Krugman Has His Backside Handed to Him

[gwynedd1]

Re: Krugman Has His Backside Handed to Him

You're now assuming that the US cannot keep dollars from leaving - therefore that the US cannot control its own currency.

Absolutely. Show me a country that was able to control PMs from leaving the country though they tried.

This is patently false - both because the control of the currency isn't about the physical location or use of the currency, it is the value of the currency.

Its pretty much another axiomatic concept that the flow of money is immensely important to its value. Otherwise, hoarding would not cause depressions which is axiomatically the rise in value of money in circulation. You seem to think governments can just declare its value. If that were true then worn out British coin would never have made it back to Britain who were the last to eat its face value as an annoying expense. The rest of the world weighed out its content in gold and if it was found lacking it went back to Britain for face value. Fixed bi-metal systems suffered the same fate.


Marx is a useful gatherer in his bibliography:

See “Theorien von der Masseinheit des Geldes” in “Zur Kritik der Poll Oekon. &c.,” p. 53, seq. The fantastic notions about raising or lowering the mint-price of money by transferring to greater or smaller weights of gold or silver, the names already legally appropriated to fixed weights of those metals; such notions, at least in those cases in which they aim, not at clumsy financial operations against creditors, both public and private but at economic quack remedies, have been so exhaustively treated by Wm. Petty in his “Quantulumcunque concerning money: To the Lord Marquis of Halifax, 1682,” that even his immediate followers, Sir Dudley North and John Locke, not to mention later ones, could only dilute him. “If the wealth of a nation” he remarks, “could be decupled by a proclamation, it were strange that such proclamations have not long since been made by our Governors.” (l.c., p. 36.)

The US can devalue the dollar (as it has been doing so for the past few years) much as reserve status of the dollar acts as a strengthening mechanism. ZIRP is just one of the ways by which the US can force the dollar lower, much as high interest rates can be used to prop up a currency's relative value.

The lower interest rate implies a greater circulation and increase in supply. Your statement is axiomatically incorrect. And since the dollar has continue to strengthen despite low interest rates, it is both the demand and supply for the dollar that sets its value, not its decree.

As for your example of 'pumping money' out of the country - perhaps you can be more clear what you are saying. Is a strong dollar good or bad for trade deficits? The US built its present level of trade deficits on a strong dollar, but the present weak dollar isn't reversing the trend back to surpluses.

I don't know that I gave an example, but the dollar carry trade is pretty obvious. So you say we have deficits because of a strong dollar? Its because the dollar is the reserve currency. Any other currency with such a low interest rate would be considered the last place to store value. The dollar is not weak even though you say it is. It cannot be decreed to be weak. The market will decree and at 1.5% yields there is not trouble to sell them.

The problem, though, isn't the fundamentally limited nature of any resource - including foreign nations' willingness to accept US dollars.

The problem was sustained US deficit spending leading into a serious trade deficit. The form of the denominator thus is arguably irrelevant whether gold or fiat US dollar.


Because the entire point of Bretton Woods was to use gold as a neutral exchange medium to even out trade imbalances hence currency imbalances over time. But the US chose to not allow its domestic economic policies to be affected by the curbs imposed by the Bretton Woods agreement - and so broke out of said regime.

It defaulted only like a bully who borrows lunch money. I suppose we may have thought after the expense of WWII and the Marshal plan there was some justification...

Even today - does anyone doubt that a US dollar debt owed to anyone is unpayable? Just fire up the printing presses.

You can't pay off the debt with printing because fiat money is debt.Money is always a debt instrument.

I think the dichotomy is that you're thinking dollars leaving the US is a bad thing.

Yes because its unearned income and all the way back that makes a place more like Sparta. I think rentier societies suck. Wall Street has done nothing to convince me otherwise.

It is not. If some other nation is willing to collect a bunch of pieces of paper (or more likely electronic 1's) in return for physical goods, this would seem a great deal for everyone in the US. Literally something for nothing - since the US has all sorts of barriers to prevent these dollar holders from acquiring major US assets with said dollars.

It could be used wisely. If we purchases resources and industry yes, but it seems that we just buy junk from China.

