HKrandom
HKrandom
  • Threads: 18
  • Posts: 130
Joined: Oct 1, 2010
AZDuffman
AZDuffman 
  • Threads: 240
  • Posts: 13884
Joined: Nov 2, 2009
April 25th, 2011 at 4:56:34 PM permalink
Quote: HKrandom

http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25?link=MW_home_latest_news
What do you guys think of that?



Looks like it is based on "parity" and other games. It also assumes China can keep growing at 10%+ per year and nothing else changing. I see a few problems here. First, every last "miricle" economy in Asia has had a crash of one size or another. No reason to think China will not have similar problems. No reason more so as China's economy has problems hidden under the surface in the form of many non-performing loans.

Second, half of China still lives in poverty. Extreme $2 a day poverty. The poor there will not be contained forever. Either they will revolt or the government will have to re-distribute wealth from the wealthier coast, causing unrest there.

Finally, China is export-dependent on low-cost, low-value products. Japan developed "brands" like Toyota and Sony. Name a Chinese-owned "brand." As wages in China rise the world will find more poor nations willing to work cheap.

At 4xs the population of the USA, China will probably take the GDP lead one day. But that day is closer to 2060. By then China may be more than one country.
All animals are equal, but some are more equal than others
pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
April 25th, 2011 at 6:05:08 PM permalink
It is more rapid than the prediction a few years ago, but as AZ stated it's based on parity, and it doesn't take into account the 4.5 times difference in population. China just passed Japan in 2010, and it has 10-11 times the population.

That said, the US needs to broaden support for the dollar. The natural thing to do would be to bring in Canada and Australia and give them seats on the Fed. Their dollars are trading about the same as the US dollar. If we could unify them at 1:1 parity, then it would help defuse some of the tension about using one country's currency as the basis for the world economic system. We don't have to replace all the banknotes but they should be legal currency in each other's country. The US should phase out the $1 and the $50 and replace them with coins and the Australian $50 which is widely used there.
thecesspit
thecesspit
  • Threads: 53
  • Posts: 5936
Joined: Apr 19, 2010
April 25th, 2011 at 8:04:59 PM permalink
The US dollar is used in this part of Canada (all be it at a rather poor exchange rate).

I think you're assuming that Canada would give up some level of sovereignty to lose its C$.... considering some of the mess in the EU is due to a single currency between countries with very different economic climates and cycles, I'm not sure it'd go down well. The Australians, even less so. The Canadian to US exchange rate has moved wildly in the last few years to $1.04 US gets you $1 Canadian now (up from somewhere around 80c mark in my memory).
"Then you can admire the real gambler, who has neither eaten, slept, thought nor lived, he has so smarted under the scourge of his martingale, so suffered on the rack of his desire for a coup at trente-et-quarante" - Honore de Balzac, 1829
pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
April 25th, 2011 at 11:14:05 PM permalink
Quote: thecesspit

The US dollar is used in this part of Canada (all be it at a rather poor exchange rate).

I think you're assuming that Canada would give up some level of sovereignty to lose its C$.... considering some of the mess in the EU is due to a single currency between countries with very different economic climates and cycles, I'm not sure it'd go down well. The Australians, even less so. The Canadian to US exchange rate has moved wildly in the last few years to $1.04 US gets you $1 Canadian now (up from somewhere around 80c mark in my memory).



Well the USA would have to cede some control of the fed. Possibly by creating a extra seats. It's not a question of losing control, but one of where you cede it to. The drumbeat for creating an exchange currency that is not the US dollar is getting louder and louder, and the Chinese will want an increasing share of that power. That will affect Canada and Australia just as much as the USA.
SanchoPanza
SanchoPanza
  • Threads: 34
  • Posts: 3502
Joined: May 10, 2010
April 26th, 2011 at 4:45:09 AM permalink
Quote: pacomartin

The US needs to broaden support for the dollar.


That is not too likely at all, in view of current government policies in Washington and Beijing. China is clearly trying to shed $2 trillion in rapidly depreciating American paper:

BEIJING, April 23 (Xinhua) -- China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Saturday.

The amount of foreign exchange reserves should be restricted to between 800 billion to 1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that the current reserve amount is too high.

China's foreign exchange reserves increased by 197.4 billion U.S. dollars in the first three months of this year to 3.04 trillion U.S. dollars by the end of March.

Tang's remarks echoed the stance of Zhou Xiaochuan, governor of China's central bank, who said on Monday that China's foreign exchange reserves "exceed our reasonable requirement" and that the government should upgrade and diversify its foreign exchange management using the excessive reserves.

Meanwhile, Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.

Tang also said that China should further diversify its foreign exchange holdings. He suggested five channels for using the reserves, including replenishing state-owned capital in key sectors and enterprises, purchasing strategic resources, expanding overseas investment, issuing foreign bonds and improving national welfare in areas like education and health.
pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
April 26th, 2011 at 6:17:26 AM permalink
Quote: SanchoPanza

That is not too likely at all, in view of current government policies in Washington and Beijing. China is clearly trying to shed $2 trillion in rapidly depreciating American paper:



I am not arguing that the dollar is in trouble, and that Canada and Australia wouldn't have a heated debate about giving up their free floating currency. It is not the inclination of any countries citizens to share control of their currency. If the Euro had been put to a vote, I don't think it would have been approved anywhere.

