Crisis 2011 – Part I: The Other Shoe - Eric Janszen

[Sharky]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

Having been prominent in this part of the debate; I will be pleased if you would also share with us all your own answer as to how you see, from your own viewpoint, what they should do. (I should explain, I am trying to widen this debate, not in any way demeaning your own response).

The obvious part is to take actions that result in increasing production within the US. Since production = wealth, that's the only long-term solution.

Exactly what those steps should be is less obvious, but still reasonably straightforward; the US needs to become more competitive. Why did companies move to China in the first place? It wasn't just GATT and cheap labor.

Specific suggestions:

1. Radically reduce regulation
2. Remove legislative support for unions (no forced bargaining, etc)
3. Abolish the minimum wage
4. Drastically reduce government spending
5. Cut and simplify income taxes (personal & corporate), on the road to eliminating them entirely
6. Decrease the true cost of capital by encouraging saving (first step: have interest & dividend income be tax-free)
7. Eliminate taxes on capital: capital gains tax, inheritance tax, gift tax, property tax, etc.
8. Sell as many government assets to private parties as possible (privatization)
9. Eliminate all subsidies and other forms of tax or financial support that have encouraged companies to move offshore
10. Strictly enforce laws against fraud of all kinds
11. Privatize the education system

I realize this sounds like a third-world "austerity" program of some kind -- and perhaps that's partly what it is.

Government alone is not going to solve the problem. The best thing they can do is to get out of the way, to allow innovators, entrepreneurs and risk-takers to do their thing.

BTW, note that I'm suggesting what I think should be done, not what I think will be done; they are two very different things. In fact, what probably will be done is close to the opposite of what I'm suggesting, at least in the near term.

[herbkarajan]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

Stagflation worked in the 70's because the UK/US were "Closed loop" econermys.....it worked because:-

A. Wages could chase inflation (very high levels of emplyment)
B. Badly informed public.

Open your eyes and look beyond U.K, the West's been underwriting global expansion (on the backs of the bottom half of its own population) for the better part of two decades. 70's style inflation will work "very well" for the 4 billion people in China, India etc.

Raising prices for necessities in the West may seem cruel, and it is, but several years down the line, when the remaining companies realize their input prices are coming down while the margins stay 'fat' because all the competitors are gone, they may actually hire a few people.

[herbkarajan]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

important interview, here's the working link
http://www.youtube.com/watch?v=4PQrz8F0dBI

of course, we're almost a generation later after 'globalization' and events Goldsmith describes. The paradox which Goldsmith doesn't explore is that the only way to quickly 'industrialize' China (et al) was to engage 'animal spirits' of businesses which took advantage of the labor arbitrage and brought in capital and know-how. Whether 'they' will finally start to consume what 'we' make is at the heart of the 'rebalancing' debate happening right now

[Sharky]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

An big issue regarding China is that ownership rights there are not as strong as American corporations have been lead to believe. When large corporations in the US moved their factories to China, they retained either total or at least partial ownership. However, they have forgotten, or chosen to ignore the fact that in spite of the recent success and progress, China is still communist at its core. If (when) their economy goes into the tank, it seems very likely to me that there will be lots of "nationalization" -- the confiscation of foreign-owned industries by the Chinese government. If you don't think it's possible, just look at what happened in Russia, Cuba, Iran and Venezuela. The scale would be larger here, but the underlying politics / philosophy in China isn't really much different than those other countries, and it's the philosophy that makes such things possible.

[ViC78]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

EJ,

You seem to acknowledge the run up in oil prices is at least partially due to the finite oil supply. You don't explicitly attribute it to the rising demand for oil in China and India, but I assume you understand this. You seem to go on to attribute it's price-rise solely to an increase in the money supply. You may be exaggerating for effect, but if not I fail to see the support for this hypothesis. If you have the data correlating as much, I would like to see it.

From my reading, the assertion that the price fluctuation are due to the money supply does not seem well supported, particularly as the rise in commodities seems to be easily explained by supply and demand. See, e.g., Causes and Consequences of the Oil Shock.

Do you attribute the 2007 run-up to an increase in the money supply? The subsequent 60% drop due to a decrease in the money supply? Or are you making the argument that the fluctuations in the money supply affect/reflect supply and demand?

I was going to pose the exact same question. The flow chart describes 3 inputs to the oil price increase, but then, in the explanation, EJ accuses the Fed of exporting inflation to the emerging market economies. I have been reading up on the Indian food inflation spike and lot of it is attributed to the poor and unseasonal weather conditions which depleted grain stocks.