It is also not a bad thing because the US controls the value of said dollars. At any time, the US can devalue the worth of all existing dollars everywhere with the push of a button. The impact of this devaluation on Americans could be easily nullified by a straight helicopter drop. The problem we're having is that the former is being done, but the latter isn't - and that is a political issue.

Sure we can default again but without an industry it would be harder to keep that military. I know what you are saying. It is an advantage of sorts, but it is an unearned income. It is however no advantage to depend on it. Norway had this dilemma too. They chose the sovereign fund over leisure for their oil wealth.

Point blank the dollar is not just making us rich. Its making Wall Street rich and they took that wealth and corrupted our political system. Bank loans made minorities in third world countries rich too. It leads to oligarchy.


Now be that as it may, I generally agree with you about the main cause of our issue. Hudson's article "Trade Theory Financialized " went to a hard copy for me to read on the train.

[c1ue]

Re: Krugman Has His Backside Handed to Him

Absolutely. Show me a country that was able to control PMs from leaving the country though they tried.

Great Britain in the mid 1800s. Started the Opium war in order to slow/stop the flow of silver out to China.

And it worked.

Its pretty much another axiomatic concept that the flow of money is immensely important to its value. Otherwise, hoarding would not cause depressions which is axiomatically the rise in value of money in circulation. You seem to think governments can just declare its value.

Hoarding isn't what causes depressions. Bubbles coupled with poor government policies do.

As for fiat value - isn't the very definition of fiat a declaration of value? Even if you choose to focus on the value of the fiat - there are also innumerable cases where government has declared the value of currency.

Am I saying that any government can unilaterally control, to the last iota, the value of its currency? No, because that's where black markets and international trade comes in.

However, to say that governments have no control is far more false than to say governments have great but not perfect control.

The lower interest rate implies a greater circulation and increase in supply. Your statement is axiomatically incorrect. And since the dollar has continue to strengthen despite low interest rates, it is both the demand and supply for the dollar that sets its value, not its decree.

Theory says so, but the actual facts surrounding the present US ZIRP as well as the Japanese ZIRP is 100% counter to what you've stated above.

I don't know that I gave an example, but the dollar carry trade is pretty obvious. So you say we have deficits because of a strong dollar? Its because the dollar is the reserve currency. Any other currency with such a low interest rate would be considered the last place to store value. The dollar is not weak even though you say it is. It cannot be decreed to be weak. The market will decree and at 1.5% yields there is not trouble to sell them.

I've been very clear on why I think the US has large trade deficits: it is due to the lack of domestic competitiveness due to FIRE.

You are the one who is saying that the dollar's value and foreign currency's relative value to the dollar is the structural cause of the deficits.

The dollar carry trade has nothing to do with trade deficits, by the way - it is a pure monetary phenomenon of borrowing money in the US to invest into higher interest rate deposits abroad.

It defaulted only like a bully who borrows lunch money. I suppose we may have thought after the expense of WWII and the Marshal plan there was some justification...

That may be, the fact still remains: even with a 'gold standard', the US was still able to create a trade deficit and chose to change standards rather than change its policies.

You can't pay off the debt with printing because fiat money is debt.Money is always a debt instrument.

This is untrue. The way money is circulated into the public in the US today is via banks, thus new money is debt in some way, but this is not the only way money can be introduced. Don't you remember the Helicopter Ben deal?

Yes because its unearned income and all the way back that makes a place more like Sparta. I think rentier societies suck. Wall Street has done nothing to convince me otherwise.

I agree with your sentiments, but dollars leaving the US is not exclusively be due to rentiers.

It could be used wisely. If we purchases resources and industry yes, but it seems that we just buy junk from China.

Again, the point wasn't the value of what was acquired for the various pieces of paper/bits in a computer. The point is P/C economic output is being obtained using FIRE output.

Sure we can default again but without an industry it would be harder to keep that military. I know what you are saying. It is an advantage of sorts, but it is an unearned income. It is however no advantage to depend on it. Norway had this dilemma too. They chose the sovereign fund over leisure for their oil wealth.

Point blank the dollar is not just making us rich. Its making Wall Street rich and they took that wealth and corrupted our political system. Bank loans made minorities in third world countries rich too. It leads to oligarchy.

