.

I'll also have to admit that in the process of building up that spreadsheet, I have had to come to the reluctant conclusion that tariffs won't solve that problem. Even with trade somewhat constricted, the stimulus still redistributes after a very short time. (You may see the spreadsheet if you would like. It's in Open Office since I don't have Microsoft Works on this computer. Just send me a PM with an email to send it to. Hopefully it converts.)


Quote:

kojax wrote:
Lack of infrastructure is not the problem we're facing as a country right now. Sure it would be nice to have more bridges, but we'd probably be in the same place even if we had twice as many of those things.

It would still put people back to work, and putting people back to work is the primary objective during a depression such as the one we're in. That's the point I feel you continue to miss. Even if we pay them to dig a hole and then fill it back in, they are working and that is the point. The value or importance of the work itself is quite peripheral to the point I'm making. We could pay them to paint ice cream cone images on restroom floors... They'd still be working, and that's why it's a positive thing, even though the lack of painted ice cream cones on restroom floors "is not the problem we're facing as a country right now."



Yup. And exactly that expectation is what lead to the unfortunate conclusions in the above theoretical test.

The money we pay those workers quickly redistributes to all of our trading partners, rendering the stimulus inert.


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iNow
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Sat Jul 28, 2012 10:17 pm
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kojax wrote:
It's weird to think, but the economy might almost recover more in the long run if things were to stagnate so much that they all defaulted on their loans.

No, not according to this very detailed study I shared with my previous post:

http://www.brookings.edu/~/media/Files/ ... ummers.pdf

kojax wrote:
The question is on how much will stay in country. It might not be very much, because of it flowing essentially one way.

You cannot say this in the absolute or in the abstract like you continue to do, though. What happens with stimulus money is dependent entirely on how it's designed and where outlays are directed. In much the same way that I can choose to spend my paycheck in different ways, we can design a stimulus to be spent in different ways. Despite this self-evident truth, however, you continue to suggest that it's nearly all going to flow out of the country and this serves as a foundational point to your entire position.

kojax wrote:
If I'm not mistaken, the idea of a stimulus is that you've got a certain amount of trade happening already, and you want to temporarily increase that trade to see if it will stay increased.

That's a strange definition given everything I've read. YMMV, though.

http://www.investopedia.com/terms/e/eco ... imulus.asp

kojax wrote:
After a short time, all of the stimulus will fully redistribute. We'll keep only the same share that a communist world state would have awarded us.
<...>
You just have to accept that the "stimulus" model is now an old model. It doesn't work anymore.

I disagree, and am baffled that you would suggest such a thing. I don't "just have to accept" anything that is so very clearly mistaken and misplaced.

kojax wrote:
The money we pay those workers quickly redistributes to all of our trading partners, rendering the stimulus inert.

I disagree here, as well, as our economy itself is built upon interactions and distribution movements with trading partners. The stimulus helps the economy to start functioning the way it usually does. You seem to be suggesting that getting the economy to start functioning like it usually does means the steps we took to get there are rendered moot. That's a strange perspective to me, but I understand you don't agree and that's fine.

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Mon Jul 30, 2012 2:04 pm
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iNow wrote:
kojax wrote:
The question is on how much will stay in country. It might not be very much, because of it flowing essentially one way.

You cannot say this in the absolute or in the abstract like you continue to do, though. What happens with stimulus money is dependent entirely on how it's designed and where outlays are directed. In much the same way that I can choose to spend my paycheck in different ways, we can design a stimulus to be spent in different ways. Despite this self-evident truth, however, you continue to suggest that it's nearly all going to flow out of the country and this serves as a foundational point to your entire position.


How do you propose to control what the workers do after they have the money? At some point, most of the dollars will go through a consumer's hands, and that consumer will freely make whatever decision they want to with it.

Quote:

kojax wrote:
After a short time, all of the stimulus will fully redistribute. We'll keep only the same share that a communist world state would have awarded us.
<...>
You just have to accept that the "stimulus" model is now an old model. It doesn't work anymore.

I disagree, and am baffled that you would suggest such a thing. I don't "just have to accept" anything that is so very clearly mistaken and misplaced.


Clearly I cannot and would not compel you, of course. I am surprised that you don't arrive at that conclusion, however.

It's not that stimulus' are impossible to make workable. It's just that one country expecting to stimulate its own economy doesn't make sense if its economy is closely tied into a lot of others. Clearly you're going to be stimulating all of them. It's like if you shared your income with 195 other people. If you choose to work 10 hours of overtime, and make 50 bucks, you'll ultimately only get 1 dollar of that to yourself.

