Us Managed Trade - Not A Good Idea

[Craig Read]

In general I favor US foreign policy, eradicating terrorism, rebuilding Iraq and Afghanistan and tax cuts and freeing up capital. I am less favorably impressed with the US' international economic policies.

-Steel tariffs; this costed thousands of US jobs and $600 Billion in higher costs - all to buy the votes of Pa., and Ohio. Dumb.

-Lumber tariffs; the tariffs are warranted but probably not at the level they are at now [29 %]. A lower tariff would do better and should have been done a while ago. Again housing costs, construction costs and the like have costed the US economy. Dumb.

-Currency; I can't stand it when gov't manages its currency. The US wants China and Japan to unleash their currencies. This is stupid. What it means in the US is inflation will rise as more US $ are printed. [The Fed reserve only impacts interest rates and money supply, interest rates will only go higher not lower] and the Yuan and Yen will plummet stifling growth. Good one.

-Agro Subsidies; I am sickened by the $80 Billion increase in aid to mostly large industrial farms while poor farmers in the 3rd world literally die. I hate this type of moronic posturing [the EU is the King at this]. Dumb.

US - make your economic policy fit with your foreign policy - make it relevant, intelligent and coherent. Repeal these measures and tear down these walls Mr Bush !!

[Cameron]

In general I favor US foreign policy, eradicating terrorism, rebuilding Iraq and Afghanistan and tax cuts and freeing up capital.

How well do they do this? In my view, not very well.

-Eradicating terrorism; You are going to have to chase these guys through the streets or get foreign governments on your side to help you. You can't do it from the air or in battle tanks. (hint hint - old school CIA work)

-Rebuilding Iraq and Afghanistan; Afghanistan is still a hot bed. From what I've read is that they have a good handle on Kabul but that's it, outside the city it is still hit-and-miss. More work is needed. Iraq, the US can't do it on their own. People are upset because they don't have anything too look forward as of now. You need to give them hope to stop retaliating, infrastructure is the key, jobs and prosperity. You have to make them believe that this invasion is really going to better their lives. (I know that it is probably just the extremists, but the whole country seems in an up-roar).

-Tax cuts and freeing up capital; no objections here. Put more money back in the pockets of the people, affordably, don't screw yourself over to do this.

[theloniusfleabag]

Dear Mr. Read and Cameron,

Very good posts, perhaps a few of us 'left-wingers misconstrued your stances to compare Bush 'like unto God'.

The 'tit for tat' tariff war, especially in the Canadian softwood lumber issue, has hurt both economies.

As to terrorism and Afghanistan, the Russians only managed to secure Kabul, and none of the countryside. Kabul was then isolated and attacked concentrically, resulting in the backwards Muslim Hilbillies defeating (with some US aid) a far larger and more technologically advanced, but dependent, force. France and the US lost in Vietnam this way, I can't believe the lessons are forgotten so quickly.

As for Iraq and Afghanistan, democracy will never be introduced effectively or for any period of time unless the majority of the population renounces Islam. Another lesson here, of commiting the majority of resources to the wrong battle.

Tax cuts? Yes, in a socialist country such as Canada, too much income tax costs the economy. The GST, as hated as it is, is better than 60% income tax. Less taxes off the paycheque means more disposable income. It will get disposed of, believe me. Tax luxuries at a higher rate, and drop income tax correspondingly, and for pete's sake, STOP WASTING IT!!Our tax system could look WAY more reasonable if it weren't for flagrant waste such as the gun registry, welfare(not that I feel it should be abolished, just institute work-for-welfare),etc, etc, ad nauseum.

[nova_satori]

Steel tariffs; this costed thousands of US jobs and $600 Billion in higher costs - all to buy the votes of Pa., and Ohio. Dumb.

Us tarrifs often produce second rate products. Get rid of the steel tarrifs. Belethem steel might perish, but this is evolution of business.

Agro Subsidies; I am sickened by the $80 Billion increase in aid to mostly large industrial farms while poor farmers in the 3rd world literally die. I hate this type of moronic posturing [the EU is the King at this]. Dumb.

Where are you getting that $80 billion in EU subsidares stats?

For example, the US Congress has just approved (May 2002) a $182.28 bill subsidy for US agro-business over the next decade, making a joke of Washington's "free trade" proposals

Please use a website for raw data

Currency; I can't stand it when gov't manages its currency. The US wants China and Japan to unleash their currencies. This is stupid. What it means in the US is inflation will rise as more US $ are printed. [The Fed reserve only impacts interest rates and money supply, interest rates will only go higher not lower] and the Yuan and Yen will plummet stifling growth. Good one.