Now be that as it may, I generally agree with you about the main cause of our issue. Hudson's article "Trade Theory Financialized " went to a hard copy for me to read on the train.

I think we are in agreement that the present reserve currency status of the US dollar, as well as the petro dollar standard, are giving the US one or two 'get out of jail free' cards.

At some point, however, the free ride ends. Then what?

[gwynedd1]

Re: Krugman Has His Backside Handed to Him

Great Britain in the mid 1800s. Started the Opium war in order to slow/stop the flow of silver out to China.

And it worked.

I don't think the "invisible hand" of market forces includes acts of warfare at the sovereign level. That is to say that what I am talking about is the collective result of self interest in a market system.

Hoarding isn't what causes depressions. Bubbles coupled with poor government policies do.

That is another axiomatic statement. At the top of a bubble, people see no place to spend it, so by the inverse of that truth, it is hoarded and it is not a virtuous cycle.

As for fiat value - isn't the very definition of fiat a declaration of value? Even if you choose to focus on the value of the fiat - there are also innumerable cases where government has declared the value of currency.

And that has failed every time I can think of. This is especially specious a concept given that the dollar is not redeemable as a guarantee for 1 of anything. Thus the current value is really estimated to be what you are buying that day.

Am I saying that any government can unilaterally control, to the last iota, the value of its currency? No, because that's where black markets and international trade comes in.

They could but then its a command economy. You need troops to stop dollars from going to a place where there is demand. Other than that, its back to supply.

However, to say that governments have no control is far more false than to say governments have great but not perfect control.

They have control because they control the supply.

Theory says so, but the actual facts surrounding the present US ZIRP as well as the Japanese ZIRP is 100% counter to what you've stated above.

How is the dollar, and the yen, not doing exactly what I have said? At 0 interest theory states the currency should be weak. If people still hoard it, its not weak.

I've been very clear on why I think the US has large trade deficits: it is due to the lack of domestic competitiveness due to FIRE.

And its Dutch disease causing currency. Why work when you can print?

You are the one who is saying that the dollar's value and foreign currency's relative value to the dollar is the structural cause of the deficits.

How can I be the only one when I am taking his theory verbatim? . What did you think when he meant trade deficits? It means we don't pay for imports because the dollar will not be redeemed. Dollar are debt and when they are not redeemed the debt for the product is not repaid. Why is this so hard to understand?

The dollar carry trade has nothing to do with trade deficits, by the way - it is a pure monetary phenomenon of borrowing money in the US to invest into higher interest rate deposits abroad.

Dollar carry trade have everything to do with it if they are not redeemed in the US.

That may be, the fact still remains: even with a 'gold standard', the US was still able to create a trade deficit and chose to change standards rather than change its policies.

But that is a debt, not an inflationary phenomenon. This is straight MMT. The dollar is acting as money, not debt as it did prior to 1971.

This is untrue. The way money is circulated into the public in the US today is via banks, thus new money is debt in some way, but this is not the only way money can be introduced. Don't you remember the Helicopter Ben deal?

Where are the helicopters? The only other place we get money besides bank credit is by government running deficits and Fed market operations. Where else does it come from?

I agree with your sentiments, but dollars leaving the US is not exclusively be due to rentiers.

There are tourists of course.

Again, the point wasn't the value of what was acquired for the various pieces of paper/bits in a computer. The point is P/C economic output is being obtained using FIRE output.

I think we are in agreement that the present reserve currency status of the US dollar, as well as the petro dollar standard, are giving the US one or two 'get out of jail free' cards.

At some point, however, the free ride ends. Then what?

As stated from the same work some centuries before Christ, oligarchy shares the risk, but the rewards are reserved for the few. So it will either remain as bad as it is for some time, or it will get worse. However is one nice thing about being an oligarch today. Their national ties hardly matter anymore.

[c1ue]

Re: Krugman Has His Backside Handed to Him

I don't think the "invisible hand" of market forces includes acts of warfare at the sovereign level. That is to say that what I am talking about is the collective result of self interest in a market system.

That's because while the concept of the invisible hand is fine, the reality of the market includes all sorts of non-objective actions like the Opium War, like monopolies, like collusion, fraud, etc etc.

