Housing Bubble Bursting?

[JSmith43]

NAFTA and Globalization are good to keep the inflation down but in the expense of huge trade deficit and national budget deficit.

I don't understand the budget deficit connection you are trying to make. How does that work?

As to the size of the trade deficit? I don't really track the trade deficit all that closely as IMO, it is too much of a side issue. The silly countries send us more than we send them in goods and services.

They end up with net green backs. Claims on our economic production, IOU's. Supply and demand will make that OK. if too many of them get cashed in too quickly, guess what happens? The cost of goods goes up and the dollars they still hold become worth less, unless our real interest rates go up or our rates of return on american business continue to kick butt on the rest of the world, which act as off-sets since they compete for the dollars. Besides, the trade deficit isn't all that tooting big compared to our economy.

I'll let you worry for both of us. I'm not worried. Our free trade is what keeps USA competitive. We are not France:new_usa: Imagine what the balance of payments would look like if we didn't have to import oil. Maybe we should roll a few of those countries.....Naaaa. Well, maybe Venezuaelia SP? just for sport.

 

[moh malekpour]

I don't understand the budget deficit connection you are trying to make. How does that work?

As to the size of the trade deficit? I don't really track the trade deficit all that closely as IMO, it is too much of a side issue. The silly countries send us more than we send them in goods and services.

You answered your own question. “The silly countries send us more than we send them in goods and services.” That is exactly the answer to your own question but they are not silly countries, they are very smart countries that are using free trade to their own advantage and we let them do it. How do they do it? For one, China has been manipulating their currency since free trade started as the result; their export cost cheaper to our market because their currency is pegged to the dollar but their labors cost is much cheaper than their goods and ours is much cheaper in our market. But our goods due to our labor cost is more expensive and cannot compete in their market as the result we have less export and more import. This is an unfair free trade which is not working for us and we may have to put tax on their exports or to make them to have a free market currency But if they let their currency to adjust with the market, their goods cost more and we will not buy them anymore because we can produce them here the same price. Then their economy slows down and have no money to buy our bonds that we need them to finance our expenses. Taxing their exports also has the same result.

 

[JSmith43]

Wrongo. We should do what we do most efficiently and they should do what they do most efficiently, which is work for slave wages, or allow oil to be pumped from the ground if we are talking Arab countries:icon_smile:

I'll let someone else argue the point further. Maybe a different approach will cause a :icon_idea: to shine.

 

[moh malekpour]

Wrongo. We should do what we do most efficiently and they should do what they do most efficiently, which is work for slave wages, or allow oil to be pumped from the ground if we are talking Arab countries:icon_smile:

I'll let someone else argue the point further. Maybe a different approach will cause a :icon_idea: to shine.

You just cannot say wrong without saying why.
As I said earlier, The win-win theory of globalization that was the base of free trade is broken. The idea that globalization helps workers in poor countries to get rich through trade but then they turn around and buy things made by rich countries just isn’t working. This theory was fine for rich countries to give up a market share in tradable manufacturing products 50 years ago. That is because highly intelligent, experienced and knowledgeable workers could seek refugee in non-tradable services but with new technology, non-tradable services and productions becoming tradable and with educational success and skills rising in developing worlds, the security of old way has been vanished.
India and China are emulating each other now. India is pushing to get into manufacturing goods in addition to their service industry and China is trying to get into the service industry in addition to their manufacturing services. If India and China captured the manufacturing and service industries, what else is left for developed world to do? It is a real threat to developed countries that used to have both industries and for that the protectionis are on the rise.

 

[Randolph Kinney]

Randolph,

Here is a link to real GDP during the supposed 2001 recession:

http://www.bea.gov/briefrm/gdp.htm

It is from the US commerce department. I shows there was NOT 2 quarters in a row of negative growth; hence no recession in 2001.

You are still believing the press reports.

Brad

Brad, the data I looked at did not come from the commerce department. I do find it absolutely incredible to say there was no recession in 2001, regardless of the source. If you find it convenient to believe no recession occurred in 2001, we don't have much to discuss. You have your way of analyzing history and data. Just do a Google search on 2001 recession. Here is the first link:

http://www.incontext.indiana.edu/2002/nov-dec02/spotlight.html

Notice the graphic file taken from this site below. Its source is from U.S. Bureau of Economic Analysis. This was published back in November 2002. Now, you can tell me about revisionist history and how today you can say there was no recession in 2001. Absolotely absurd.

 

[JSmith43]

You just cannot say wrong without saying why.

Let me try and say "why" in a different way. By an illustration.

You are free as an individual to pretend there isn't free trade agreements and try and buy only goods and services sourced and manufactured in the USA.

Let me know if you enjoy your personally designed reduced standard of living.
Multiply that by however many people would be without options if trade was abandoned or somehow taxed out of existence. Then we would all have a reduced standard of living compared to the current alternative.

I feel like a man of few words tonight (tough tennis match).

If you disagree that I have been responsive to the question, that's OK with me:icon_smile:

 

[moh malekpour]

Brad,
If I am reading your GDP chart correctly, it shows recession in 2001. Also, if there was no recession in 2001, why greenspan started cutting interest rates since then all the way to june 2004?

 

[JSmith43]

Brad,
If I am reading your GDP chart correctly, it shows recession in 2001. Also, if there was no recession in 2001, why greenspan started cutting interest rates since then all the way to june 2004?

As Brad pointed out in his post, the definition of a recession used by economists (since 1966, when I took my first macro-economics course in college), is 2 consecutive quarters of negative GDP (actually, they used GNP back then).

There are not 2 consecutive quarters of negative growth, therefore it doesn't meet the minimum standard to be labeled a recession.

 

[Randolph Kinney]

As Brad pointed out in his post, the definition of a recession used by economists (since 1966, when I took my first macro-economics course in college), is 2 consecutive quarters of negative GDP (actually, they used GNP back then).

There are not 2 consecutive quarters of negative growth, therefore it doesn't meet the minimum standard to be labeled a recession.

Roger, I suppose that definition only applies to the chart that Brad referenced. Depending on when you examined the government data, there was a recession by definition or ... if you look today, after many revisions of GDP, there was no recession by definition.

Moh has a point though. For anyone to insist there was no recession by definition, the FED surely over reacted by cutting the FED funds rate from 6.25% down to 1%. That was totally unnecessary as there was no recession recorded, by definition, from 2001 to present. And there was no need to cut taxes either since there was no recession, by definition.

:new_popcornsmiley:

 

[JSmith43]

I recall there was a revision that toggled it between recession and no recession. Did you find it charted?

Hopefully the Fed isn't as formula driven as you suggest.

And there was no need to cut taxes either since there was no recession, by definition.

There's a need to cut taxes for as far as the eye can see. Democrats don't come out and say they are for confiscation of guns and Republicans pretend to be performing macro-economic surgery when they cater to their conservative base.

I am in favor of a gradually staged weaning of the federal government from the personal income tax as a revenue source. If we could convince enough people that enough safe guards could be put in place to guarantee politicians would have to respect lawful limits, and if we could consistently measure GDP, I would love to see the abolition of personal and corporate income taxes.

Here's how in a nut shell: If it were mandated that government spending could not exceed a fixed percentage of GDP, they could just print the darned money required to run the remaining functions. The ratio of money to total GDP would stabilize and remain so as long as the percent of spending fell in line with the GDP percentage specified. The plan is given flesh in later editions of Caveman's Money

Then we could have all sorts of tax attorneys, Quicken employees, and accountants produce something that we would enjoy! I'd like a new boat. They could build boats!