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Sunday, November 26, 2006

Trading (Thoughts) Freely

SEARCH BLOG: CHINA and TRADE

I noticed a post at Cafe Hayek directed at me and those who share similar thoughts about trade issues and I invite you to check out Dr. Don Boudreaux' site. He is Chairman of the Economics Department at George Mason University and I have the utmost respect for his academic credentials and that university (where one of my sisters-in-law is a professor in another department). George Mason could be considered the "Michigan of the Mid-Atlantic" except there is a decidedly more "conservative" tendency than that found at UM.

Dr. Boudreaux wonders why...

A frequent commentor here at the Cafe, Bruce Hall, is convinced that American trade with China ultimately will hurt Americans.

I can't figure out why, though, Mr. Hall is worried. His comments, along with his posts at his blog Hall of Record, suggest that he fears that Chinese government policy -- for example, the alleged undervaluation of the Chinese yuan -- threaten American economic prosperity.

I don't doubt that there are benefits for some... maybe many... as a result of importing products from China. Wal-Mart and its customers are doing just fine by them.

This is my response...

I continue to appreciate your efforts to educate me; however, I will also continue to distinguish between trade that is open and equitable and countries whose trade practices are designed to weaken U.S. (and other) manufacturers in order to strengthen their own.

U.S. manufacturers have had to deal with counterfeiting, theft of proprietary information, currency manipulation and being locked out of lucrative markets by various tactics such as the Japanese requiring individual "safety inspections" of each vehicle destined for their country from the U.S. (the U.S. only requires certification of a model, not individual vehicles)... among the methods used to ensure that "free trade" is only a figment of the academics imagination.

I guess we'll see how far the subsidies go when the dollar continues to slide. I know, that will just improve the position of our manufacturers for exporting... all of those flat screen TVs that are not made in the U.S. among the other high tech items no longer made here.

But I do enjoy your site and, in a perfect world, might actually agree with you most of the time. But then, economists don't necessarily agree with each other, so....

It's not about China because they are Chinese (or Japanese because they are Japanese), it's about the trade practices and results that are undermining whole segments of our economy. Yes, I suppose we could be a nation that produces nothing but ideas, but somehow I don't believe that will do us a lot of good in a world where our ideas seem to be pirated rather than paid for. As long as we only look at the price of the product rather than the price of trade the way it is practiced, I think we will be blind to the long term dangers... which may include not just the weakening of U.S. manufacturing capabilities, but significant weakening of the dollar and perhaps longer-term "stagflation".

Yes, my concerns could be unfounded, but I have seen and read enough in over 30 years of business to understand that the expression "all is fair in love and war" should also include "and free trade"... with the same irony.

..

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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates

FEDERAL RESERVE & HOUSING

SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006 Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
November 28, 2007 FED VICE CHAIRMAN DONALD KOHN
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."
http://www.reuters.com/

December 11, 2007 Somehow the Fed misses the obvious.
fed_rate_moves_425_small.gif
[Image from: CNNMoney.com]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's Economy.com. "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.”
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)