But the clear purpose of a new reserve currency is to pull economic power away from the nations that are European or the descendants of Europeans. The USA, UK, Canada and Australia have a largely shared cultural heritage, essentially free travel between the countries, and considerable cross investment in each other's countries. Right now they have 25% of the world's GDP.

The question is always not what is happening now, but how will the world be different in 10-20 years in the future.
Country PPP method 2016 2011 2016 2011
China 18.002% 14.316% 18.002% 14.316%
United States 17.770% 19.382% 35.772% 33.698%
India 6.632% 5.617% 42.404% 39.315%
Japan 4.953% 5.665% 47.357% 44.980%
Germany 3.356% 3.875% 50.713% 48.855%
Russia 2.941% 3.001% 53.654% 51.856%
Brazil 2.880% 2.943% 56.534% 54.799%
United Kingdom 2.605% 2.882% 59.139% 57.681%
France 2.494% 2.826% 61.633% 60.507%
Mexico 2.062% 2.087% 63.695% 62.594%
Italy 1.979% 2.317% 65.674% 64.911%
Korea 1.923% 1.973% 67.597% 66.884%
Canada 1.582% 1.769% 69.179% 68.653%
Indonesia 1.574% 1.414% 70.753% 70.067%
Spain 1.573% 1.782% 72.326% 71.849%
Turkey 1.242% 1.284% 73.568% 73.133%
Taiwan Province of China 1.114% 1.096% 74.682% 74.229%
Australia 1.113% 1.183% 75.795% 75.412%
Islamic Republic of Iran 1.030% 1.109% 76.825% 76.521%
Poland 0.946% 0.964% 77.771% 77.485%
Saudi Arabia 0.838% 0.839% 78.609% 78.324%
Thailand 0.793% 0.788% 79.402% 79.112%
Argentina 0.790% 0.852% 80.192% 79.964%
Netherlands 0.780% 0.892% 80.972% 80.856%
Egypt 0.735% 0.681% 81.707% 81.537%
South Africa 0.694% 0.703% 82.401% 82.240%
Pakistan 0.640% 0.619% 83.041% 82.859%
Colombia 0.581% 0.582% 83.622% 83.441%
Malaysia 0.576% 0.563% 84.198% 84.004%
Nigeria 0.570% 0.521% 84.768% 84.525%
Philippines 0.472% 0.474% 85.240% 84.999%
Belgium 0.453% 0.518% 85.693% 85.517%
Sweden 0.441% 0.468% 86.134% 85.985%
Vietnam 0.434% 0.381% 86.568% 86.366%
Hong Kong SAR 0.431% 0.437% 86.999% 86.803%
Ukraine 0.405% 0.410% 87.404% 87.213%
Peru 0.398% 0.377% 87.802% 87.590%
Bangladesh 0.396% 0.354% 88.198% 87.944%
Singapore 0.387% 0.395% 88.585% 88.339%
Venezuela 0.387% 0.452% 88.972% 88.791%
Austria 0.381% 0.435% 89.353% 89.226%
Switzerland 0.378% 0.429% 89.731% 89.655%
Greece 0.362% 0.407% 90.093% 90.062%


Table stops before the final 10% of the world's GDP as that would add an additional 140 countries.
AZDuffman
AZDuffman 
  • Threads: 240
  • Posts: 13884
Joined: Nov 2, 2009
April 26th, 2011 at 4:36:21 PM permalink
Quote: pacomartin

That said, the US needs to broaden support for the dollar. The natural thing to do would be to bring in Canada and Australia and give them seats on the Fed. Their dollars are trading about the same as the US dollar. If we could unify them at 1:1 parity, then it would help defuse some of the tension about using one country's currency as the basis for the world economic system. We don't have to replace all the banknotes but they should be legal currency in each other's country. The US should phase out the $1 and the $50 and replace them with coins and the Australian $50 which is widely used there.



I don't see this Canada and OZ giving up their currencies. Parity is already likely causing export problems. I also do not see the USD going anywhere anytime soon despite statements to the contrary. No "international" currency will do it. The reserve currency must be backed by a country with a large economy and military. The reserve currency must also be a country willing to buy at least as much as they sell, even running a trade deficit often in order to get the currency into the internatioal system. China and others are determined to keep running trade surpluses.
All animals are equal, but some are more equal than others
pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
April 27th, 2011 at 6:42:57 AM permalink
While I appreciate your comments about high value of currency causing export problems, and the desire not to give up control of your currency, those are standard statements that have always been true since WWII. When the value of your currency drops it is like negotiating a salary cut with millions of people.