The point remains: there are plenty of examples historically where an outflow was stopped. Another example: the Commonwealth. By imposing differential tax rates for exports out of the Commonwealth vs. exports within the Commonwealth, the Britain at a stroke refocused much of the rest of the British Empire to deal primarily with the home islands.

The pound sterling was the reserve currency then, I might also note, but no "Triffin's law" then.

That is another axiomatic statement. At the top of a bubble, people see no place to spend it, so by the inverse of that truth, it is hoarded and it is not a virtuous cycle.

I think that has some truth, but absolutely not all truth. For one thing, wealth during a bubble consists of both real and fictitious elements. Thus during a crash overall wealth usually falls as the fictitious elements return to where they came from. The debt accumulated during the bubble, however, remains. Thus it is not absolutely clear how much people are 'hoarding' vs. trying to service too much debt with too little wealth.

And that has failed every time I can think of. This is especially specious a concept given that the dollar is not redeemable as a guarantee for 1 of anything. Thus the current value is really estimated to be what you are buying that day.

Really? So the present US policy of weakening the dollar is failing? Certainly there are examples where overt manipulation has failed, but there are equally examples where it worked (Malaysia 1999 another prime example).

They have control because they control the supply.

So in other words, you agree with me.

How is the dollar, and the yen, not doing exactly what I have said? At 0 interest theory states the currency should be weak. If people still hoard it, its not weak.

The yen is weak? It was 300 to the dollar in the 70s, it is now 70-ish to the dollar despite 2 decades of ZIRP.

And its Dutch disease causing currency. Why work when you can print?

For one thing, the people who need jobs aren't the ones printing money.

How can I be the only one when I am taking his theory verbatim? . What did you think when he meant trade deficits? It means we don't pay for imports because the dollar will not be redeemed. Dollar are debt and when they are not redeemed the debt for the product is not repaid. Why is this so hard to understand?

Perhaps you can be more clear, because if you're referring to Triffin, he never said that the outcome of having a reserve currency was the subjugation of domestic interests (hollowing out or whatever you want to call it) to the needs of international trade liquidity.

This entire discussion exists because you are taking one side of what Triffin said, and made it a law. The author of the dilemma doesn't think it is, and so far it is far from clear how you can justify your belief.

Dollar carry trade have everything to do with it if they are not redeemed in the US.

You are unfortunately quite ignorant. The entire point of a dollar carry trade is to START by redeeming in the US by taking out a dollar debt. But be that as it may, the point is still that the dollar carry trade has zero impact on the US trade deficit.

But that is a debt, not an inflationary phenomenon. This is straight MMT. The dollar is acting as money, not debt as it did prior to 1971.

Heh, you are I think completely lost in the woods. You've spent many lines saying that the US government cannot helicopter drop because all of its ways of issuing money involve debt, and now you're saying dollars aren't debt, they're money.

Where are the helicopters? The only other place we get money besides bank credit is by government running deficits and Fed market operations. Where else does it come from?

Bush sent checks out to every American. Nothing says Obama or whomever the next President(s) are cannot do the same thing.

There are tourists of course.

And Middle Class Americans buying German and Japanese cars. And every electronics user out there - the components almost to the dot come from Asia. And fruits and vegetables in the winter months from South America. And various European and Asian cheeses, wines, spirits, delicacies. And oil. The list goes on and on.

However is one nice thing about being an oligarch today. Their national ties hardly matter anymore.

I don't agree. If what you say is true, Marc Rich would not have bothered to pay off Clinton to get pardoned.

[gwynedd1]

Re: Krugman Has His Backside Handed to Him

I see no point in continuing. I will highlight 3 reason why.

The yen is weak? It was 300 to the dollar in the 70s, it is now 70-ish to the dollar despite 2 decades of ZIRP.

I said the yen was not weak.....What are we even discussing when I said the complete opposite?

You are unfortunately quite ignorant. The entire point of a dollar carry trade is to START by redeeming in the US by taking out a dollar debt. But be that as it may, the point is still that the dollar carry trade has zero impact on the US trade deficit.

What? Dollar carry trade means that dollars are being used to do something other than to buy US goods. That is what the origins of "the carry trade" meant. It meant shipping was being used for foreign goods in foreign markets. The effect is to saturate the world market with dollars which in theory will not show up as demand for domestic goods and thus have no effect on domestic inflation or interest rates. You honestly don't know what currency carry trade is. A good example is to study Scottish free banking. Since both banks were on to the game the notes where quickly redeemed for specie.