Wow, you don't understand economics. The US governemnt manages its currency to regulate inflation. A high inflation rate will make banks essentially useless, CDs will not sell, treasury bonds will not sell, T bills will not sell, mortages will not be bought, loans will dry up, a massive part of the US economy will simply cease to function. You're a complete idiot.

[nova_satori]

Currency; I can't stand it when gov't manages its currency. The US wants China and Japan to unleash their currencies. This is stupid. What it means in the US is inflation will rise as more US $ are printed. [The Fed reserve only impacts interest rates and money supply, interest rates will only go higher not lower] and the Yuan and Yen will plummet stifling growth. Good one.

Do you mean the US government or governments in general?

Inflation in their countries isn't always bad for the US.

[RB]

Nova

Wow, you don't understand economics. The US governemnt manages its currency to regulate inflation. A high inflation rate will make banks essentially useless, CDs will not sell, treasury bonds will not sell, T bills will not sell, mortages will not be bought, loans will dry up, a massive part of the US economy will simply cease to function.

before you post ad hominem appeals, look at a bigger picture. your post is lame and insufficient to the matter of inflation. post you are debating above is VERY correct in its analysis. It looked at the entire monetary equation, well you can't make credible arguments without all the variables.

so all i am going to do is to restate what is essentially said already that inflation:

- causes a noninal increase in interest rate

- creates tax distortions, as inflation goes up the tax rate on capital gain did not change

- pushes people into higher income tax brackets (called creeps)

-creates money illusions, people accept reduce real wages

- here is the only point you mentioned that inflation is more variable as it increases therefore bonds etc. is risker

- affect growth outputs (in the long run) for the yen

today our inflation rate is 1.7 which is excellent, if you like the low inflation prepare to accept higher levels of unemployment

but i disagree that banks should not control money supply, and manage the interest rates. one of the benefits of inflation is money creation, can result in less borrowing and lower taxes.

[nova_satori]

Rb, Everything i said DOES happen when inflation and interest rates skyrocket.

Fewer people take loans, fewer people take morgagaes, T bills and bond see a decrease in sales, short term CDs will suffer, even 30 month cds will suffer, many people are caught in ridiculous rates they will be paying through the nose for years,

here is the only point you mentioned that inflation is more variable as it increases therefore bonds etc. is risker

Riskier? More like suicide. Unless inflation rates quickly fall, and one can buy at a high interest rate, bonds are ridiculous. Should inflation rates stay at a high rate, you will have far less of today's money, then tomorrow's, then if rates were at a normal 4-6%. Inflation rates rarely ever fall enough to make it worth while.

[Craig Read]

Nova is right. The management of currency ie. Yuan and Yen to revalue upwards, means the US $ will be revalued down [all things being equal]. To achieve this the US will have to print money, this is inflationary. If you look at the 10 yr T bill rates, interest rates will go up since economic growth is accelerating and if the M1 supply goes up interest rates will increase further to dampen inflation and excessive economic growth.

This however will cause economic problems for consumers, businesses that need credit [higher rates] and investors [more volatile markets].

Not smart.

However US foreign policy is bang on. Terrorism will be eradicated in a long war. You don't sit supine, stupid, and mumbling like the Clintonians did, as terrorists attack your assets.

I have posted long threads on this in other parts of the forum.

Tax cuts are vital for economic growth and wealth creation. History proves this [Reagan cuts, Clinton's cuts etc], that revenues actually go up not down.

What the US has to do is CUT spending. This means eradicating whole programs, cut discretionary spending and for God's sake throw the Hitlery socialised drug plan into the dustbin.

The international economic policy stance of Bush is however, not a good one.

Tariffs, subsidies, and the like do nothing to stimulate investment, needed reforms or help the poor gain access to your markets.

Managing your currency is likewise a dumb idea. China and Japan need to grow, not be subject to diving currencies and erratic capital flows.

This is stupid. John Snow the Treasurer I thought was smarter than this. I guess he is bowing to political pressure to 'bash' the Chinese and Japanese.

I hate this type of posturing.