Developing Asia (27 countries) is now 25% of the world GDP, that is more than the American Dollar Zone, or the Euroland. I think that country economies will be too vulnerable to raiding if they try to stand on their own.
Quote: The attack of the British pound


Pound currency attack begin in September 1992
Short selling of the pound was led by hedge funds: particularly George Soros.
The British Government’s initial response to the attack occurred on Wednesday, September 16
Government raised interest rates twice from 10% to 12 and then to 15%
Attempt to make U.K. investments more attractive.
During the attack the Bank of England used $4 billion in hard currency in defense of the pound. Bank of England bought $4 billion worth of pounds which were being sold short (it did this by selling U.S. dollars and German marks to speculators).
Estimates: 1/3 of its hard currency was spent.
On Wednesday at 7pm (UK time), the U.K. government announced they would be leaving the ERM the next day and that interest rates would go back to 10%. (referred to as “Black Wednesday”).
Thursday, September 17, the pound returned to an independent float.
By late October, the pound had fallen about 13% against the mark and 25% against the U.S.

pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
April 27th, 2011 at 10:10:18 PM permalink
Three years ago the IMF analysts released a report where they stopped their prediction out to the year 2013. But if you simply used a linear fit, the economies of China and USA were equal in the year 2017 plus 4 months .

The IMF releases an update to their prediction every 6 months so they have been fine tuning the projection 6 times. In the last three years they have altered there prediction so that the two economies are equal in the year 2016. But the only difference is that they ran the table all the way to the year 2016 so you don't have to project ahead a year or two.

Suddenly it is front page news all around the world like the economy has changed.

Why is this fact so unexpected? I thought we learned how to do a linear projection in tenth grade?


Will China's rise lead to the decline of U.S.?
The International Monetary Fund (IMF) recently made a bold prediction that China will exceed the United States and become the world's largest economy as early as 2016 in terms of purchasing power parity.
FleaStiff
FleaStiff
  • Threads: 265
  • Posts: 14484
Joined: Oct 19, 2009
April 28th, 2011 at 2:33:13 AM permalink
Ministry of Railroads in China announced some sort of lowered speed limit on bullet trains due to possible shoddy construction and has stated the billions that Chinese banks lent to the railroads are at risk.
pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
April 28th, 2011 at 5:15:32 AM permalink
They dropped the top speed from 350 kph to 300 kph which is more or less the top speed in Europe.

Spain did something similar with the Madrid to Barcelona run

Quote: Wikipedia

It was originally forecast that, after reaching Barcelona in 2004, the line would run at 350 km/h (217 mph), the maximum capable speed of the new Siemens AVE trains which have replaced the Talgo Bombardier AVE S102, after the installation of level 2 of the ETCS/ERTMS, which is yet to be installed. But on the AVE's first day of operating at 300 km/h (186 mph) to Tarragona the Minister of Public Works, Magdalena Álvarez, stated that the maximum commercial operating speeds of the AVE on all lines would be 300 km/h (186 mph).



I think shoddy construction is a bit of an overstatement. Costs are considerable to run a signalling system to go that fast.
odiousgambit
odiousgambit
  • Threads: 326
  • Posts: 9556
Joined: Nov 9, 2009
April 28th, 2011 at 2:12:49 PM permalink
as usual, nothing is clear cut. The article says something about adjusting the value of currencies to make this happen. As it is, acc to wikipedia citing the world bank, in US dollars as of 2009 this is where we are with GDP:

EU 16,282,230
United States 14,657,800
People's Republic of China 5,878,257

wikipedia citing the CIA world factbook for 2010:

EU 15,900,000
United States 14,620,000
People's Republic of China 5,745,000

that's a long way to go, unreachable in the near future like 2016. To get there by adjusting currencies as per the article, well, I'd have to say it is over my head.
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!”   She is, after all, stone deaf. ... Arnold Snyder
pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
April 28th, 2011 at 5:07:13 PM permalink
Quote: odiousgambit

The article says something about adjusting the value of currencies to make this happen. To get there by adjusting currencies as per the article, well, I'd have to say it is over my head.



Purchasing Power Parity is a complex way of saying that prices are different in every country. If you make $100,000 in the USA, then you might have the exact same lifestyle if you make $40,000 in Mexico. In theory everyone is brought to the level of the USA. That means places like Denmark and Luxembourg are cranked down, and places like China or Africa are cranked up.

The simplest way to measure PPP is the Big Mac Index, where you say that a Big Mac is basically the same goods everywhere in the world (ignoring the fact that they change the toppings to suit local taste and the price of condiments) and it gives you a quick comparison of the cost of living. The real technique is more complex and just as certain to be wrong. It doesn't matter what the price of a Big Mac is in Mexico, because it is considered expensive food by most people in rural areas and they would never order it.

Wikipedia entry for GDP by Purchasing Power Parity Method is the correct page.

What you are looking at is a comparison of GDP by nominal value of money, or using official exchange rates. Here is a quick look at the numbers for the World, EU, USA, China, India and Japan . Japan and EU go down to the USA levels because they are more expensive, and China roughly doubles, and India roughly triples to match the levels of the USA. The USA stays the same because they are the world standard.


Using nominal exchange rates
World $62,909,274
Eur. Un. $16,282,230
USA $14,657,800
China $5,878,257
Japan $5,458,872
India $1,537,966

Using purchasing power parity
World $74,264,873
Eur. Un. $15,170,419
USA $14,657,800 <---- Gap is expected to close by the year 2016
China $10,085,708 <----
Japan $4,309,432
India $4,060,392

The headlines were confusing because only a few weeks ago it was announced that China finally passed Japan (in nominal terms), and then a few weeks later there is a headline that China will pass the USA (only in PPP terms).

