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At the State Department, spokesman P.J. Crowley dismissed the economic threat as potentially self-defeating. "That would be biting the nose to spite the face,"

by yannis 17y ago

At the State Department, spokesman P.J. Crowley dismissed the economic threat as potentially self-defeating. "That would be biting the nose to spite the face," Mr. Crowley said. "The economies of the United States and China are intertwined." The effect will be to lower the dollar value which would be good news. (That is how Argentina came out of its Debt Crisis). It will also drive manufacturing back to the United States, where it belonged in the first place. I always advocated that America should have imported the cheaper labor - like it did for many years - rather than exported the jobs. Bottom line wish for it, if you live in the States.

hga 17y ago
It wouldn't change the real value we have to pay externally for oil and so on. It's my semi-vague understanding that "competitive devaluations" don't work well. If by citing Argentina you're implying this is a solution to our debt problem ... well, that would be totally catastrophic in a nation where something like 70% of the wealth is in financial instruments. When countries cancel their debts by inflation, they also tend to "cancel" their system of government (i.e. it gets replaced, as happened in the US with the Continental Congress ("Not worth a Continental")).
- yannis 17y ago
  It wouldn't change the real value we have to pay externally for oil and so on. Most of the oil producing countries have currencies pegged to the dollar and politically they are bound to stay with it. If you have a low dollar Chinese goods will become more expensive and consumption will go down. America wants a stronger Chinese Yuan and has been pressurizing the Chinese for this - in efect if the Chinese dump dollars America's wish will be granted. (A similar move saw America out of the First Oil Crisis). I thought the problem with the "Continental" currency was that it got devalued due to the British forging large amounts.
  - hga 17y ago
    "Peg" is a wrong word to use here, it's got the wrong connotations. Oil is priced in dollars: if you want to buy oil on the open market/from an OPEC nation, you have to pony up dollars to buy it. That says nothing about how many dollars are required ... e.g. look at what happened starting in the early '70s when Nixon closed the gold window. (I must say it's nice to be on a forum where I can reasonably expect people to know such references.) As for your second paragraph in toto ... I'm not sure the linkages will work that way. As for the Continental problem ... yeah, you could be right, I've certainly heard that was a factor, but the bottom line remains the same.
    - yannis 17y ago
      The Gulf currencies are literally pegged to the Dollar. It's a fixed rate for the last 5 years that I had dealings with them (Qatar, UAE, Bahrain, Kuwait etc). But I agree nothing stops oil prices sky-rocketing. I must say it's nice to be on a forum where I can reasonably expect people to know such references Best forums on the web on any topic and to top it very civilized:)
      - hga 17y ago
        Sorry about that, I didn't know the Gulf states had actual pegs (they were omitted from a list I'd recently read) and therefore misread your starting sentence. However if the US$ started a sharp secular decline unrelated to anything happening in the Gulf (suppose the Fed uses QE to fund the Federal deficit for too long), they could change their pegs and I would imagine that in and of itself wouldn't be viewed negatively. (Of course in such an event there would be so much financial chaos... well, "Sufficient unto the day is the evil thereof.")
ytinas 17y ago
Uhm, what? For a developed country, the US has very cheap labor already. And there are minimum wages laws to deal with as well. How exactly would the US compete with labor as cheap as it is in China? I can't imagine you actually mean slavery here (and I'm not convinced that would be cheaper in any case, morals aside), but I don't know what you could mean.
- sethg 17y ago
  The dollar-denominated cost of unskilled labor in the US can’t get much lower, but if the dollar-to-[insert some foreign currency here] exchange rate goes down, then US exports will become cheaper when denominated in that foreign currency.
- yannis 17y ago
  On most manufactured goods the labor component is not as high as people think. Assume an industry where the labor portion is 30%. By a combination of a lower dollar value as well as better efficiencies and better automation it is not unlikely to end up with a product which is perhaps within a 15% difference of a comparative Asian one. A 15% difference will easily be marketable for a better quality product. (If you factored transportation costs it even looks better). I don't mean slavery, I believe in a living wage, but I am sure if one does the sums there are a lot of industries that could be rejuvenated if policy could be redirected properly. One of the problems of the US is its large internal market which resulted in the average US firm not to be geared for exports. This also needs to be addressed. Let me give you an example, I worked in Dubai three years back (large construction industry) on an average quote for machinery that typically goes into large buildings say Fire Pumps the range of prices would be: US 100K (non-negotiable) US 90-105K (European very negotiable) Asian 85K (negotiable) Order placed normally with European firm for US 88K Any factory with not a full order book could marginally cost the products and have a full order book.
  - ytinas 17y ago
    Ok, fair enough. I suppose in the case of some of our manufacturing industries the labor was sent oversees not because it had to be fundamentally cheaper, but because it was easier than dealing with the unions.