[RB]

nova_satori

no one would like to invest where r are high, this contributes to slow economy, leads to recession, over valued dollar etc.

when policies are in place to curb inflation such that it really should not rise, and if it does, more dilemmas, well, it also slows growth performance so what happens then the bank increases money supply, and the rest of the stabilizers follow esp. price, and mostly speak of money flows, value of money.

There are some economists who share a sentiment that the central bank should stop financing the budgets and governments should concentrate on balancing the same and eliminate deficits, increase competition and accountability.

the US would like to make inflation = 0 or eliminate it altogether, this apparently is a stability, in Canada our policy is to keep inflation at 1% or 3% anything higher is proven a detriment to the economy.

If you calculate a cost association of keeping inflation at a low level, then you can agree that both monetary and fiscal policy is needed to protect a domestic economy, trade and currency exchange.

put good policies in place, stabilizers will do a good job.

the last thing that is needed excessive undue pressures of public on governments.

[Craig Read]

You need 4 things in place to have a good economy:

1. Low taxes

2. Budget spend at 30 % or lower of GNP

3. Stable Monetary policy

4. Transparent Regulatory model.

Canada misses on 1,2, and 4.

This is one reason why Americans are 30 % better off than Canadians.

[RB]

the way the economies are today, the US and canada need to protect itself first.

Regarding those currency

china (65%) and japan (36%) reserves in the bank is by far the largest in the world. if they decide to fix their money against the us dollar - their current account increases in surplus

the americans would not like the asian currency appreciate and they are more incline to an exhange rate regime (this is not happening) - the trouble is the us is accumulating in foreign debts, and china is not helping with imbalances, and making a long-term problem worst.

with japan its financial system is not stable and hence locking reserves into a weak economy.

so the US rightfully want to twist some arm - telling the yen what to do - keep it down

japan with some good monetary and fiscal policy and a good inflation policy can get out of its spiral

but its what is best for the US economy and canada

[Craig Read]

You understand almost nothing about economics.

By forcing a currency to revalue or devalue you are affecting domestically:

1. Inflation - money will be printed

2. Interest rates will increase

3. Disposable income rates drop.

This is bad for the economy not good.

The US is posturing to appease domestic interests - China and Japan need stable currencies not depreciating currencies. Bush is caving in to domestic political pressure not sound economics. Bashing China and helping exporters who fund the Bush campaign - both to win votes - is behind the decision.

Like I told you many times before RB you don't understand economics.

[RB]

the only sentiment i confer with is that i don't buy into politics which i summarise as artful dishonesty in all its glory and sophisication as it realates to what is government

so again the US is protecting its interest. I don’t see the US currency falling is causing EVENLY disturbance against other currency - yes. The trade deficits for the US is growing, their current account deficit is the highest in history ever at 5% of their GDP. Your American buddies are importing more than they are exporting and among other reason given: one is immigration, and more likeable one a bountiful supply always of goods from fast supply region such as china. china and japan are nuisances to create a balance of trade. get this if the exch. rate falls - prices do not fall. you should know about keeping market share, china would rather cut profits than raise prices.

the asians are preventing the US an adjustment to the current account.

[Craig Read]

Look it, you don't read the posts or want to understand them.

Japan and China are not hurting the US trade balance.

For god's sake 1/2 of Chinese exports are US and Western owned firms re-exporting back to the West. Trade balances also don't show FATS [trade in services] so the trade deficit is meaningless. In any event so what if we buy cheap oranges from Cali instead of growing them in Manitoba is that bad ? Of course not. Ditto for cheap plastic toys made in China.

Managed trade is made to gain votes and public approval.

By printing inflation, disrupting Chinese and Japanese economic growth which will reduce imports and by engaging in xenophic behaviour, the US is hurting not helping its self interest.

All to buy some votes.

[RB]

the chinese are hurting the US economy and are in violation of currency manipulation of World Trade Organization and International Monetary Fund agreements.

here is what is happening:

- yuan is peg at some fix rate against US dollar

this means that

- exports to the US is cheap, foreign goods to china is expensive

- china intervention in foreign exchange market with artificial trading band results in huge surplus

- china is using``currency manipulation'' to gain a trade or competitive advantage - this is a violation

- yuan that is undervalue have negative impact on the US production - result job losses and business closures

- surprise - yuan also impacts the euro

china is not playing fair

what is good for the US is good for Canada.

so all the US is rightfully suggesting to china is for them to create a free floating currency that is let the market decide the exchange rate based on demand and supply

[Craig Read]

RB, you truly have no idea what you are talking about. Fixing your currency is good policy, especially for developing countries and contravenes no trade rules. What are you talking about ? The WTO has nothing to do with currency controls.