Using per capita figures China is between Ecuador and Albania if you use PPP , and roughly the same place if you use nominal exchange rates. It doesn't matter as much which system you use, because China, Ecuador and Albania have similar standards of living on average. But China is a huge place. What matters as much as averages is distribution.


It works the other way with developed countries.
The USA has a GDP 13.35% bigger than the Eurozone using nominal exchange rates
The USA has a GDP 26.79% bigger than the Eurozone using purchasing power parity
The reason is prices are higher in the Eurozone than in the USA.

The Eurozone is defined as that portion of the European Union which uses the Euro currency specifically (roughly 328 million people, slightly larger than the USA 311 million population). So it does not include the wealthy Nordic countries, Iceland, Switzerland, or the United Kingdom. The zone also does not include the much larger section of the world whose currency is specifically tied to the value of the Euro (like Denmark, a big portion of Africa, etc.).
HKrandom
HKrandom
  • Threads: 18
  • Posts: 130
Joined: Oct 1, 2010
May 1st, 2011 at 5:21:08 AM permalink
The world is losing confidence in the strength of the USD and the market doesn't trust Bernake. Gold prices soared and the USD plunged after his speech and some hours later China announced it is considering buying $1 Trillion (that's twelve zeros) worth of gold. I am now kicking myself for selling my gold right after his speech (I used all my savings on a 10x margin to buy gold, I could have doubled them if I kept the gold until the price reached 1565) but it made me think that if things keep going the way they are China might drop their peg to the USD and let their currency appreciate much faster as the world keeps losing confidence in the dollar. Since the USA cannot repay their debts and all of their programs they will have to go through QE3, QE4, QE5 etc. and a few years from now there will be very few lenders willing to accept a fiat currency that keeps losing its value as a repayment. By that time China will have converted its dollar reserves into gold, oil and other things, it's currency will be very strong and it's nominal GDP will be much higher since everybody's savings will be worth so much more.
pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
May 1st, 2011 at 6:57:13 AM permalink
Quote: HKrandom

The world is losing confidence in the strength of the USD and the market doesn't trust Bernake. Gold prices soared and the USD plunged after his speech and some hours later China announced it is considering buying $1 Trillion (that's twelve zeros) worth of gold. I am now kicking myself for selling my gold right after his speech (I used all my savings on a 10x margin to buy gold, I could have doubled them if I kept the gold until the price reached 1565) but it made me think that if things keep going the way they are China might drop their peg to the USD and let their currency appreciate much faster as the world keeps losing confidence in the dollar. Since the USA cannot repay their debts and all of their programs they will have to go through QE3, QE4, QE5 etc. and a few years from now there will be very few lenders willing to accept a fiat currency that keeps losing its value as a repayment. By that time China will have converted its dollar reserves into gold, oil and other things, it's currency will be very strong and it's nominal GDP will be much higher since everybody's savings will be worth so much more.



I see those headlines, but I think it would be impossible to do. At present prices the gold in Fort Knox is worth $230 billion ($50 million per tonne). The official gold holdings of all the governments of the world is only $1.5 trillion (although there is more in gold mining countries and in jewelry and private holdings. At present prices all the gold ever mined in the history of human civilization is worth $5 trillion.

Either the price of gold is going to go up by a huge factor, or the headline is misleading.

The traditional argument is that if China drops their peg and weakens the dollar, then their foreign exchange holdings weaken as well. At the rate they are accumulating dollars even some of the most ambitious conversion programs will only slow their rate of accumulation, let alone stop or reverse the trend.

I do consider the year 1991 to be a milestone of sorts. Combined with the fall of the Soviet Union, the USA made the unprecedented step of printing $1 trillion in hundred dollar bills. Some of that went for replacement bills, but the trade balance was nearly zero that year for the last time.
AZDuffman
AZDuffman 
  • Threads: 240
  • Posts: 13884
Joined: Nov 2, 2009
May 1st, 2011 at 7:17:28 AM permalink
Quote: pacomartin

I do consider the year 1991 to be a milestone of sorts. Combined with the fall of the Soviet Union, the USA made the unprecedented step of printing $1 trillion in hundred dollar bills. Some of that went for replacement bills, but the trade balance was nearly zero that year for the last time.



The current account balance was near zero due to all the help in financing the Gulf War. We were still importing by the boatload. The USA will not have a merchandise-trade-surplus anytime soon, the comparative price of labor here is way too high.

I agree with you 100% on that China can't buy that much gold.

The advantage we hold on China is that they are too tied to our economy for survival. It is as if they have a knife at our throat and we have a gun to their head, saying, "We do this together at the count of three. One, two......." but neither wants to get to three.
All animals are equal, but some are more equal than others
pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
May 1st, 2011 at 8:12:13 AM permalink
I am sorry, but that $5 trillion was based on $1000 per ounce. All the gold ever mined is probably worth $8 trillion, but over half of that is in jewelry.