Quote:
kojax wrote:
The money we pay those workers quickly redistributes to all of our trading partners, rendering the stimulus inert.

I disagree here, as well, as our economy itself is built upon interactions and distribution movements with trading partners. The stimulus helps the economy to start functioning the way it usually does. You seem to be suggesting that getting the economy to start functioning like it usually does means the steps we took to get there are rendered moot. That's a strange perspective to me, but I understand you don't agree and that's fine.


The problem is that it helps all of the economies at once. One single country is trying to pull the whole train all on its own.

If we want it to really work, what we would need is a treaty of some kind, requiring all the connected economies to pitch in their share. If every country got together and ran a stimulus at the same time (or even out of sync - but they all did it), the world economy would recover just as well as it did when the USA stimulated its own economy during WW2.

If half of them contribute, everyone on Earth will get half a stimulus. While that would still beneficial, and perhaps even enough to work (especially given how low interest rates are right now), you're ignoring the politics if that's the only part of the picture you see. China would very likely not contribute, which means that if Europe and the USA do a stimulus, China's position of power in the world would be greatly helped by it. I know it's petty, but most would not like to see that happen.


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Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Mon Jul 30, 2012 2:33 pm
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kojax wrote:
How do you propose to control what the workers do after they have the money?

I don't, but that's not the point. The point is that the specified outlays of stimulus spending are a related, but separate issue from how workers paid with that money choose to spend it.

kojax wrote:
I am surprised that you don't arrive at that conclusion, however.

I don't arrive at the same conclusion that "stimulus is an outdated model that has been shown not to work" because we have evidence from within the past 5 years that directly contradicts your assertion.

Stimulus absolutely works to generate movement in an economy that is otherwise suffering from a self-reinforcing recession or depression, and it absolutely allows workers who would otherwise be unemployed and failing to spend to go back to work, earn paychecks, and then use the monies from those paychecks to buy things and engage in commerce... hence stimulating the economy itself. For you to continue to suggest otherwise means you're completely disregarding the facts at hand and closing your eyes to the reality before us.

Now, to be clear, I'm not arguing that stimulus makes everything perfect nor am I arguing that it's the only approach. My sole point is that the data is clear that it helps tremendously and that you're quite mistaken to continue with your blind assertions that it "is a failed model." Comments like those suggest to me that you are so deeply biased by your ideology that facts cannot penetrate and that further conversation with you on this topic may possibly be a total waste of time.

kojax wrote:
It's not that stimulus' are impossible to make workable. It's just that one country expecting to stimulate its own economy doesn't make sense if its economy is closely tied into a lot of others.

As I've stated earlier, the modern economy has all countries tied closely together, and thinking that any one country can be isolated like you suggest is naive and misguided. The types of arguments you're making perhaps applied in the 1700s, but not during any time in the recent past.

I have stipulated that yes, some stimulus spending will often go out of the country due to the nature of our hyperconnected world and due to the nature of today's global economy, but I cannot agree with you that this fact suddenly means that stimulus spending does not help or improve matters within the country outlaying the expenditures. That position is so trivially wrong that it should not require my time rebutting it.

Let me rebut it simply, though. Just because a worker may use their paycheck to purchase a toy made in China does not mean their purchase fails to help their local economy in their home town. Just because that toy was made in China doesn't mean the vendor at the shop doesn't benefit from the purchase. Just because that toy was made in China doesn't mean the gas station owner where the consumer filled their tank on the way to the store doesn't benefit from the purchase. Just because that toy was made in China doesn't mean the truck driver who shipped that toy to the store doesn't benefit from the purchase. Just because that toy was made in China doesn't mean the fabric seller from Des Moines who sold the materials to the Chinese assembly plant for that toy doesn't benefit from the purchase. Just because that toy was made in China doesn't mean the border agents paid to inspect imports doesn't benefit from its purchase. Just because the toy was made in China doesn't mean... ad infinitum. That purchase by that consumer due to that money they received stimulates the economy locally and has a multiplicative impact. This logic is both true and irrefutable, and it's the same logic that applies to stimulus spending.

kojax wrote:
The problem is that it helps all of the economies at once.

But not in the same amount or with the same magnitude. This is not an either/or question, kojax. The world is not as one-dimensional as you seem to think.