Another example is ticket scalping. If a ticket has a list price of $100 and I sell it for $200 and the new owner speculatively holds on for more at say $300, then ticket will be held out of the market raising the value of all the others. A ticket is a very special kind of currency. If people buy tickets to the Aussie economy to redeem them while dollars are stored, then dollars appear to have more value.

Dollar carry trade means dollars are NOT redeemed for US goods. Otherwise interest rates would be driven up as a reaction to the inflation of dollars coming back in to redeem US goods. That is what happened during Scottish free banking when the Royal Bank and the Bank of Scotland had no intention of holding their rivals notes and redeemed them for specie and thus there was no carrying capacity for the bank notes.

Heh, you are I think completely lost in the woods. You've spent many lines saying that the US government cannot helicopter drop because all of its ways of issuing money involve debt, and now you're saying dollars aren't debt, they're money.

Now you seem to be resorting to insults. I again never said anything of the kind. Of course government can produce as much money, and debt, as it likes. I will resort to the facts. You seem unaware that money is a debt instrument and always has been. Money is a debt, even commodity money. If you were to wash up alone on an island with all the gold in the world the instrument would be of little use, even if it was the one thing JP Morgan said wasn't credit. All money is debt. Government debt is our money supply. What else is it? Bank notes( a NOTE means a debt in economics) used to mean a gold or silver obligation. A treasury was another such obligation. Such obligations were "as good as" specie. Now there is no specie. So all our money is now an "obligation" to create more obligations. An IOU is good for another IOU in this case one from interest bearing treasuries to non interest bearing notes.


Anyway I see little point in continuing. I can make no sense out of what you are trying to say and tire I reading how obviously stupid I must be being so lost in the woods.

[flintlock]

Re: Krugman Has His Backside Handed to Him

not sure but it is something to ponder.

they for sure believe that manufacturing is something to protect and nurture. There could not be more difference in how our two nations treat what i consider to be the backbone of a healthy economy. American leadership seems to take perverse pleasure from ensuring that us manufacturers and workers play uphill in global trade.

One thing i will guarantee with absolute certainty: The service economy meme where we import finished goods and in return export powerpoint presentations and critical path management schedules is as vacuous and doomed to failure as the finance economy meme where we import finished good in exchange for freshly printed frns and synthetic cdos.

Over and over i hear about the benefits of free trade and over and over i see us go into global trade agreements that by their very nature ensure a chronic and ongoing trade deficit. And i cannot for the life of me understand how economists can look into the teeth of the fruits of a few decades of this madness and insist that everyone will benefit from it.

Will

;_hhh

[flintlock]

Re: Krugman Has His Backside Handed to Him

That isn't what is sapping most of our wealth now and nor is it likely to do so. Until I see 3% unemployment, its not going to be an issue. As soon as we hit 2-3% frictional unemployment, I'll be the first to say it but then what of the 40% of our economy as FIRE sector at its peak? Do you suppose that perhaps there might be some spare hands for the real world that currently do nothing but shuffle papers? Not only do we have unemployment, half the economy is rent seeking, junk jobs and welfare. That problem too has an easy technical solution because there is plenty of man power if you only pay people for doing real work. It won't happen, but I am not going to pretend that its not possible due to the lack of resources. Its a political problem of a country being run by parasites.

Agree. We no longer live in a world where manpower is the primary economic force. Lack of people is not what is holding us back In fact, in some ways its the surplus that is causing problems. People cant find jobs that want to work. Even more cant find good paying jobs. Jobs that will allow them to sustain a family without ultimately requiring a transfer of wealth. So how are demographics hurting productivity? I suppose one could argue that based on the silly exponential growth model the American public has been sold. But reality doesnt work that way. We dont need millions of farmers behind a plow. A few good men with the right equipment and knowledge can do their jobs now. So how will more people help? Do we want a million men making a dollar a year or ten making $100,000? There will always be misallocated labor, but I doubt we will see a true labor shortage any time soon. Not with the retirement age being raised, and ever improving technology. Its just not that kind of world anymore.