I would be very curious to know if someone has attempted to separate these different causality factors in terms of impact on food/oil inflation.

[Chris Coles]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

May I also add the point about what seems to be occurring; a systematic, revolving series of natural disasters, one following the other around the planet. last year it was Russia and Grain, has anyone noted that the Queensland rains have damaged the grain harvest expectation for next year as there is much land that will not be accessible for some indeterminate period. The world economy may not be sufficiently robust to ride a continuing series of such events.

[ThePythonicCow]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

See also: http://James Goldsmith discusses glo... 1994 (55min.)

Link kaput -- try Charlie Rose November 15 1994

[ThePythonicCow]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

No.........i don't agree you, for the 1st time since i posted on Itulip......i disagree with you.

Holy smackers. I take a few days off from iTulip and miss reading this in real time? Who'da thunk? That'll teach me.

Eric they painted themselves into a conner, by mistake or plan there is NO WAY OUT NOW......you can't un-hit the iceberg mate.

Oh ... there's a way out, ol' chap. The same way out as after they sunk the Lusitania (to incite America's entry into World War I) or sunk America's aging battleship fleet at Pearl Harbor (to incite her entry into World War II). WAR !!

Not this year, I don't think. First we get the world economic body slam that EJ is describing to us. Keep your pantry well stocked. If you have a garden, tend it well; if not, consider planting one. The biggest event of 2011-2012 that EJ left out, in my view, will be world wide food shortages. EJ will still eat well; I'm sure he need not worry for himself or his family. But many humans will not. I anticipate the WAR will follow sometime thereafter; not just regional colonizations (aka War on Terror) but something more riveting for the global human population. I will not state here who I think will be the enemy. It would bring too much ridicule to this good forum to go into that here and now.

There is always a way out. It might just be a tad brutal. Hang in there however. If civilization survives in anything resembling its present form, the technology brought forth during the coming war will solve our energy problem.

[shiny!]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

Oh ... there's a way out, ol' chap. The same way out as after they sunk the Lusitania (to incite America's entry into World War I) or sunk America's aging battleship fleet at Pearl Harbor (to incite her entry into World War II). WAR !!

I don't see how War will benefit our economy this time around, since we don't even manufacture most of our own equipment anymore. Things might be assembled here, but AFAIK most of the components are made in other countries. It's not like WWII when we ramped up factory production in a huge way. Now, war might mean more jobs in other countries but not here.

We've been at war for the last decade, and during that time our national debt has exploded while factories have shut down and manufacturing jobs have been lost. What will more War, bigger War accomplish? All War is good for now is draining what precious oil remains at an accelerated rate.

But since it's you I'm arguing with and you're generally the smartest kid in the class, all I can assume is that I'm misinformed or overlooking something.

Hang in there however. If civilization survives in anything resembling its present form, the technology brought forth during the coming war will solve our energy problem.

I sure hope you're right.

[Chris Coles]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

Holy smackers. I take a few days off from iTulip and miss reading this in real time? Who'da thunk? That'll teach me.
Oh ... there's a way out, ol' chap. The same way out as after they sunk the Lusitania (to incite America's entry into World War I) or sunk America's aging battleship fleet at Pearl Harbor (to incite her entry into World War II). WAR !!

Not this year, I don't think. First we get the world economic body slam that EJ is describing to us. Keep your pantry well stocked. If you have a garden, tend it well; if not, consider planting one. The biggest event of 2011-2012 that EJ left out, in my view, will be world wide food shortages. EJ will still eat well; I'm sure he need not worry for himself or his family. But many humans will not. I anticipate the WAR will follow sometime thereafter; not just regional colonizations (aka War on Terror) but something more riveting for the global human population. I will not state here who I think will be the enemy. It would bring too much ridicule to this good forum to go into that here and now.

There is always a way out. It might just be a tad brutal. Hang in there however. If civilization survives in anything resembling its present form, the technology brought forth during the coming war will solve our energy problem.

The trigger will be sea levels rising much faster than anyone has predicted.

[ThePythonicCow]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

I don't see how War will benefit our economy this time around, since we don't even manufacture most of our own equipment anymore.

I too doubt it will help the economy much, except perhaps for those working in the military, intelligence and aerospace industries.

I sure hope you're right [about finally solving our energy problem.]

I should caution you and any lurkers that I've been off reading some weird sites lately. So take my predictions above with a dump truck full of salt:

[shiny!]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

I too doubt it will help the economy much, except perhaps for those working in the military, intelligence and aerospace industries.