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Thu Aug 02, 2012 5:43 am
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iNow wrote:

Let me rebut it simply, though. Just because a worker may use their paycheck to purchase a toy made in China does not mean their purchase fails to help their local economy in their home town. Just because that toy was made in China doesn't mean the vendor at the shop doesn't benefit from the purchase. Just because that toy was made in China doesn't mean the gas station owner where the consumer filled their tank on the way to the store doesn't benefit from the purchase. Just because that toy was made in China doesn't mean the truck driver who shipped that toy to the store doesn't benefit from the purchase. Just because that toy was made in China doesn't mean the fabric seller from Des Moines who sold the materials to the Chinese assembly plant for that toy doesn't benefit from the purchase. Just because that toy was made in China doesn't mean the border agents paid to inspect imports doesn't benefit from its purchase. Just because the toy was made in China doesn't mean... ad infinitum. That purchase by that consumer due to that money they received stimulates the economy locally and has a multiplicative impact. This logic is both true and irrefutable, and it's the same logic that applies to stimulus spending.



The problem here is that you're looking at it all as a one time transaction, rather than a repeating transaction. The goal of the stimulus is to create lasting, repeating transactions that will continue to happen again and again and again...... a long time after the money has stopped being injected into the system.

For the business relationships that have formed to be self sustaining, the money has to keep making full cycles again and again. Suppose the Chinese toy maker's cut from the sale of that toy in Wal Mart is only 5% of the sticker price. From a "one time only" perspective, that makes it seem that 95% of the money must have stayed in country.

However, it won't be a one time thing. The various middle men who handled that toy and received parts of the sticker price will become consumers themselves, buying more toys. For a one dollar toy, that means the first time through, 95 cents stayed in country. The second time through, 5% of that 95 cents will go out of country again, leaving us with 90 cents (rounding to nearest cent.) The third time through 4 more cents will be chiseled off, leaving us with 84 cents. The fourth time through, we'll be down to 81 cents.... and so on.

The expectation that some of the increase will stay with us is what fails, not the expectation that there will be an initial spike.

I know the economy itself isn't zero sum, but the financial aspect is. (Unless we're printing more money) The finances are what will kill us.

Quote:
kojax wrote:
It's not that stimulus' are impossible to make workable. It's just that one country expecting to stimulate its own economy doesn't make sense if its economy is closely tied into a lot of others.

As I've stated earlier, the modern economy has all countries tied closely together, and thinking that any one country can be isolated like you suggest is naive and misguided. The types of arguments you're making perhaps applied in the 1700s, but not during any time in the recent past.


Actually it would have been fully applicable in the 1940's. For the most part, the South America could only produce agricultural products (hence the longstanding label "banana republic"). There wasn't a lot of building of factories going on over there yet. Europe was in the process of blowing itself to bits. Japan was at war with us. Even for a while after the war was over, they'd be busy trying to recover, with help from the Marshall Plan.

Canada and Australia's economies were advanced, but miniscule in size compared to ours.

Basically, American industry had very little competition abroad. Not because we couldn't trade, but because there was little or nothing to trade.



Quote:
kojax wrote:
The problem is that it helps all of the economies at once.

But not in the same amount or with the same magnitude. This is not an either/or question, kojax. The world is not as one-dimensional as you seem to think.


And this is where we disagree. In the long run, the magnitudes ultimately become the same. It's only for the initial short stage after the stimulus begins that we feel the effect more strongly here.


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iNow
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Thu Aug 02, 2012 9:34 pm
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kojax wrote:
The problem here is that you're looking at it all as a one time transaction

Wait, what? After that huge long paragraph, THIS is your response to me? I fear that you're a bit off the reservation, my friend.

kojax wrote:
The goal of the stimulus is to create lasting, repeating transactions that will continue to happen again and again and again...... a long time after the money has stopped being injected into the system.

That may be a peripheral goal, but the goal of a stimulus is simply to stimulate a stagnant economy and to jump start or "stimulate" commerce again. We've been over this more than once already, though... so, yeah.

kojax wrote:
The expectation that some of the increase will stay with us is what fails

No, you have yet to establish this, and I would love to see you try. The numbers are not on your side with this issue.

kojax wrote:
I know the economy itself isn't zero sum, but the financial aspect is.

I cannot agree with this either.

kojax wrote:
Actually it would have been fully applicable in the 1940's.

Perhaps slightly, maybe a little, but this is 2012 and the circumstances on the ground are not the same.

kojax wrote:
Quote:
kojax wrote:
The problem is that it helps all of the economies at once.