Fort Knox has 4,578 metric tonnes, or roughly $230 billion in todays prices. Maybe if China agrees to give us $300b in our paper back to us, we should give it to them. They can make a big statue out of it and display it in Beijing. The statue of Liberty only weighs about 200 metric tons, and the gold is about 1/7 of the weight of the Washington Monument so they should be able to make something pretty cool out of the gold in Fort Knox. Maybe a giant panda bear. They can put it on display behind bullet proof glass and use it as propaganda explaining why they let their currency float on the world market.

It might not be worth it since such a high profile event might weaken trust in the American dollar.
Doc
Doc
  • Threads: 46
  • Posts: 7287
Joined: Feb 27, 2010
May 1st, 2011 at 9:01:24 AM permalink
Quote: AZDuffman

... The USA will not have a merchandise-trade-surplus anytime soon, the comparative price of labor here is way too high. ...


In a related thread almost a year ago, I made a post describing my opinion that it is very important for our economy to re-emphasize creation of wealth by producing actual products (products which have more intrinsic value than the resources consumed) rather than just exchanging wealth inefficiently by providing services. There was strong disagreement with my position, but I still hold to it. Some of the follow-up posts directly relate to the discussions in this thread.
AZDuffman
AZDuffman 
  • Threads: 240
  • Posts: 13884
Joined: Nov 2, 2009
May 1st, 2011 at 9:47:58 AM permalink
Quote: Doc

In a related thread almost a year ago, I made a post describing my opinion that it is very important for our economy to re-emphasize creation of wealth by producing actual products (products which have more intrinsic value than the resources consumed) rather than just exchanging wealth inefficiently by providing services. There was strong disagreement with my position, but I still hold to it. Some of the follow-up posts directly relate to the discussions in this thread.



I'd like to see more things still made here, but it will not take us back to the 1950s where so many people worked in factrories. Look at steel for an example. In 2006 the USA produced more steel than at the peak of WWII. (according to my friends in the industry) But how many people work in steel? How many fewer people are needed in automobile assembly? The higher value products have been automated and the low-value ones cannot be produced at a price Americans are willing to pay.

We are sadly in an era where people want throwaway junk than the good stuff that requires care.
All animals are equal, but some are more equal than others
pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
May 1st, 2011 at 10:01:53 AM permalink
Quote: Doc

In a related thread almost a year ago, I made a post describing my opinion that it is very important for our economy to re-emphasize creation of wealth by producing actual products (products which have more intrinsic value than the resources consumed) rather than just exchanging wealth inefficiently by providing services. There was strong disagreement with my position, but I still hold to it. Some of the follow-up posts directly relate to the discussions in this thread.



Growing up an industrial city I am very familiar with this argument. It was often emphasized in the phrase We can't all make a living flipping burgers for each other.

Economists have partly gotten used to changing the traditional names
agriculture, fishing, and extraction such as mining has now become primary sector
manufacturing has become secondary sector
service sector or the service industry has become the tertiary sector of the economy
production of information is sometimes called the quaternary sector of the economy

The lightning rise of countries such as Iceland, Ireland, and Norway which largely skipped the manufacturing industrial revolution seemed to confirm that full scale tertiary development could make you ultra wealthy. My friends used to say that Ireland (by which they mean the Republic) had nothing to clean up.
But in the case of Iceland and Ireland they seem now to be confirming the old rule that the faster you rise, the faster you fall.

Still 30% of the world's GDP is in the industrial (secondary sector) while only 5.7% is in the primary sector. The following countries have a larger percentage of their country's economy in the industrial sector than the world. Listed in order they are:

Saudi Arabia , United Arab Emirates , China, Indonesia, Iran, Thailand, Norway, South Korea, Colombia, Venezuela Russia , Mexico, Poland, Argentina, South Africa, Taiwan

Clearly oil production and processing is a big part of that list.

India and Indonesia are the world's highest percentage of economy in the primary sector.

Clearly China is trying to produce goods, then use the money to purchase the natural resources of the world.
Doc
Doc
  • Threads: 46
  • Posts: 7287
Joined: Feb 27, 2010
May 1st, 2011 at 1:22:29 PM permalink
Quote: AZDuffman

I'd like to see more things still made here, but it will not take us back to the 1950s where so many people worked in factrories. ... The higher value products have been automated and the low-value ones cannot be produced at a price Americans are willing to pay. ...


The general concept of "factories" probably needs to evolve a bit. The word doesn't have to imply "sweatshops." I see nothing wrong with people working to automate facilities making high-value products here in the USA. If a product genuinely has low value, then its manufacture likely did not create much new wealth.

I just see no reason for our economy to be based on non-creative services while others (e.g., China) manufacture, create wealth, and develop the stronger national economy. I suspect that it is feasible to have high-volume electronics manufacturing conducted in factories here, rather than in Asia. With high automation characteristic of such operations, the labor price difference should be something that could be overcome, considering the added transportation costs to the market in the US. Even Asian automobile companies have found it cost effective to assembe some of their products in the US. Why should US companies export the creative processes and leave much of the new wealth overseas?
AZDuffman
AZDuffman 
  • Threads: 240
  • Posts: 13884
Joined: Nov 2, 2009
May 1st, 2011 at 2:00:29 PM permalink
Quote: Doc

The general concept of "factories" probably needs to evolve a bit. The word doesn't have to imply "sweatshops." I see nothing wrong with people working to automate facilities making high-value products here in the USA. If a product genuinely has low value, then its manufacture likely did not create much new wealth.

