Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

[Jim Nickerson]

Re: Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

.. is there a difference in saying and meaning of "credit contraction" vs. "debt deflation"? Because if one described what metalman did a few posts up and had asked me what he was describing I might have eventually come up with "credit contraction" but probably never would have come up with "debt deflation."

What is the difference in "credit contraction," and "debt deflation"?

Anybody.

[metalman]

Re: Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

What is the difference in "credit contraction," and "debt deflation"?

Anybody.

deflate: to reduce (currency, prices, etc.) from an inflated condition; to affect with deflation.

contract: to become drawn together or reduced in compass; become smaller; shrink.

credit: the alternative to cash in transactions.

debt: the result of a credit transaction.

credit contraction: a reduction in available credit available for transactions that will result in an increase in debt.

debt deflation: a reduction in the level of debt, the result of previous and future credit transactions related to a reduction in credit and cash.

[Jim Nickerson]

Re: Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

deflate: to reduce (currency, prices, etc.) from an inflated condition; to affect with deflation.

contract: to become drawn together or reduced in compass; become smaller; shrink.

credit: the alternative to cash in transactions.

debt: the result of a credit transaction.

credit contraction: a reduction in available credit available for transactions that will result in an increase in debt.

debt deflation: a reduction in the level of debt, the result of previous and future credit transactions related to a reduction in credit and cash.

I imagine that bit of pedantry was painful for you, metalman, but thank you for the definitions.

Well, to my brain they are the same thing, and I think your original post:

new debt is less affordable so he doesn't take on more debt, unless interest payments are falling. remember he used to be able to roll that credit card debt into a cheap home equity loan or get cash via a cheapo refi. i doubt this guy is going to take on more debt except if it raises cash. plus his credit is shrinking as the banks and credit card co. tighten lending standards.

j6p is screwed. so are the banks and credit card co. so is the us economy. big surprise... debt deflation.

typifies "credit contraction."

If there is a different economic outcome between the two, what is the difference?

Thanks again, metalman.

[touchring]

Re: Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

I think Americans are going to 'feel' inflation as China continues to move its dollar peg, or removes it altogether. When J6P has to pay twice as much for a TV at Big Box Mart, he'll realize the dollar just ain't what it used to be.

Consider a 50% move in the US$/Yuan exchange rate over time. Many domestic goods would replace Chinese imports. By pricing at or just below the inflated Chinese prices, domestic businesses would have greater revenues from which to pay increased salaries. Workers would demand it.

A 50% move will not make American goods more competitive.

What kind of impact on competitiveness would paying $230 month for a China factory worker after revaluation, versus $150 pre-revaluation?

[GRG55]

Re: Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

A 50% move will not make American goods more competitive.

What kind of impact on competitiveness would paying $230 month for a China factory worker after revaluation, versus $150 pre-revaluation?

As others have pointed out before, if wages paid were the only factor that determines competitiveness then Haiti would be the manufacturing powerhouse of the world.

A 50% currency move will improve competitiveness in the USA for a time, provided the inputs are exclusively or predominantly USA sourced. For example, producers using US made steel from US mined iron ore will gain an advantage [for a while] over the guy across the street who buys his steel from Brazil and is seeing costs rise as the Brazilian real rises. Since the Gulf currrencies are US$ proxies, I have been dealing with this exact issue on my firms international petroleum projects. Projects in jurisdictions where operating costs are not in the "dollar zone" are at increasing competitive disadvantage as the US$ has fallen, and our allocations of new project capital have been modified accordingly over recent years. A comparison of the current situation at Airbus and Boeing, is another example; as is European carmakers continued appetite to install capacity in the USA.

People seem to forget that the US is still a huge producer of energy and raw materials like coal and copper (just two examples) and food. But in the end, EJ is correct in that US located producers of these sorts of inputs, while benefiting from the lower costs to produce, are not motivated to sell at a discount to their foreign competitors (imports ultimately set the price) - and that's ultimately inflationary.

Eventually the depreciating currency advantage is eroded away by spiralling wages and salaries - and we are finally seeing that happening in the Gulf now. Eventually Boeing et al will see this too.

[Slimprofits]

Re: Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

This is a good one....I'm sending this around to friends and family, along with the press release from Hudson's book (thanks Rajiv) as a primer on the global financial system and the U.S. economic system.

If Tet doesn't refer me to ITulip in the spring of '07, than I would have stupidly overpaid for a mortgage on my first house in the summer of '07 and would most assuredly be screwed at this moment. Thank you Tet! Thank you E.J.!

