It is something we can’t control, but at least somebody is talking about it here. We can’t stop the jet from crashing, but maybe there’s time left to at least cut the engines and give a better chance of recovery . . .

Posted by: prozacrefugee | May 3 2005 11:14 utc | 4

The Chinese are smart:
China will levy an export tax on textile products in 2005, the Ministry of Commerce (MOC) said in Beijing on Dec. 31 [2004].
The tax will be collected according to the volume of exports and the rate will be 0.2 yuan (about 0.02 US dollar) or 0.3 yuan per item or 0.5 yuan/kg, said Lu Jianhua, director of the MOC foreign trade sector.
According to Lu, China will levy the tax on 31 kinds of textile products in six categories in all trading forms and to all overseas market in 2005, when all WTO members will remove quotas on textile products.
Experts said that such measure will help improve the structure of Chinese textile exports and achieve the common development with other trading partners.
China is the world’s major exporter of textile products with its export value reaching 77.5bn US dollars from January to October [2004]. The US, EU and Japan are its top three importers.
Translation: The Chinese are not going to sit and watch US policymakers deliberately drive down the value of the US dollar in order to shrink the size of the US external debt, while at the same devaluing the sums earned by the Chinese for selling their products in the US market.
Compare and contrast with US forex speculators who drove down the value of the Brazilian Real against the US dollar in order to increase the value of Brazil’s external debt when it became apparent that Lula da Silva was going to win the most recent presidential race there.
(It’s also probably related to the debacle at the WTO meeting at Cancun that stumbled and died over US refusal to remove govt subsidy to US cotton farmers.)

Posted by: Dismal Science | May 3 2005 11:47 utc | 6

A common ordinary debtor takes solice in the thought that the biggest debtor of them all, the US government, won’t let deflation happen. I suspect very strongly that the grotesque pseudo-geriatrics now running the government actually want deflation, because it will take them back to the good old days when starving workers were available to build Gothic dormitories at Yale. Much of the inherited wealth controlling the US these days (Scaife, etc.) comes from the time of the Great Depression, when not everyone was poor.

Posted by: John Gage | May 3 2005 13:03 utc | 8

Good point about the Depression and fortunes that grew in it, but I fear the U.S. government is too far infested by parasites and prions to have any personality left.
No, it is not at all good for the government’s debt to grow through deflation, but if the worms in the government’s brain (insert various politicians’ and donors’ names) are happy to live in the leftover sludge after the brain dies, then who would prevent deflation?
Quiz! What caused the economic slowdowns of 70s? Did you answer Oil Shock? Guess what: they will ask you to buy that sack-of-pogrom explanation again.
Pay attention, the people we blame collectively are the people the country will be killing next.

Posted by: citizen | May 3 2005 15:04 utc | 10

Folgers,
You are correct, the China strategy is very similar to Japan 1989/ Asain Tigers 1997. However the important difference is scale. China is far bigger and far better organized than each of those players, and has a far more mature and diversified manufacturing base. The Chinese can and will eat red ink for years and have no appreciable effect on the average worker. In fact the average worker will probably enjoy the ride, given the way the domestic situation is working there. Ironically our top 400 and some goodly chunk of the top 1% will also enjoy this ride. However the US citizens who are already suffering will not go quietly. You see its not just a housing market “correction” that we’re looking at here. Once housing starts to burst, things really get ugly, and that process continues for as long as the Chinese, and those they enlist, feel like making it happen. Their capacity for chicken is magnitudes larger than ours because they have much less to lose, and they start in a much stronger position than we do. Can we radically shift policy here to compensate, sure, but Social Security phase-out and Tax Cuts will be like fuel to the fire. The solution is to spend less on military, create tarrifs on businesses that want access to the US markets who don’t utilize large swaths of American labor in their processes, and fix our intellectual infrastrucutre problems.
Truly, Bush won the first round of poker, by going in to Iraq, but he has showed the table all his cards since then. He now finds himself in the position of having to play daffy duck, to a Chinese bugs bunny to show his seriousness. You may recall Daffy blowing himself up to “win”, at the end of this toon. It’s ugly and completely unnecessary, and it’s long past time for the adults to send the kids packing. Bush is wasting time on tax and social security boondoggles for the superrich, at the expense of real policy. The metric here is that even the most casusal press coverage has all but destroyed these as a possibilty from passing. And while the boondoggles are nice for his base, his real motivation for doing this is ego. He has drunk from the cool-aid and has started to believe his own imagery and this is precisely the point where the house starts to turn a profit on the “player”.
To those in whose tongues are bound in golden chains who read this, loose those tongues now while you still can! A good start would be the London Times memo’s gift wrapped by the British Press, found here
http://cryptome.org/10-secret.htm