I just see no reason for our economy to be based on non-creative services while others (e.g., China) manufacture, create wealth, and develop the stronger national economy.



Here is a question for thought. Why do we hear "We can't have an economy flipping burgers for each other," but do not hear, "We can't have an economy making TV sets for each other?"

I grew up hearing the former, but analyze it. What is the real difference? Both support a long supply chain. Over the life of the TV I will spend more in burgers. (or any other kind of food, burgers just being the term.) Burgers provide physical nourishment, the TV entertainment and information. Either way, wealth is created.

Am I correct?
All animals are equal, but some are more equal than others
Doc
Doc
  • Threads: 46
  • Posts: 7287
Joined: Feb 27, 2010
May 1st, 2011 at 6:22:58 PM permalink
Quote: AZDuffman

Here is a question for thought. Why do we hear "We can't have an economy flipping burgers for each other," but do not hear, "We can't have an economy making TV sets for each other?"


Using my terminology from before, the wealth creation in the burger process is in raising the beef, not in flipping the burgers. We couldn't all be farmers, but if a lot of us were and we raised food for each other, that would be OK. I think that at present, the US agriculture business is able to produce more than the country needs (except for seasonal or regional items that we import from other parts of the world), so we export a significant amount of what we produce. That's good, too. But if we both have a supply of burger patties, and I fry them for you while you fry them for me, then there is no wealth created, and probably no real benefit either.

If you manufacture TVs for me and I do for you (and both of us for others), we might both be creating wealth for society. More likely, you could manufacture TVs and stereos while I manufactured laptop computers, and we could be each other's customer. We just need to actually be doing the manufacturing, rather than me selling Sony stock to you and you selling Toshiba stock to me and each of us selling the shares back to the other the following week, calling that an active economy.
AZDuffman
AZDuffman 
  • Threads: 240
  • Posts: 13884
Joined: Nov 2, 2009
May 1st, 2011 at 6:55:46 PM permalink
Quote: Doc

Using my terminology from before, the wealth creation in the burger process is in raising the beef, not in flipping the burgers. We couldn't all be farmers, but if a lot of us were and we raised food for each other, that would be OK. I think that at present, the US agriculture business is able to produce more than the country needs (except for seasonal or regional items that we import from other parts of the world), so we export a significant amount of what we produce. That's good, too. But if we both have a supply of burger patties, and I fry them for you while you fry them for me, then there is no wealth created, and probably no real benefit either.

If you manufacture TVs for me and I do for you (and both of us for others), we might both be creating wealth for society. More likely, you could manufacture TVs and stereos while I manufactured laptop computers, and we could be each other's customer. We just need to actually be doing the manufacturing, rather than me selling Sony stock to you and you selling Toshiba stock to me and each of us selling the shares back to the other the following week, calling that an active economy.



This is an interesting and non-ideologcal, I hope you would like to continue.

My thing is tangible vs intangible and why you say only one creates wealth. Lets use the "burger" example but be more realistic. In the real world it isn't "you fry them for me and I fry them for you." In a real society, say you own a burger joint. I own a pest control company. Another person owns a linen service. And there is a farmer. For simplicity we will assume the farmer provides all the foodstuffs you use. So the farmer shipe you a truckload of food. But you must have a sanitary restaurant so you hire me. You need linens so you hire the linen guy. We come in and do the work. But it doesn't end there. The linen guy and myself needed gasoline to drive to your restaurant. And you needed electricity to run the place. The electricity was generated from natural gas from a well on the farmer's land (he is a lucky guy!) Because he does so well he buys food at your restaurant; uses my services to control the flies in his dairy barn; and has the linen guy provide work clothes laundry for his people. We have provided wealth for everybody yet not manufacturered a thing other than the food.

It is more complicated, but aren't all the intangibles improving everybody's life?
All animals are equal, but some are more equal than others
pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
May 1st, 2011 at 7:58:14 PM permalink
Quote: Doc

Using my terminology from before, the wealth creation in the burger process is in raising the beef, not in flipping the burgers. We couldn't all be farmers, but if a lot of us were and we raised food for each other, that would be OK.



When Iceland's banks had a net loss several times the GDP of the entire country, a lot of people lamented that the country had abandoned it's traditional economy of high end food production from fishing.

There are many precedents throughout history. Another phrase that you may have heard is money makes you poor. It's in reference to society's like Seville Spain, which was the primary beneficiary of the fortunes being shipped home from the New World. If you visit the city, you get an idea how much was built in a comparatively few years when the gold arrived. As one contemporary of the period said "The world will think us mad". He was talking a bout the huge building projects behind the cathedral and many other buildings.

The demand side of the economy is very real. Meeting demand in 1998 was the salvation of many broken Asian economies. However it fed our appetite for imports. Besides food there is furniture, oil, clothes, and all kinds of everyday products.

In the year 2000 no $100 banknotes were produced since so many had been made in anticipation of a Y2K catastrophe. The overwhelming amount of $100 banknotes circulate overseas. Usually notes of that denomination last over 7 years and are removed. Clearly none of the ones before 1996 without the large portraits are still in circulation since people would widely distrust them by now.

