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Old 09-23-2011, 11:43 AM
go_guy123 go_guy123 is offline
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Quote:
Originally Posted by thomachan72 View Post
Its very complicated. This extra $800 is channeled back into the system. That is why we have several more high paying jobs than what would have been available if the growth of price was just from 100 to 200. Now when it fell back from 1000 to 200, the jobs and other facilities that the "extra 800" supported is also falling apart.
Now here is the interesting role of "offshoring/outsourcing" plays. Instead of a reduced consumption due to increased cost of production what we say "thanks to NAFTA/other trade agreements" was that consumption was maintained by production offshoring. What now? Now we have a dangerous situation in countries like India/China due to the temporary boom; Every indian and chinese will soon own a car. Imagine that situation The US/Europe simply shifted the "consuming responsibility" to India/China which were traditionally very low consumers. Unfortunately there is no going back without a painful setback in these economies on the long run.
The offshoring/outsourcing/import is possible due to the currency peg..that Asia on the whole does to US dollar (some rigidly like China while others loosely like India )

So, how do they do the peg...by buying US treasuries (US Dollars) and real interest on US treasuries (adjusted for inflation) is actually negative.

Therefore , whether its Bush, Obama, Perry, Mitt Romney...who ever comes will issue more treasuries at close to zero interest (and real interst rate is -ve)

On the whole US consumers enjoyed the whole decade and are enjoying the low interest rates at the expense of the
savers in China, Japan and other asian countries.

Like Gondon Gekko said ...pal, its a zero sum game..there are winner and losers.

Eventually China and others will face the same fate of France who lost a bundle from Pound pegging in the 1920s.

Without currency intervention, as US imports more, the USD currency should fall making imports/outsourcing more expensive and making US manufacturing sector viable. With private sector providing jobs , there wouldnt have been need for so many government jobs (to reduce employment and win elections) and the resulting deficits and "stumulus" spending by debt.

Long run classical economics prevails but short run Keynesian wins.
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Last edited by go_guy123; 09-23-2011 at 03:31 PM.
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