Posted by: patience | May 3 2005 15:29 utc | 12

ROFLMAO…
what a heartwarming story for these times. I feel ready to start shovelling now.

Posted by: citizen | May 3 2005 16:11 utc | 14

The worst central banker of all times juts lifted rates another tiny 0.25% to 3.00% and kept the wording unchanged, i.e. “measure” rate hikes until something breaks. If it takes longer the crash will be bigger, so why measured again?

Posted by: b | May 3 2005 18:43 utc | 16

China. Well, in my opinion, when China floats their currency, Bush goes down. And I would say that they know that. The only reason the general populace is not storming the castle carrying torches is that Chinese slave labor is putting toys under the Christmas tree.
Seeing that Bush has made the world incredibly comfortable for the Chinese government, you really have to ask yourself how incredibly bad Bush really is that they would take him down. The worst President in US history? The worst world leader since the time of the Pharaoh’s? These are questions that will keep PhD students busy for centuries.

Posted by: John Gage | May 3 2005 20:00 utc | 18

Breaking News on CNN: Fed corrects statement, adding line saying long-term inflation expectations ‘well-contained.’ More soon.
When ever has the Fed corrected a rate statement after it was published?
My tin-foil-hat covered head thinks:
Coming up to today many folks expected a rally in the equity markets would be started by the fed statement. The fed expected and attempted this too. But nothing really happened. There was an a rally started (chart) at 2:30pm but it faltered at 3:00pm after the fed statement was read and digested.
Folks probably thought that inflation expectations would be lowered by the fed, making a further rise in rates less probably and keeping money cheap. The fed initialy did not change its inflation wording and the markets went back to their prior level.
The fed then, seeing this, tries to push the market now by adding to their statement long-term inflation expectations ‘well-contained.’. Saving the bond market from a selloff and supporting the equities.
Oh, and they never ever manipulate these markets you know…
What´s your take?

Posted by: b | May 3 2005 20:24 utc | 20

Great post patience; and that ace in pack John Bolton for the UN seems a joker at this stage.

Posted by: Friendly Fire | May 3 2005 21:08 utc | 22

Hey!!!
Even Donald Trump is only one or two payments away from bancruptcy.

Posted by: pb | May 3 2005 21:29 utc | 24

Teuton wrote “And in a way, you know, I am ready for Doris Day or Laura Bush telling me in the sweetest wise-housewife-voice that whatever will be, will be…
No, for this, you want China Forbes to sing her version of “Que sera, sera”:
Pink Martini, “Sympatique”