by yannis 17y ago

hga 17y ago

It wouldn't change the real value we have to pay externally for oil and so on. It's my semi-vague understanding that "competitive devaluations" don't work well. If by citing Argentina you're implying this is a solution to our debt problem ... well, that would be totally catastrophic in a nation where something like 70% of the wealth is in financial instruments. When countries cancel their debts by inflation, they also tend to "cancel" their system of government (i.e. it gets replaced, as happened in the US with the Continental Congress ("Not worth a Continental")).

yannis 17y ago
It wouldn't change the real value we have to pay externally for oil and so on. Most of the oil producing countries have currencies pegged to the dollar and politically they are bound to stay with it. If you have a low dollar Chinese goods will become more expensive and consumption will go down. America wants a stronger Chinese Yuan and has been pressurizing the Chinese for this - in efect if the Chinese dump dollars America's wish will be granted. (A similar move saw America out of the First Oil Crisis). I thought the problem with the "Continental" currency was that it got devalued due to the British forging large amounts.
- hga 17y ago
  "Peg" is a wrong word to use here, it's got the wrong connotations. Oil is priced in dollars: if you want to buy oil on the open market/from an OPEC nation, you have to pony up dollars to buy it. That says nothing about how many dollars are required ... e.g. look at what happened starting in the early '70s when Nixon closed the gold window. (I must say it's nice to be on a forum where I can reasonably expect people to know such references.) As for your second paragraph in toto ... I'm not sure the linkages will work that way. As for the Continental problem ... yeah, you could be right, I've certainly heard that was a factor, but the bottom line remains the same.
  - yannis 17y ago
    The Gulf currencies are literally pegged to the Dollar. It's a fixed rate for the last 5 years that I had dealings with them (Qatar, UAE, Bahrain, Kuwait etc). But I agree nothing stops oil prices sky-rocketing. I must say it's nice to be on a forum where I can reasonably expect people to know such references Best forums on the web on any topic and to top it very civilized:)
    - hga 17y ago
      Sorry about that, I didn't know the Gulf states had actual pegs (they were omitted from a list I'd recently read) and therefore misread your starting sentence. However if the US$ started a sharp secular decline unrelated to anything happening in the Gulf (suppose the Fed uses QE to fund the Federal deficit for too long), they could change their pegs and I would imagine that in and of itself wouldn't be viewed negatively. (Of course in such an event there would be so much financial chaos... well, "Sufficient unto the day is the evil thereof.")

ytinas 17y ago

Uhm, what? For a developed country, the US has very cheap labor already. And there are minimum wages laws to deal with as well. How exactly would the US compete with labor as cheap as it is in China? I can't imagine you actually mean slavery here (and I'm not convinced that would be cheaper in any case, morals aside), but I don't know what you could mean.

sethg 17y ago
The dollar-denominated cost of unskilled labor in the US can’t get much lower, but if the dollar-to-[insert some foreign currency here] exchange rate goes down, then US exports will become cheaper when denominated in that foreign currency.
yannis 17y ago
On most manufactured goods the labor component is not as high as people think. Assume an industry where the labor portion is 30%. By a combination of a lower dollar value as well as better efficiencies and better automation it is not unlikely to end up with a product which is perhaps within a 15% difference of a comparative Asian one. A 15% difference will easily be marketable for a better quality product. (If you factored transportation costs it even looks better). I don't mean slavery, I believe in a living wage, but I am sure if one does the sums there are a lot of industries that could be rejuvenated if policy could be redirected properly. One of the problems of the US is its large internal market which resulted in the average US firm not to be geared for exports. This also needs to be addressed. Let me give you an example, I worked in Dubai three years back (large construction industry) on an average quote for machinery that typically goes into large buildings say Fire Pumps the range of prices would be: US 100K (non-negotiable) US 90-105K (European very negotiable) Asian 85K (negotiable) Order placed normally with European firm for US 88K Any factory with not a full order book could marginally cost the products and have a full order book.
- ytinas 17y ago
  Ok, fair enough. I suppose in the case of some of our manufacturing industries the labor was sent oversees not because it had to be fundamentally cheaper, but because it was easier than dealing with the unions.