For the 11 years prior to 1991, the production of the $100 banknote averaged $115 billion per year. After that point production soared, and it went hand in hand with the Trade Deficit explosion.


Trade Deficit (year) Production of $100 banknotes in billions
$66 ( 1991 ) $957 <---- fall of the Soviet Union
$91 ( 1992 ) $218
$116 ( 1993 ) $323
$151 ( 1994 ) $605
$159 ( 1995 ) $595
$170 ( 1996 ) $1,251 <----- new design
$181 ( 1997 ) $650
$230 ( 1998 ) $765
$329 ( 1999 ) $1,542 <----- Y2K fears
$436 ( 2000 ) $-
$412 ( 2001 ) $202
$468 ( 2002 ) $605
$532 ( 2003 ) $854
$655 ( 2004 ) $515
$772 ( 2005 ) $669
$828 ( 2006 ) $950
$809 ( 2007 ) $1,088
$816 ( 2008 ) $1,210
$504 ( 2009 ) $1,786 <----- new design
$634 ( 2010 ) $1,907

$100 billion dollars in $100 bills weight 1,000 metric tonnes.

Production in 2009 and 2010 is driven by the desire to replace the old notes with the better one. But production of 2006-2008 was still very high.
thecesspit
thecesspit
  • Threads: 53
  • Posts: 5936
Joined: Apr 19, 2010
May 1st, 2011 at 9:20:12 PM permalink
Quote: AZDuffman

This is an interesting and non-ideologcal, I hope you would like to continue.

My thing is tangible vs intangible and why you say only one creates wealth. Lets use the "burger" example but be more realistic. In the real world it isn't "you fry them for me and I fry them for you." In a real society, say you own a burger joint. I own a pest control company. Another person owns a linen service. And there is a farmer. For simplicity we will assume the farmer provides all the foodstuffs you use. So the farmer shipe you a truckload of food. But you must have a sanitary restaurant so you hire me. You need linens so you hire the linen guy. We come in and do the work. But it doesn't end there. The linen guy and myself needed gasoline to drive to your restaurant. And you needed electricity to run the place. The electricity was generated from natural gas from a well on the farmer's land (he is a lucky guy!) Because he does so well he buys food at your restaurant; uses my services to control the flies in his dairy barn; and has the linen guy provide work clothes laundry for his people. We have provided wealth for everybody yet not manufacturered a thing other than the food.

It is more complicated, but aren't all the intangibles improving everybody's life?



Is wealth creation normally from the increase of assets not from the increase of consumables? Who in the chain has had their wealth (assets) increased? Once we fry the burgers and eat them (and all the ancillary activities) what actual net assets have increased?

This isn't a rhetorical question, I'm trying to see it for myself.

And actually, does the complete system actually have to have a net wealth increase rather than a steady state of transfer of assets (via money, barter or exchange) around the system so everyone can eat burgers and live well? Do we have to actually increase wealth all the time beyond a certain point? Or is it enough that there is a transfer of wealth at times such that there is a profit motive to drive the free market engine even if it's a zero sum game?
"Then you can admire the real gambler, who has neither eaten, slept, thought nor lived, he has so smarted under the scourge of his martingale, so suffered on the rack of his desire for a coup at trente-et-quarante" - Honore de Balzac, 1829
Doc
Doc
  • Threads: 46
  • Posts: 7287
Joined: Feb 27, 2010
May 1st, 2011 at 9:30:26 PM permalink
Quote: AZDuffman

This is an interesting and non-ideologcal, I hope you would like to continue.

... We have provided wealth for everybody yet not manufacturered a thing other than the food.

It is more complicated, but aren't all the intangibles improving everybody's life?


Providing wealth to people is quite different from creating wealth. Wealth may be transferred, and if someone is providing a valuable service, then they deserve to receive some wealth in exchange for their contribution. Unfortunately, real-world processes incorporate inefficiencies. In terms of this discussion, the inefficiencies destroy wealth. Unless wealth is created, the overall economic status will decline.

In my simplistic view, creation of wealth requires that the process have an output that has more intrinsic value than the resources that are consumed by the process. Intrinsic value may be unrelated to what someone will pay for something; e.g., I might be willing to pay $150 for a ticket to a Cirque du Soleil show because I find it entertaining and in some way it improves the quality of my life. But that entertainment does not have intrinsic value; I cannot save it and pass the "wealth" along to another. Buying the ticket transfers wealth from me to the circus, and I apparently accept that. But entertaining me, even very well, does not create wealth.

Many other services may be important to us, and valuable enough to us that we are willing to pay for them. But they are quite different from growing a tree, converting it to lumber, and constructing quality furniture from it. Those processes create something of lasting, intrinsic value. If we produce them efficiently, they have greater value than the resources, and we have created wealth.