[touchring]

Re: Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

As others have pointed out before, if wages paid were the only factor that determines competitiveness then Haiti would be the manufacturing powerhouse of the world.

Surely, gross wages in Germany are higher than in the US, and on top of that, they work lesser hours. If wages were the only factor, Germany wouldn't be doing that well today.

[RebbePete]

Re: Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

we're talking about the monthly payment consumer here, right? he thinks in terms of how much a thing costs this month and how much he owes this month vs how much he's making this month. it's all about cash flow. what's variable and what's fixed? he buys less gasoline, that's variable. he can drag out his debt payments, that's variable. his income is fixed. so as you say he pays back the creditor slower as inflation takes a bigger chunk of income. new debt is less affordable so he doesn't take on more debt, unless interest payments are falling. remember he used to be able to roll that credit card debt into a cheap home equity loan or get cash via a cheapo refi. i doubt this guy is going to take on more debt except if it raises cash. plus his credit is shrinking as the banks and credit card co. tighten lending standards.

I agree that, without wages rising, there's no way consumer debt can be inflated away.

One thing that would help wages a small amount to rise would be if energy costs rose to the point that importing goods from far away (e.g. China) would become cost prohibitive. This is not, however, a sure thing.

Automation crushes wages in the manufacturing arena, but the progress of automation in eliminating jobs was held at bay through the efforts of labor unions. I worked in a newspaper for a while, and the union contract demanded that about 80 people would work on a shift in a plant that only took three people to operate. Globalization has let the automation genii out of the bottle by crippling the ability of organized labor to get its way due to the threat of moving jobs overseas. So, even if jobs moved back to US soil, I doubt that they will move back in a large enough quantity to pump up wages.

The other elephant in the room is the demographic bulge of the baby boomers, who are retiring and pegging their incomes to the Social Security COLA and to the return on assets like stocks and bonds. In that sense, it turns conventional wisdom on its head - the lower the interest rates, the less they consume since they have less to spend.

PS I'm not sure gasoline is that variable for the typical wage earner. He has to get back and forth to work.

[GRG55]

Re: Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

Ask iTulip: The Bernanke Goat Rodeo and Doubting the Next Boom

Never have so many been promised so much by leaders with so little intention to pay up.

by Eric Janszen

Interest created by the “Next Bubble” Harper’s article that's now available online has put me way behind on mail from subscribers. Unfortunately, I can’t answer all the great questions. I’ll focus on two that are representative...

Whence Funding the Next Boom?...

...Q: Given the losses foreigners (and Americans) the Fed's rate-dropping, will there be the wherewithal to fund another bubble? For example, if the dollar continues to drop, and with low interest rates, surely buying dollar-dominated assets is a losing proposition.

A: After the last major debt deflation in the US in the 1930s, FDR went to primary wealth holders in the US with an offer better than their counterparts were getting in Europe at the time. In the current instance, the US is a debtor not a creditor as it was in the 1930s, and so the onus is on US creditors to help the US not default on its debt. They are motivated to assist the US in managing its debt deflation and rolling recessions without further externalizing these, as the US has already by allowing the dollar to depreciate over 35%. The US will offer its creditors a workout deal composed of: one, inflating away of debt; two, the sale of capital and assets via sovereign wealth funds, treasury purchases via appropriations, and central bank funds; and three participation in the re-industrialization of the US via investment in for-profit P3s and start-ups developing next generation national transportation, energy, and communications projects and technologies. In this way, China, Japan, and oil producers can invest their dollar denominated reserve assets, such as treasury bonds, that they cannot spend at home. This will also have the effect of reducing dollar depreciation, thus reducing losses to inflation...

And here's the President, right on cue. bill, your worst nightmare just came true... :p

Peak Oil Passnotes: Owned (by China)

By Edward Tapamor

14 Mar 2008 at 01:50 PM GMT-04:00


PARIS (ResourceInvestor.com) -- President George W Bush was speaking to a group of senior economic figures at the Economic club of New York Friday, quipping merrily, as he usually does. He was trying to reassure his elite audience, saying the U.S. should allow access to its markets just as others should allow the U.S. to access theirs.

Of course this rings true for the collected great and the good as the sheer size and scale of the U.S. economy can wreak a profitable mayhem when allowed access to other country’s fiscal systems. It has worked brilliantly in the past, cotton farmers can attest to that, in the U.S. they are more of a protected species than the bald eagle.