Flexible exchange rates fail - er you live in Canada which has seen its 'flexible' exchange rate turn into a depreciating currency. Or did you forget ? I know living in the greatest socialist experiment sometimes dulls your vision of reality. NOT one example exists of a flexible currency regime that has worked not ONE. The Bretton Woods system collapsed in 1971 and during the 70s and early 80s we had hyperinflation, wage and price controls, beggar thy neighbour trade policies and major currency swings. The 1985 Plaza accord was put into place to stablise this chaotic environment. Any country that does not tie its currency to either the U$ or Gold experiences huge economic dislocations. Look at Canada - for jobs it relies on the cheap dollar which is another TAX on consumers and a sop to special export interests.

Currencies are stores of value, affected by trade, FDI, investment flows and currency speculation. The C$ is not highly regarded but the U$ is for sound reasons.

China is RIGHT to fix its currency to stabilise its monetary policy.

What it needs to do is to remove capital controls which is another matter entirely.

No the US policy is wrong and stop making up stories on unfair trading practices. Currency relationships do not fall under the WTO.

[RB]

sounds good dear craig

since '01' emerging stockmarkets have risen by 11%...

guess who has seen the biggest increase in total market capitalisation over a four year period -- over this same period the american's s&p 500 index suffered twice that size

inflation for the US is about 2.2

right out of "the economist" page 98

a worry exist about deflation: core CPI growth fell to 1.3% the lowest annual rate since 1966

the job situation "weak"

in order to bring the current account deficit to say 3% of GDP the dollar needs to fall by 15-20% and closer to 35% to balance - these are works of KEN Rogoff, Harvard, and Fed Bergsten of the Institute for International Economics

point is there is a major trade deficit and there are also oriental mercantiles.

it must end, otherwise suffer the above consequence.

its not envy why John Snow went to china

http://www.ustreas.gov/press/releases/js692.htm

[Craig Read]

Deflation ? Does not exist. The Fed Reserve already discounted that. They were trying to talk up the bond market. A move that failed by the way and destabilised the markets.

Inflation is running at about 1.5 % per year - T Bills rates are going up to about 5 % to reflect this plus higher corporate profits are built into the 10 yr rates. The rate curves are classic economic recovery curves.

I don't think you understand economics to be frank.

[Craig Read]

What is your point exactly ? I stated that managed trade is bad and hurts the domestic US economy. You come up with some wild idea that China 'must be punished'. Why ? I have already listed many reasons why this argument is false, and you have refuted none.

This is endemic on this site - either people don't read or don't understand or blather without topic knowledge.

Deflation ? Does not exist. The Fed Reserve already discounted that. They were trying to talk up the bond market. A move that failed by the way and destabilised the markets.

Inflation is running at about 1.5-2.0 % per year - T Bills rates are going up to about 5 % to reflect this plus higher corporate profits are built into the 10 yr rates. The rate curves are classic economic recovery curves.

You mention both deflation and inflation existing so either you are confused or maybe you mean that in reality some sectors go up in price some down. This is the right view but overall due to energy prices and other goods, inflation is about 1.5%.

There is however 0 correlation between the Deficit and the dollar's value regardless of what Bergsten a liberal economist might think. The US ran trade deficits in the recent past as the $ went up. Other factors affect the $ value not deficits, though traders will take deficits into consideration in currency exchanges. However deficits by themselves do not have a large impact on $ value.

The trade deficit by itself does not drive the economy. 75 % of US economic activity is domestic and domestic only. As i stated before FATS are not in the trade numbers and re-exports are not discounted. 50 % of China's exports are from Western countries. MNCs account for much of world trade and deficits per se are meaningless measurements.

China is being bashed for domestic special interests and voter nationalism. That is all.

I don't think you understand economics to be frank, plus like many others here you don't read the posts.