But not in the same amount or with the same magnitude. This is not an either/or question, kojax. The world is not as one-dimensional as you seem to think.


And this is where we disagree.

We disagree in many places, that's just one more. :)

kojax wrote:
In the long run, the magnitudes ultimately become the same.

In the "long-run," we're all dead.

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Aug 03, 2012 2:03 am
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iNow wrote:
kojax wrote:
The problem here is that you're looking at it all as a one time transaction

Wait, what? After that huge long paragraph, THIS is your response to me? I fear that you're a bit off the reservation, my friend.

kojax wrote:
The goal of the stimulus is to create lasting, repeating transactions that will continue to happen again and again and again...... a long time after the money has stopped being injected into the system.

That may be a peripheral goal, but the goal of a stimulus is simply to stimulate a stagnant economy and to jump start or "stimulate" commerce again. We've been over this more than once already, though... so, yeah.


No. I'm pretty sure that is the one and only goal. Temporary stimulus would be a total waste if it weren't expected to have any long term effect.

Otherwise it would be like giving a patient continual injections of epinephrine to cure cancer. We'd be treating symptoms, but not curing the problem. All that does is buy a little bit of time.

Quote:
kojax wrote:
The expectation that some of the increase will stay with us is what fails

No, you have yet to establish this, and I would love to see you try. The numbers are not on your side with this issue.


I have to admit that clearly some of it will stay with us. At least insofar as we will benefit if the world economy is able to recover as a result of our efforts.

What we're trying to do is not unlike what Durant and the Rockefellers tried to do on Black Tuesday, by buying up stocks in the hope of preventing the stock market collapse. Except their efforts were an emergency stop gap, and ours are being done more carefully over a longer time.

http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929

You have to be really financially strong in order to prop up a whole failing market. Perhaps the USA simply overestimates its own size and strength.



Quote:

kojax wrote:
I know the economy itself isn't zero sum, but the financial aspect is.

I cannot agree with this either.


It's actually the problem with your whole theory. The economy is not zero sum because workers are often able to produce wealth that is more valuable than the sum of its inputs. However, the financial world is by necessity quite zero sum. And it's the only part of the economy that actually matters.

What China is doing right now (and I'm pretty sure they're not alone in this), is trading lots of not-zero-sum production for yes-zero-sum USD. (Approximately zero sum, anyway. Banks do inflate the currency somewhat, and the Fed allows a small amount of inflation every year.)

Then instead of taking all of those yes-zero-sum USD and buying our not-zero-sum production in return, they spend some of it on that, but spend the rest to buy our yes-zero-sum IOU's from us. So over time, the yes-zero-sum wealth in their hands increases, while the yes-zero-sum wealth in our hands diminishes.

We get more not-zero-sum wealth this way, but yes-zero-sum wealth is the only kind that really matters. At the end of the day, if they're holding all the yes-zero-sum wealth and we're holding all the not-zero-sum wealth, then they're really the ones holding all the wealth. Once we're poor enough, they can just spend a small fraction of their yes-zero-sum wealth to buy all of that not-zero-sum wealth off of us for a pittance.

Borrowing money from them in order to stimulate our own economy hastens this process. We're selling them more IOU's, and then using the money to buy more not-zero-sum wealth off of them. But we're not increasing our own supply of not-zero-sum wealth in the process. They own both the IOU, and the money we spent (at least the portion of that money that landed in their economy.) All we own is a useless knick knack.


Quote:
kojax wrote:
Actually it would have been fully applicable in the 1940's.

Perhaps slightly, maybe a little, but this is 2012 and the circumstances on the ground are not the same.


Yeah. Exactly. Circumstances are not the same. That's why what worked then shouldn't work now.

Quote:

kojax wrote:
The problem is that it helps all of the economies at once.

But not in the same amount or with the same magnitude. This is not an either/or question, kojax. The world is not as one-dimensional as you seem to think.

Quote:
And this is where we disagree.

We disagree in many places, that's just one more. :)

kojax wrote:
In the long run, the magnitudes ultimately become the same.

In the "long-run," we're all dead.


Maybe we are all dead, but our children/grandchildren/great grand children are very much alive, and have to live with the consequences of our shortsightedness.


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iNow
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Aug 03, 2012 3:00 am
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What consequences... specifically?