[c1ue]

Re: Krugman Has His Backside Handed to Him

I said the yen was not weak.....What are we even discussing when I said the complete opposite?

Yes, the yen isn't weak. But the yen is ZIRP. So perhaps you can reconcile the dichotomy.

You've also said that Japan is controlled by the auto manufacturers - perhaps you can explain then why the strong yen is permitted since it clearly hurts their interests.

Dollar carry trade means that dollars are being used to do something other than to buy US goods. That is what the origins of "the carry trade" meant.

The dollar carry trade as defined today is the borrowing of dollars in the US in order to deposit into foreign accounts which pay higher interest.

The use of dollars in foreign trade, even in transactions where the US is not invoved, is what the dollar being a reserve currency means.

It is extremely unclear what you're trying to talk about when you seem to be confusing the fundamental nature of the dollar being a reserve currency with the dollar carry trade. They are completely different as the dollar carry trade directly involves the US by opening a debt in the US whereas dollar reserve currency in foreign trade means significant trade completely unrelated to the US is denominated in dollars.

Now you seem to be resorting to insults. I again never said anything of the kind. Of course government can produce as much money, and debt, as it likes. I will resort to the facts. You seem unaware that money is a debt instrument and always has been. Money is a debt, even commodity money. If you were to wash up alone on an island with all the gold in the world the instrument would be of little use, even if it was the one thing JP Morgan said wasn't credit. All money is debt. Government debt is our money supply. What else is it? Bank notes( a NOTE means a debt in economics) used to mean a gold or silver obligation. A treasury was another such obligation. Such obligations were "as good as" specie. Now there is no specie. So all our money is now an "obligation" to create more obligations. An IOU is good for another IOU in this case one from interest bearing treasuries to non interest bearing notes.

Hardly - because you're assuming all money is debt, when you can as easily say that all money is credit. And certainly in a situation where there is only one party, you cannot have either debt or credit.

And the tortured definition of specie - you're again getting lost in terminology. Any currency whether gold or otherwise exists exclusively as a representation of value. In the absence of multiple parties who agree on said representation, the form of 'specie' is irrelevant. But that doesn't matter because we're not talking about a desert island, we're talking about the real world where the multiple parties do exist.

Be that as it may, the reality is still that the US government can and has unilaterally issued money to its citizens just as the US government can and has unilaterally taken away purchasing power - that link between monetary symbol and reality - via inflation.

[c1ue]

Re: Krugman Has His Backside Handed to Him

But what about those of us who actually do produce things of value that are targeted by these mercantilist methods. Why is it that the mere mention of a reciprocal tax to offset these VAT subsidies sends economists into conniption fits? Why is it that our politicians go into free trade mantra seizures at the mention of putting Americans in a position to actually compete on an even field with these guys?

I'll tell you why, because they are getting paid to keep shut while those of us who work on real products are kneecapped by these unfair tactics. It is a god damned disgrace that all of these so called leaders tell us that we can't impose the same tactics that our trading partners do because that would be unfair. If it is so unfair then why in the hell aren't they standing up and taking a stand as millions upon millions of goods producing jobs are stolen right out from under our noses.

I do agree that politicians, to at least some degree, have lost sight of the actual interests of their American citizen constituents - as opposed to foreign and/or domestic corporations funneling Citizens United money.

However, if the actual cause was FIRE - would the results be any different? How many Americans want to hear that the biggest problems are not due to that foreign country and its thieving, low cost labor policies but due to your own house being worth too much? Due to Medicare driving up health care costs all across the board? Due to the American standard of living being too high?

[Penguin]

Re: Krugman Has His Backside Handed to Him

As I see it that is the biggest difference between myself and the majority of people, I don't see our present predicament as being a product of either the trade policies or the FIRE economy. As I see it there is a symbiotic relationship between the two.

There could have been no asset inflation of the extent we had without the dollar recycling trade. The recycling was made possible by the Trillions USD that flowed from the US to our trade partners over the last couple decades. Granted, FIRE can and does exact its pound of flesh from other major sources but this one was vital to its growth. Just as I see the budget deficit and the trade deficit tied at the waist, I see FIRE and the trade deficit so intertwined.