In the scenario you describe, I think the farmer is probably creating wealth. If "the linen guy" is making the linens, he is probably creating wealth, too. Getting raw petroleum out of the ground and refining it to provide gasoline is another wealth-creating process, but not nearly so much as some believe -- far too often the wealth represented by the petroleum in the ground is discounted. The utility company that takes a lower-value form of energy (chemical energy of coal, gravitational potential of a reservoir, etc.) to produce the higher-value energy form of electricity is also producing wealth -- in another sense, they may also being assisting in the creation of wealth by factories and the farmer by providing a more useful resource. The restaurant chef, the laundry operator, and the pest control company are providing valuable and highly-desired services (perhaps like Cirque du Soleil), but I don't know that I would view them as creating new wealth for society in the same way that I view it for the others.
HKrandom
HKrandom
  • Threads: 18
  • Posts: 130
Joined: Oct 1, 2010
May 1st, 2011 at 11:26:34 PM permalink
It is only possible to provide services if there are people out there creating real wealth that want those services. If we were all fishermen living on an island with no tools and only managed to get a fish a day for subsistence no wealth would be created. If I created a net that would let me capture two fishes a day I would be one fish richer every day. If I then exchange my extra fish for a service I only transfer the wealth I created to the person who provides me with the service; only the actual fish is real wealth in this case. It would normally take the other person a whole day to capture the fish and since my opportunity cost is lower due to the net I can exchange my fish for something that takes him less than a day to complete and he can use his extra time to create wealth or offer his service to other people with extra fishes but originally I was the only one who created wealth by getting the extra fish. When someone uses raw material to create something worth more than the value of the material put together, wealth can also be created. If I only had the skills to make a hat per day and someone that makes two hats per day was willing to trade a hat for a fish, we would both be better off since we can create twice as much wealth by specializing in what we do best but the act of exchanging the fish for the hat doesn't create wealth, the wealth was already there and it just changes hand. Correct me if I'm wrong. When companies manage to turn in a profit because subsidies compensate for their losses, wealth is destroyed.
pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
May 2nd, 2011 at 6:26:27 AM permalink
Quote: HKrandom

If we were all fishermen living on an island with no tools and only managed to get a fish a day for subsistence no wealth would be created. If I created a net that would let me capture two fishes a day I would be one fish richer every day. If I then exchange my extra fish for a service I only transfer the wealth I created to the person who provides me with the service; only the actual fish is real wealth in this case.



Although it is easier to talk about primary sector wealth creation, that is only 6% of the world's gross domestic product today. More difficult questions are what about the contractor who expands a house, fixes the windows, and paints the walls. When financing has now made the house worthless, what is the wealth creation of these activities? What good is your ability to produce automobiles if no one can afford them?

Most of the fortunes made in the last 30 years have been about organization and organizing principles. By that I include most software development and distribution. They are also about creating and then fulfilling needs. Most of the fashion industry, and specialized food from Starbucks to the new revamped McDonalds.
pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
May 4th, 2011 at 9:42:44 PM permalink
I checked the census bureau's latest demographic estimates for China.

China is now expected to grow to only 4.37% above it's current level before the population begins to decrease. It will never surpass, 1.400 billion.

Europe is expected to grow the following amount before population begins to decrease
Northern : 8.29% [immigration should surpass natural increase in 5 years]
Southern : 4.08%
Western : 1.06%
Eastern : Peaked in 1992
Europe as a whole : 0.017%


Principal Countries in UN definition of 4 parts of Europe
North: United Kingdom, Sweden, Denmark, Finland, Norway, Ireland ...
South: Italy, Spain, Portugal, Greece, Serbia ...
West: Germany, France, Netherlands, Belgium, Austria, Switzerland, Luxembourg ...
East: Russia, Ukraine, Poland, Romania, Czech Republic, Hungary, ...

Mexico will never surpass 150 million.
USA is expected to grow 41% by the year 2050 and then on to more than twice it's current size by the end of the century.

Chinese mother of the future: Clean you plate because some kid in America would love to have that food!
pacomartin
pacomartin
  • Threads: 649
  • Posts: 7895
Joined: Jan 14, 2010
March 24th, 2012 at 9:35:09 PM permalink
In anticipation of the International Monetary Fund releasing it's predictions in April, I thought I would revive this thread from last year.

To briefly summarize, the headline in April 2011 read:

IMF bombshell: Age of America nears end
Commentary: China’s economy will surpass the U.S. in 2016

My comment was that it was hardly a bombshell. The IMF had been releasing reports twice a year for years that could be extrapolated to the year 2016. The only difference was that last year's report actually included the the year 2016 in the table.

I would like to note that the IMF predictions for GDP growth are not quite as rosy as those of the President's Budget (released in February). The new IMF predictions will be out in April will include 2017.

Year Pres. Budg $billions IMF $billions Difference $billions
2012 $15,602 $15,495 -$106
2013 $16,335 $15,991 -$344
2014 $17,156 $16,623 -$532
2015 $18,178 $17,399 -$779
2016 $19,261 $18,251 -$1,010
2017 $20,369


While a trillion dollars in GDP out of $18 or $19 trillion doesn't seem like very much, in the past we have seen the overpredicting GDP has ended up having terrible consequences on the government deficit. One more reason to worry (as if we needed that).

Any guesses as to the IMF report next month? Will the year when China passes the USA still be 2016? Or will it move forward or backwards one year?
  • Jump to: