Global Economy - self righting machine?

[blazespinnaker]

I am developing a sneaking (ok not so sneaking) suspicion that the global economy, as it migrates to a world wide free trade / market based economy, becomes more and more a self righting machine.

For example: petro dollars. I find it fascinating that as the oil price decreases, deflationary effects happen as less investment occurs via recycling.

For example, we buy oil and the oil just comes back into our markets and pushes up the equities. As oil prices decline, less money comes into our markets.

However, the lower the price of oil, the more money is left over for the consumer and businesses to profit / re invest / yield.

Obviously there are risks, but I don't think they are derivatives (which i think improve the self righting machine).

I think they are Sheiks and Chinese central bankers who don't allow for free market adjustments, terrorism (nbc) and war, global warming, and democrats who think that free trade is a bad thing.

My concerns are roughly in that order .. really, I think the biggest risk to the economy are the Sheiks that run the petrodollar funds and the chinese central bankers.

My guess is that the chinese central bankers aren't really that dangerous in that they are somewhat constrained, but I do think they are getting a little in over their head by trying to run the chinese economy too much by pegging the RMB.

Fortunately most of the Sheiks are happy with their relationship with America, so I don't see a likely problem originating with them, unless the Iranian situation destabalizes. And let's face it... that's a possibility.

[Tet]

Re: Global Economy - self righting machine?

My concerns are roughly in that order .. really, I think the biggest risk to the economy are the Sheiks that run the petrodollar funds and the chinese central bankers.

My guess is that the chinese central bankers aren't really that dangerous in that they are somewhat constrained, but I do think they are getting a little in over their head by trying to run the chinese economy too much by pegging the RMB.

China is quite a mystery to those of us in the west. You start off with a basic question of how many people live in China? Is there 1.2 billion? Or is it 1.5 billion? Seems pretty strange that you can't get a straight answer out of anyone for this question. It would seem a pretty important answer to have when one wants to determine just how many 18-23 year old women are left in China to work in their factories to send us our trinkets. What country in the world has the largest population that speaks English? Interesting to note that it's China.

Now with 1.2 or 1.5 billion people, how many different economies could you run in China? Certainly there are still State run companies. Definitely there are foreign owned companies. Certainly there is China's own homegrown private enterprises as well. Is China communist? capitalist? or something else altogether?

Now why does China remain so concerned about pegging the Yuan to the D0llar? Maybe China has paid attention to the world around them these last thirty years or so maybe even for the last four thousand. If I were China entering into doing business with the world I might ask myself a few questions.

China watched I'm sure Japan's economy take off and become the envy of the world for a very brief moment in time and then something happened. Japan has been a repeating basket case ever since. I would think China watched it's Young Asian Tiger neighbors take off and were doing quite nicely until something happens to their economies as well. Is there something in common with Japan and the Asian Tiger economies that happens to both? Maybe just maybe China views the delinking of the Yen to the D0llar as well as the delinking of the Tiger currencies as the event that pushes them over the edge. The CB's of the world certainly made large fortunes looting Japan and looting the Tiger economies when they delink their currencies. I'm going to go out on a limb and say this is history China does not want to repeat for itself.

I'm not sure how the Central Banks of the world respond, doesn't appear to be a whole lot they can do. I bet it drives them crazy seeing all that loot sitting their in China and no way to grab a big pile of it for themselves.

[blazespinnaker]

Re: Global Economy - self righting machine?

Yeah, delinking will probably be nasty for all concerned. Too bad they went down this road to begin with..

[Finster]

Re: Global Economy - self righting machine?

I am developing a sneaking (ok not so sneaking) suspicion that the global economy, as it migrates to a world wide free trade / market based economy, becomes more and more a self righting machine.

I might be if it weren't for government policies that get in the way. The main cause of the imbalances is the fact that the only time "free traders" seem to care about cutting taxes and regulations is when they are looking at international commerce. All while our intranational commerce is as taxed and dysfunctional as ever. Our tax system - featuring especially the income tax - burdens domestic production but not consumption. Domestic production but not foreign production. You couldn't construct a policy more conducive to a current account balance if you tried.

The domestic production tax used to be counterbalanced to a large degree by taxes on imports. As we strip away the latter but not the former, the tax burden gets more and more out of whack. The incentive system becomes increasingly skewed towards less domestic production and more domestic consumption, the difference between which must be made up with imports.

If the US dropped the income tax in favor of an across-the-board consumption tax, or if it restored import taxes to a level commensurate with incomes taxes, the global economy could be a self-righting machine. As it stands now, the only righting mechanism in sight is US economic decline.

[blazespinnaker]

Re: Global Economy - self righting machine?

If the US dropped the income tax in favor of an across-the-board consumption tax

Amen! One can only wish..