It isn't the case where we could cure the trade deficit and all would be well. I don't argue that. What I'm saying is that balanced trade is an essential step in bringing the FIRE apparatus to heel. Without doing so you are trying to weaken the beast while feeding it steak every night. With this vital funding source intact and the Treasury continuing to issue more government debt you just cannot begin the process of making the finance industry an enabler of capitalism instead of a parasite of it. They have played their part in making US worker cost of living skyrocket but that isn't the beginning and end of all our ills either.

And I have never implied that our trading partners who are gaming the system are evil. Chinese leadership (and that of many others) has its own problems and motivations. They feel it vital to bring their citizens off the farms and into a modern economy. They could not care less that the manner in which they are doing it has decimated the American middle class. They may have every intention of taking away our ability to fund wars at leisure, but again that is not evil that is self interest. What I resent the hell out of is that OUR leadership has played along with this crippling trade policy without lifting a finger to acknowledge the most obvious of blowback... it is a disgrace.

I hear all of these economists wringing their hands and plaintively asking why, oh why, has the fruits of greater productivity not filtered down to the middle class. Why oh why is the gap between rich and poor been growing for the last couple decades? They wonder aloud why the middle class is not growing in this environment.

Man the middle class didn't organically spring to life it was built brick by brick.

The middle class came to life because US policy was structured to give them more power. Immigration was curtailed, trade was by and large limited to those nations that played by the same rules and had similar labor and social standards as we did, college was opened up and education made available to the working class... these and many other policies gave what became the middle class a hell of a lot of bargaining power. And they used it to TAKE the fruits of production and make it their own. There was not anything magical or deep about it. It was all about power. We reversed course and used immigration and trade policy to create a massive glut of labor. This stripped the power from US workers and gave it back to those who run companies not those who work within them.

Will

[Ghent12]

Re: Krugman Has His Backside Handed to Him

There are five reasons why people in the US are going to get poorer:

1. Global competition
2. Demographics
3. Decline of natural resource availability
4. Increasing natural disasters
5. Wealth (and power) inequality

Only #5 is possibly solvable, as you say, if corrupt politics was somehow "fixed".
The other four are inevitable, and cannot be solved . . . .

#1 is only true if the people of the US lose their competitiveness in relative terms. This is most certainly the case as more mandates for employee benefits are dictated from the heavy foot of government.

#2 makes no sense. You might as well have said "2. Economics"

#3 Actually, there has been an enormous increase in natural resource availability: namely in fossil fuels. It is almost inconceivable that the US will suffer from a "decline of natural resource availability" in any given timeframe, especially relative to other nations.

#4 That has not been the case. Natural disasters are pretty much as common as they have ever been. There have been an increase in human disasters, such as what happened in New Orleans after Hurricane Katrina.
Also, entities such as FEMA and their programs like NFIP actually create "natural disasters" (aka they are human disasters) by the moral hazards they create. It's so easy to look at the "heroic efforts" of people rebuilding communities struck by natural disasters, but few seem to understand that government policy is what encouraged those communities to exist in such risky areas in the first place.

#5 is not a problem in any sort of economic sense.

[gwynedd1]

Re: Krugman Has His Backside Handed to Him

Yes, the yen isn't weak. But the yen is ZIRP. So perhaps you can reconcile the dichotomy.

You've also said that Japan is controlled by the auto manufacturers - perhaps you can explain then why the strong yen is permitted since it clearly hurts their interests.

The strong Yen is not "permitted". Its simply that the individual Japanese refuse to take on debt. That is what a nation of savors means It means that private citizens hold public debt. Since they buy so much of it themselves, it strengthens the Yen. That is exactly what Mosler explains.

The dollar carry trade as defined today is the borrowing of dollars in the US in order to deposit into foreign accounts which pay higher interest.

And what is that but floating more dollars on international markets? Dollars are put into circulation to buy foreign currency, taken out of circulation, and then used to purchase foreign bonds, pumping money into the domestic market. You don't see how these dollars ending up in a vault and not making their way back to the US to create demand for goods and service is not going to feed carry trade with low interest rates? Really?

The use of dollars in foreign trade, even in transactions where the US is not invoved, is what the dollar being a reserve currency means.