Posted by: catlady | May 4 2005 6:09 utc | 26

Marc Faber’s monthly: Is There A “new Economy”???The new economy is characterized by the rise of China, India and to some extend also Russia as global economic and geopolitical players. Out of the blue and certainly totally unexpected to the American visionaries that spent their days counting irrelevant eyeballs in order to value Internet stocks, China has overtaken the US in many markets such as for steel, iron ore, copper, not to mention in the production of appliances and consumer electronics.
But more importantly the “newest economy” is characterized by seemingly endless bubbles, courtesy of the man who has done more to destroy the value of paper money than any one else in the 200 year history of capitalism: Mr. Alan Greenspan. The destruction of paper money as a store of value ¡V the most important quality paper money should have ¡V occurs only in one way and that is through increasing the quantity of paper money at a higher rate than real GDP growth. At times this “excessive” money supply growth will lead to real wages rising strongly, such as in the 1960s, or to commodity and consumer prices soaring, such as in the 1970s. But, excessive money supply growth can also lead to the most dangerous form of inflation and this is asset inflation, which at times will boost equity prices to lofty levels (Kuwait in 1980, Japan in 1989, Taiwan in 1990, NASDAQ in 2000, etc) and on other occasions boost the value of real estate into cuckoo-land (Tokyo in 1990, Hong Kong in 1997, and now in the Anglo Saxon countries). The reason asset inflation is so dangerous is that central bankers – usually unemployable in any other capacity – not even as waiters – only pay attention to consumer price inflation. Therefore, when consumer prices do not rise much, for example because of international competition (as is now the case), they print money like water.
…
Since the takeoff in commodity prices in 2000 coincided with the takeoff in homebuilding stocks I assume that shrinking global liquidity will not only have a negative impact on industrial commodity prices – including oil – but also on other asset markets such as housing. Now, I admit that it is always possible that Mr. Greenspan will ease once again massively – if the economy weakens. That should almost certainly be the case if home prices begin to weaken since housing inflation was driving consumption or more appropriately over-consumption in the last few years. But this might be one of the rare moments in financial history where “printing money” becomes totally ineffective because any easing move now would hurt the bond market.
…
Why would that be so if the economy weakens? Because commodity prices would soar and the US dollar tumble as investors would once and for all recognize that paper money under the guardianship of central bankers is no longer a store of value but a recipe for impoverishment due to paper money’s loss of purchasing power. Needless to say that if the Fed engages one more time in “printing money” the decline of the US dollar will lead to soaring import prices, accelerating consumer price inflation and higher interest rates. Hardly a favorable environment for the highly priced and highly leveraged US stock and real estate markets!

Posted by: b | May 4 2005 12:12 utc | 28

We really do need a reconsideration of the nature of money. The reason Social Security does work is because it is a direct transfer program, ie. there is no need for huge savings vehicles to store individual accounts. Our concept of money is actually very childish. It would be as if we assumed when we put our money in the bank, those particular dollars go into a little cubbyhole, until we come back for them. In ’96, Bob Dole had a campaign slogan, “We want you to keep more of your money in your pocket.” My first thought was, “Thank God, it’s not my money or it would be worthless.”
The misconception we have about money is that it is private property. The reason you just can’t run some off on the printer when you’re low is because it theoretically affects the value of all other money. Money is a form of economic circulatory system. As such, it is very similar to the highway system. When you use the road, you lay exclusive claim to a certain percentage of it and the faster you go, the more you need, but in order to make it work, there are speed limits.
What we have with the monetary system is a form of tragedy of the commons, as everyone tries to claim as much as possible. It would be as if every time a new road was built, everyone tried to claim as much as possible. The result would be that everything would be paved over and no one would be able to get anywhere. This is what has effectively happened with the monetary system; Everything is bottom line and the economy is still about to sieze up. In a sense, money is like processed sugar. It would be far healthier if the economy could learn to run on less cash, with a natural level of socital cooperation, etc. Less money would also result in less government. It is my suspician that with less oil, these mcmansions will be family communes, surrounded by gardens, in twenty years, as the transporation system become too expensive. The hippies and the libertarians will be happy and the rest of us will be healthier.
Everybody worries about government deficits, but where would this revenue go otherwise? It would just be asset inflation if it we not being recycled through the public sector in ways that maintain a viable society. Effectively, government debt is surplus wealth being nationalized, but rather then taken outright, the revenue stream is diverted back into private hands and compounding the problem.
It’s like a giant game of monopoly. When one person actually controls everything, it’s all over and you start again. In real life, it usually involves a revolution, or two. What these idiots who think they will take over forget, is that it’s a shaky perch and a long way down.
I first began questioning conventional economics when they tried to say that Volcker cured inflation by raising interest rates.! How do you cure an oversupply by killing demand? Inflation was brought under control with government deficits. Not only do they suck up surplus money, but public spending support private sector spending and the effect is compounded. Capitalism just cannot admit that capital is just a tool and not a God.
Sorry if this is not well organized, but time is….

Posted by: brodix | May 9 2005 1:54 utc | 30