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kojax
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Aug 03, 2012 7:20 am
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Suppose there are two villages, in a lawless place/time. One village puts all of its effort into building granaries and growing grain to fill them. The other puts all of its effort into making guns.

At the end of the day, who has the most grain?

Now suppose one nation puts all of its effort into growing its accumulated financial wealth, and the other focuses on growing its GDP.

At the end of the day, who has the most stuff?

Even though finances may not always accurately reflect the true state of an economy, just like guns, they are ultimately the way matters are decided. If China keeps accepting our USD, trading them for IOU's (saying we owe them still more USD as yet unearned), and then accepting those USD again, eventually everything we have will belong to them. We'll have a lot of stuff, and not own it.

Our children will be paying down debts that didn't ultimately do anything for them, just perpetuated a cycle of continually more lost ownership.

The very fact you would say this:


iNow wrote:

kojax wrote:
In the long run, the magnitudes ultimately become the same.

In the "long-run," we're all dead.



Shows what your bias is. It's clear that you're only interested in the specific slice of the economy that affects you personally. Future generations can just fend for themselves, right? (While sorting out the mess after you're no longer around).

In that light it makes so much more sense for you to be determined to convince people to take out more debt so they can hire your company to ship more merchandise for them. Whether it be a bad or a good idea, your company will still earn commissions. (Indeed, they will earn exactly the same amount of money if it's a bad choice as if it's a good choice. A commission is a commission.)


I'm hoping it's not as simple as that, but the pattern is kind of hard to dismiss. I'm not fond of ad-hominem arguments, but the prospect of personal gain can be a powerful motivator against objectivity. There is no such thing as a free lunch, but some of the various import-export companies of the USA (especially oil importers) have been getting pretty phat profits over the last decade.

However, also I'd like to point out that probably your skillset would be valuable in other industries that would grow after the shipping industry declines. There's no need to doggedly support them. (If that's what's driving this.... if it's sincere belief, then I'm sorry for questioning you so.)


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iNow
Post  Post subject: Re: Tariffs vs. Currency Exchange Rates - what's the differe  |  Posted: Fri Aug 03, 2012 2:04 pm
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kojax wrote:
Our children will be paying down debts that didn't ultimately do anything for them, just perpetuated a cycle of continually more lost ownership.

Yet you didn't bother answering the actual question I posed to you. I asked what specific consequences you were referring to. I knew you couldn't support your comment with anything more than an over-idealized under-representative fiction like you've just done here with your comments about grain.

The point is simple, kojax. I've offered you numerous studies with actual numbers by people who understand this topic far better than both you and me combined. The numbers in those studies quite clearly show that your actions... while well intentioned and well meaning (I don't discount that you're genuine in wanting lower debt levels)... your actions would actually make future debt levels WORSE.

That's the point, sir. We completely align that future debt is a problem. I am simply calling you out for your proposals being misguided, and showing with evidence (not fictional stories or thought experiments, but actual hard evidence) that your position would make the long run problems worse... Exactly what you state you're seeking to avoid.

I don't discount that you sincerely believe what you're saying. I don't discount that your intentions are good, and that you want to lower future debt levels. What I do find frustrating is that the proposals you continue to make would achieve exactly the opposite, and you seem blinded to this due simply to your attachment to a certain political mindset.


kojax wrote:
The very fact you would say this:
iNow wrote:
kojax wrote:
In the long run, the magnitudes ultimately become the same.

In the "long-run," we're all dead.

Shows what your bias is. It's clear that you're only interested in the specific slice of the economy that affects you personally. Future generations can just fend for themselves, right? (While sorting out the mess after you're no longer around).

No, that's not clear at all. Talk about missing the point and flying off the handle due to a complete misreading of my comments, kojax. You remain quite far off the reservation, my friend. Good grief.

I guess my comment assumed a certain level of understanding of economic history from you. My apologies for being too subtle and assuming your level of knowledge was higher than it is. You should google that quote from me and get a better grasp of why I shared it.


kojax wrote:
In that light it makes so much more sense for you to be determined to convince people to take out more debt so they can hire your company to ship more merchandise for them.

Please cease from questioning my motives, especially when you seem to so completely lack comprehension for my actual argument. The point is that... while counterintuitive... trying to reduce spending right now in hopes of fixing the debt problem only makes our debt worse.

Also, I strongly encourage you to stop thinking about the global (and US) economy as if it functions the same way as a company. That is a terribly flawed comparison, and your equating of the two is I think part of the reason you're struggling so profoundly to understand the position I take.

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