That's the "carry trade".
http://www.ipe.com/magazine/the-real...categoryid=492


If you buy into the emerging-market growth and commodities stories, maritime investments could offer another way to diversify your exposure, writes Martin Steward

'The original ‘carrying trade’ had nothing to do with going short yen and long Aussie dollar. It was, wrote Adam Smith, “purchasing goods in one foreign country in order to supply the consumption of another”. It is serious business: the world’s 55,000 ships generated $600bn (€432bn) in revenue last year by transporting some 90% of global trade.

Historically, the growth of shipping has leveraged global GDP growth two times. But we all know what has happened to growth and trade recently: the Baltic Dry Index (BDI) of prices for transporting various dry bulk cargoes on different routes around the world collapsed 98% from its peak in May last year to its trough in December. The average daily rate for a capesize (a vessel size classification) vessel was $230,000 last June; by April you could lease one for $17,000 per day. Just like a company, a ship’s market price is the present value of its future cash flows: a shipowner can hire a vessel out for up to six months for a single voyage (the ‘spot’ market) or longer (the ‘time-charter’ market); and the BDI is an index of the charter rates. That makes valuation surprisingly transparent and standardised – around 40-50 ships are traded each week, and in addition to the BDI, weekly brokerage reports giving charter rates for a range of vessels go back a generation – but it also means that when the BDI crashes the market value for vessels usually follows. A capsize fetching $150m last summer would now struggle to clear $50m.'




The currency is being used out side the sovereign state that issued it. If it were a commodity it would imply that the state seeing its currency leave has no need of it. If salt were used as a means of exchange it would mean it saturated its use value and that enough salt was being produced to commence trading and thus salt would leave the country just like shipping in Adam Smith original "carry trade". The dollar as a reserve currency is essentially the same thing as the carry trade. If it didn't it would work because the currency would cause inflation back home. The reason why Yen was used so long is because Japanese kept sucking in their own money while everyone else was weakening it at their expense. Look at what they were doing. They kept shipping cars out of the country without getting anything in return.

It is extremely unclear what you're trying to talk about when you seem to be confusing the fundamental nature of the dollar being a reserve currency with the dollar carry trade. They are completely different as the dollar carry trade directly involves the US by opening a debt in the US whereas dollar reserve currency in foreign trade means significant trade completely unrelated to the US is denominated in dollars.

That is because as I keep saying, you don't know what it fundamentally is. Successful carry trade is a function of borrowing against currencies that are being artificially strengthened through sentiment with dollars and yen being classic cases. The rest of the world is doing for the dollar what the Japanese themselves do for the Yen. So the Japanese work for nothing as does the rest of the world for dollars.

Hardly - because you're assuming all money is debt, when you can as easily say that all money is credit. And certainly in a situation where there is only one party, you cannot have either debt or credit.

Credit is debt. In economics money, credit, debt are all the same thing.

http://dictionary.reference.com/browse/credit
5.confidence in a purchaser's ability and intention to pay, displayed by entrusting the buyer with goods or services without immediate payment.



That does not mean debt to you?

And the tortured definition of specie - you're again getting lost in terminology. Any currency whether gold or otherwise exists exclusively as a representation of value. In the absence of multiple parties who agree on said representation, the form of 'specie' is irrelevant. But that doesn't matter because we're not talking about a desert island, we're talking about the real world where the multiple parties do exist.

I am being tortured....But I have no idea what any of this means. A force is a force and I don't know what "real world" is supposed to be other than your own fiction. Gold does represent value but that is not how most people look at gold compared to gold back notes. People seem to treat gold as value, not credit even if that is essentially what it is. The US owing gold is certainly not the same as gold at any rate even if we said so cause we could.

Be that as it may, the reality is still that the US government can and has unilaterally issued money to its citizens just as the US government can and has unilaterally taken away purchasing power - that link between monetary symbol and reality - via inflation.

It can also confiscate gold and silver. So what? We keep going in circles to the same thing I keep saying. That's not a market system. I am talking about a market system, not a command economy. And they don't have complete control anyway. It always gets to a point where they have to implement legal tender laws as people lose confidence in the currency. Again, history is full of people refusing to be paid in the legal tender which is very unpopular with the government that issues it.