[RB]

Craig Read

-Currency; I can't stand it when gov't manages its currency. The US wants China and Japan to unleash their currencies. This is stupid. What it means in the US is inflation will rise as more US $ are printed. [The Fed reserve only impacts interest rates and money supply, interest rates will only go higher not lower] and the Yuan and Yen will plummet stifling growth. Good one.

the point is about currency - goverment fiat on the yuan. fixing the yuan on the dollar in nineties when asia was in financial dire straits was applauded, today the yuan is very much undervalue, creating much surplus reserves, and china is having a ball at "competitive advantage". try coming up with a better solution? the yuan must float like other currencies for all the reason i have been talking about.

don't be cheeky about reading the posts i am far from being disrespectful of opinions. i actually enjoy the forum and have mostly good intention. i confess there is so much to gather that i shall surely never have enough information i seek so i admit i know nothing.

i believe the debates here are of symbolic representation of what is all good, bad and evil about history, civilisation, war, godliness, affairs of the world, death, comsumerism, the detrimental environment, war, media, materialism, etc. where the idealist, the realist, the dreamer, a genuine, a spiritual person, the ignorant all find their way to walk amongst the politics who if only in the spirit of politics changes and find that deeper meaning and responsibility in the self and to their own country is a feat.

thats all.

Rita

[Craig Read]

read my post again, i have no idea what you just said.

[RB]

you say trade deficit do not drive the economy but i believe it is far too important not to take notice. the US has always carried large deficits, but you don't want

"repeat of the mid-1980s, the last time anxiety over the deficit reached a peak, when the Group of Seven leading industrial nations agreed to encourage a fall in the dollar in order to make U.S. goods more competitive. The dollar ultimately lost about half its value"

plus unless the US can take on more debts foreign investment will be unlikely. there is a portfolio-analysis done by catherine mann on this

deficits is not an just an economics issue, or political issue but shows negative in a balance sheet.....however it your easy way out for protectionism which i hope is in the works for china - get going US instate some tariffs - we need to get your economy going, to keep canada trade on track

so what is the size of the issue at hand?

HUGE - U.S. trade deficit with China, which totaled a record $103 billion last year and could reach $130 billion in 2003. The trade gap with China accounts for about a quarter of the total U.S. trade deficit, which reached a record $435 billion in 2002. problem needs to be reconcile.

other points raised, WTO rules clearly prohibit currency manipulation. China is doing exactly this – for the pass 5 years the rate was fix against the US and even though it is assessed curretly much higher the chinese government is keeping it at the same rate. so pressure is for currency appreciation – is it wrong to reflect the value of your currency. plus they have significant trade advantage over others with the lower currency.

Understandably a stable exchange rate is a natural anchor for domestic monetary policy with less of currency risk. The downside is what I disapprove they have no basis for shocks, and prone to crises, no autonomy for capital liberalization. They need to adjust the currency to reflect its worth. If china wants to support global and free trade it has to float the currency. And they can float with a band range. they become flexible, and shock absorbable. plus help fix the trade deficit incur with the US. so i suggest china be taken to the WTO for violation of currency manipulation.

Regarding inflation

To aug. 03 inflation rate is 2.2 for the US – along the post you mention what happens here – try approaching zero inflation and then head into deflation

So regarding deflation

The interest rates are currently low – the question is how much lower can it go – to zero – and what if prices continue to fall. Deflation becomes bad news

Popular thinking about deflation

“a fall in prices while interest rates stay at zero will lead to increases in real interest rates, which is the nominal interest rate adjusted for expected changes in general prices. example, if prices are falling at an annual pace of 5% the real interest rate will be 5%. If deflation is proceeding at a pace of 8% per year the real interest rate will be 8%. Consequently, deepening in deflation amounts to a rise in real interest rates, which in turn undermines aggregate demand and pushes the economy into a severe recession”

this might seem contradictory, but the point about inflation is consumer prices rose by .3% and inflation rose to 2.2 to august. because growth fell (significant) the worry exist YET for deflation

but i have to sign out now, i am yet to cover your : managed trade etc.

add-on sept. 9

i might as well add that canada is also wanting the chinese to float their currency.

VANCOUVER, Sept 10 (Reuters) - Bank of Canada Governor David Dodge urged China on Wednesday to float its currency, the yuan, at some point and not manipulate it "for its own ends"

and canada's currency exchange regime is to be applauded now anyway for taken the advantages of floating, an independent currency with a balanced anti-inflation, anti-deflation policy can only served the country well.

Friday, September 05, 2003

Speaking to a round-table of business and political leaders, Bank of Canada David Dodge said floating exchange rates had been good for Canada, helping cushion blows to an export-dominated economy from volatile commodity prices.

"Based on Canada's long experience with a floating currency, I can certainly say that it has served us well"

here is a link to tell why floating is good for canada

http://www.bis.org/review/r001208a.pdf

and perhaps can apply it to the other economies