Financially speaking, an all-out major war now would be the equivalent of "suicide by cop" on a sovereign scale. I seriously think we're already in WWIII but it's a currency war and only the Oligarchs will win.

[Sharky]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

I don't see how War will benefit our economy this time around, since we don't even manufacture most of our own equipment anymore. Things might be assembled here, but AFAIK most of the components are made in other countries. It's not like WWII when we ramped up factory production in a huge way. Now, war might mean more jobs in other countries but not here.

Nuclear war could change the game quickly. Imagine a nuclear strike that destroys the production capacity of some "competing" countries -- followed by lots of jobs in the US to build replacement factories.... All paid for by raiding the resources of countries like Iraq and Afghanistan. It is, of course, an insane game, but that's how some people think.

[Jay]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

. I will not state here who I think will be the enemy. It would bring too much ridicule to this good forum to go into that here and now.

Aliens. It's the only enemy that makes sense in an exponential world. Get ready for the show.

[lakedaemonian]

Re: Crisis 2011 – Part I: The Other Shoe - Eric Janszen

Nuclear war could change the game quickly. Imagine a nuclear strike that destroys the production capacity of some "competing" countries -- followed by lots of jobs in the US to build replacement factories.... All paid for by raiding the resources of countries like Iraq and Afghanistan. It is, of course, an insane game, but that's how some people think.

I'm in the "less than likely" camp, for now, as far as believing a MAJOR regional or inter-regional war will break out in the next few years.

Lots of counter insurgency, brush fire social disruption/insurrection, increasingly desperate efforts to maintain regime survival, etc...hell yeah....LOTS of that.

But if I was to game a scenario where I think the US MAY be able to maintain it's relative military/economic/political dominance for another generation it would be a scenario involving Pakistan/India/China.

If Pakistan finds it necessary to divert attention away from it's domestic terminal cancers by attacking India by proxy AGAIN...eventually India will HAVE to respond(it's patience thus far since it's Parliament was attacked by Pakistani ISI backed terrorists and numerous other major incidents is notable, but not unlimited), and MAYBE the next time the US fails(intentionally or unintentially) to de-escalate a future crisis and allows a future crisis to "cook off" into a real war....as in 1965 or 1971 or the tit for tat nuclear testing or Kargil 99.

India has also been developing a "cold start" war doctrine.....an ability to launch combined arms warfare, on very short notice, against either Pakistan or China.

It's a bit like a 3 way Cold War, with a long and consistant history of going hot both directly and via proxy.

It probably wouldn't take much to push them over the edge(action), or to prevent them from falling off the edge(inaction).

If Pakistan/India cooked off with the use of nuclear weapons(probably the greatest risk of use anywhere in the world), it would surely drag China into it.

I could also imagine an effort to drag the United States into it.

The US simply dragging it's feat(allowing the conflict to fester and spark) and aggressively declaring a cordon sanitaire around Pakistan/India/China and letting the combatants burn themselves out with the threat of total destruction from the US if the combatants attempted to expand the conflict beyond the cordon, represents a Machiavellian wet dream for the continuation of US global military/economic/political dominance for another generation.

Pakistan/India/China have limited capability to directly attack the United States using conventional/nuclear means. Attempting to do so would cause casualties, and result in the attacking nation being turned into a self-lit parking lot.....so again from a Machiavellian perspective, it could be easily argued that the risk is acceptable.

It would also allow an outstanding and easy opportunity to effect considerable and necessary reform in the US, wipe out a lot of excess global industrial capacity, eliminate a lot of competition for Peak Cheap Oil, provide an opportunity for the US to reindustrialize, and leave the US solely in charge of a Bretton Woods Redux.

The US currently possesses the greatest military "overmatch" against all of it's likely opponents in both conventional and nuclear capability.

It is at it's multi trillion dollar apex/apogee, it cannot maintain this relative overmatch capability indefinitely.......so would it not make sense in some folks minds to leverage this capability if/when the opportunity presented itself randomly or coincidentally?

Pakistan is a toilet...who knows how it's going to end(probably quite badly), but if Pakistan's leadership continues to use blackmail, brinksmanship, and the threat of geopolitical "suicide by cop" who's to say their bluff doesn't get called?

While I think this "capability + opportunity scenario" is just a razor sharp sliver of a possibility......I do wonder if it could swiftly change from possibility to probability.

I'm going to step back from the dark doom stuff now, and go back to just the grey and uncomfortable stuff...like when/how to change from cash to more energy/gold/silver/? to try and maintain my family's PPP.

Just my 0.02c