One of the special items President Bush pointed out was that sovereign wealth funds – many of them from the middle east - should be allowed to buy up assets in the U.S. “because it is our money anyway,” he said to his only round of applause and much laughter. “We might as well get it back,” he added.

http://www.resourceinvestor.com/pebble.asp?relid=41220

[FRED]

Re: Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

And here's the President, right on cue. bill, your worst nightmare just came true... :p

Peak Oil Passnotes: Owned (by China)

By Edward Tapamor

14 Mar 2008 at 01:50 PM GMT-04:00


PARIS (ResourceInvestor.com) -- President George W Bush was speaking to a group of senior economic figures at the Economic club of New York Friday, quipping merrily, as he usually does. He was trying to reassure his elite audience, saying the U.S. should allow access to its markets just as others should allow the U.S. to access theirs.

Of course this rings true for the collected great and the good as the sheer size and scale of the U.S. economy can wreak a profitable mayhem when allowed access to other country’s fiscal systems. It has worked brilliantly in the past, cotton farmers can attest to that, in the U.S. they are more of a protected species than the bald eagle.

One of the special items President Bush pointed out was that sovereign wealth funds – many of them from the middle east - should be allowed to buy up assets in the U.S. “because it is our money anyway,” he said to his only round of applause and much laughter. “We might as well get it back,” he added.

http://www.resourceinvestor.com/pebble.asp?relid=41220

That is just horrific: "We might as well get it back"? We've traded our fixed assets for consumables. See Finster's Capital Injections Unspun.

[jk]

Re: Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

That is just horrific: "We might as well get it back"? We've traded our fixed assets for consumables. See Finster's Capital Injections Unspun.

[GRG55]

Re: Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

Do you think they spent any time talking about faith and freedom, or just gabbing about the oil price and the bonar? :rolleyes:



Excerpt from an interview with Bob Schieffer of CBS News on October 13, 2004.

GEORGE W. BUSH: First, my faith plays a big part in my life. That’s when I was answering that question, what I was really saying to the person was that I pray a lot. And I do. And my faith is a very—it’s very personal. I pray for strength. I pray for wisdom. I pray for troops in harm’s way. I pray for my family. I pray for my little girls. But I’m mindful in a free society that people can worship if they want to or not. You’re equally an American if you choose to worship an almighty and if you choose not to. If you’re a Christian or you’re Muslim, you’re equally an American. That’s the great thing about America is the right to worship the way you see fit. Prayer in religion sustains me. I receive calmness in the storms of the presidency. I love the fact that people pray for me and my family all around the country. Somebody asked me one time, well how do you know? I said, I just feel it. Religion is an important part. I never want to impose my religion on anybody else, but when I make decisions, I stand on principle, and the principles are derived from what I am. I believe we ought to love our neighbor like we love ourself. That’s manifested in public policy through the faith-based initiative where we’ve unleashed the armies of compassion to help heal people who hurt. I believe that God wants everybody to be free—that’s what I believe, and that’s one part of my foreign policy. In Afghanistan, I believe that the freedom there is a gift from the almighty, and I cannot tell you how encouraged I am to see freedom on the march. So, my principles that I make decisions on are a part of me and religion is a part of me.

What I really want to know is how good is King Abdulla wielding a chain saw and clearing brush?

[Slimprofits]

Re: Ask iTulip: The Bernanke Goat Rodeo and the Next Boom

That is just horrific: "We might as well get it back"? We've traded our fixed assets for consumables. See Finster's Capital Injections Unspun.

Fred, it gets worse, until you remember that one of the President's main tasks is to attempt to maintain confidence in the system.

President Bush Visits the Economic Club of New York:

...And after 52 consecutive months of job growth, which is a record, our economy obviously is going through a tough time...

[..]

...Wages have risen...

[..]

...I respect Ben Bernanke...

[..]

...I believe strongly that NAFTA has been positive for the United States of America, like it's been positive for our trading partners in Mexico and Canada...

[..]

...Let me talk about another aspect of keeping markets open. A confident nation accepts capital from overseas. We can protect our people against investments that jeopardize our national security, but it makes no sense to deny capital, including sovereign wealth funds, from access to the U.S. markets. It's our money to begin with. (Laughter.) It seems like we ought to let it back... (Applause.)

I listened to the audio and the people in the audience appeared to be laughing along with Dubya on that one.