The end of the EU

[barjon]

Jon.

You're the one pulling numbers out of your ****. Why is £2.25 cheap? Compared to what? The reason Governments give for weakening the currency is to make exports COMPETITIVE. If the widget manufacturer isn't competing with anyone, why do they need a weaker currency?

The smart people know that the way to become competitive is to improve production and invest in new technology or come out with a better product. People bought the iPhone because it is a great product, not because the US government weakened its currency...

nt

Really, nt - you asked the question, I merely supplied the answer.

£2:25 may not be cheap, but it's certainly a lower £ price than you could have bought it from them before. Ergo their price has become more attractive. Surely to Betsy you really understand that.

Competitiveness is based on price and the quality/desirability of the product. I've never suggested otherwise.

jon

ps: I wonder where iPhones are put together? Coudn't be China like so many other great products could it? Wonder why so many companies do that - couldn't be anything to do with competitive labour costs I suppose?

 

[counter_violent]

Did anyone bother to read up on the policies (or lack of) Warren G Harding?
US President 1920-22

To cut a long story very short, he averted a major depression which had started to take hold after the end of the first world war. He did this by slashing welfare, slashing red tape, slashing taxes, slashing govt size and bureaucracy by 75% and generally creating the right conditions for the people to become productive and industrious.

He also was able to pay down a substantial part of the national debt.

The US, in the space of 18 months had returned to almost full employment. Anyone for the roaring 20's !

http://www.trade2win.com/boards/news-current-affairs/151340-government-problem.html

 

[Atilla]

The prices of those goods falls thereby increasing the purchasing power of money. This is observed in the high tech world where productivity improvements are increasing the quantity of goods faster than the money supply. This is called 'good' deflation.

Yes correct in theory. Now extend the thought process to manufacturing business, competition and capitalism.

Apply your fixed Ms and deflation in pricing to each of these points and see what you get...

1. Why would any manufacturer produce more of anything to sell at a lower price?

2. Variety of goods and services has increased umpteen folds. How would these be financed with fixed Ms?

3. Factors of production and inputs to produce greater output must also increase to facilitate production? I want more oil at lower price! Is this possible?
How would these extra factors of production be paid for without corresponding increase in Ms?

4. Capitalism thrives on increased profits and spending on R&D which would simply not exist if increased output did not lead to higher profits. Where does profit come from? Does everyone earn normal profits? How do you explain abnormal profits?

5. Capital goods are cheaper and last longer. Why would any manufacturer enhance their produce to sell at lower price lasting longer?

Productivity takes you so far. What happens when you get dis-economies of scale - think fishing. More boats, more inputs, more productivity catching fish, less fish eventually???

Keeping Ms same as you suggest is totally unrealistic to finance the global trade we currently have. It is purely simplistic economic theory of supply and demand on paper - parrot fashion.


Also concur with Barjon's explanation on movement of exchange rates and currency fluctuations in addressing BoP imbalances. You are in denial about the benefits of lower exchange rates. Can you provide one country which actively pursues stronger exchange rate?


Key point - purpose of money is the facilitate trade, it is designed to change hands. Store of value is a desirable attribute but not key driver. I think you place greater emphasis on its store of value factor and perhaps this is why you are so much into gold as it fits this role better than paper money.

Countries are more interested in continued circle of trade rather than building and maintaining surpluses which staunts wealth creation. All consuming and hoarding of wealth at the expense of screwing everyone else is just bad economics imo.

 

[new_trader]

nt

Really, nt - you asked the question, I merely supplied the answer.

£2:25 may not be cheap, but it's certainly a lower £ price than you could have bought it from them before. Ergo their price has become more attractive. Surely to Betsy you really understand that.

Jon, you said "widget price $4.50 and that'll cost me in UK £2.25 - coo, that's cheap, I'll get my widgets from them."

You didn't say "I'll start buying widgets now", you said, "I'll get my widgets from them" which implies you were getting them someplace else before. So what happens to the manufacturer who loses your business and everyone else's business?

I can't think of many (any) manufacturer that purely manufactures a product for the export market and doesn't sell locally. If they are not selling locally then there can be only one reason. The price has been driven so high by currency debasement that the local population can't afford to buy the product anymore. So what the manufacturer has gained in the export market they have lost in the local market by the price rise. Society ends up poorer because only foreigners get to enjoy the fruits of the local population's labour. They get all the work but none of the stuff.

Competitiveness is based on price and the quality/desirability of the product. I've never suggested otherwise.

Yes, but you suggest price should be in part, driven by Central Planners manipulating currency, I suggest price must only be driven by efficiency, production techniques, capital investment and manufacturing friendly taxes and regulations. Think of two local manufactures selling widgets in the local market only. How do they compete? What if their input cost rise due to devaluation? Everyone is society experiences a price rise.

Why is the Government only favouring exporters? It doesn't make sense.

ps: I wonder where iPhones are put together? Coudn't be China like so many other great products could it? Wonder why so many companies do that - couldn't be anything to do with competitive labour costs I suppose?

But why Jon? Why is labour so cheap...couldn't have anything to do with Government taxes, rules, regulations etc...We are just going in circles. You say Central Planners help exporters...they sure do, they help drive their manufacturing to China.

 

[new_trader]

Yes correct in theory. Now extend the thought process to manufacturing business, competition and capitalism.

Apply your fixed Ms and deflation in pricing to each of these points and see what you get...

1. Why would any manufacturer produce more of anything to sell at a lower price?

Economies of scale for a start. Manufacturing techniques become more efficient which means you can manufacture more at a lower price. This is a fact, not fantasy. How much do you pay for computer RAM nowadays? How much did it cost 15 years ago? What about Flat screen TV's? Jon keeps talking about debasement to make things cheaper...why? Because when things are cheaper you sell more...it isn't rocket science. That's why every 2nd furniture ad is someome having a sale...

2. Variety of goods and services has increased umpteen folds. How would these be financed with fixed Ms?

I explained, prices fall so the quantity you can buy with the same amount of money increases. I recall in the late 1980's when the company I worked for bought a CD recorder...I couldn't believe my eyes. The price of a blank disk was around £25 and the recorder itself was around £10,000 and I'm talking late 1980's!! How much does a blank CD disk cost now? What about CD recorders?

3. Factors of production and inputs to produce greater output must also increase to facilitate production? I want more oil at lower price! Is this possible?
How would these extra factors of production be paid for without corresponding increase in Ms?

You're asking the same questions over and over. I suggest you turn to history for the answer. The Industrial revolution happened when the world was on a gold standard. America became the richest nation on the planet and the worlds largest exporter and manufacturer of high quality, low cost goods all while on a gold exchange standard. Henry Ford mass produced the motor vehicle before the Federal reserve was even created...History is there, read it, study it, learn from it.

"Ford was always eager to sell to farmers, who looked on the vehicle as a commercial device to help their business. Sales skyrocketed—several years posted 100% gains on the previous year. Always on the hunt for more efficiency and lower costs, in 1913 Ford introduced the moving assembly belts into his plants, which enabled an enormous increase in production."

 

[new_trader]

As for Warren G Harding, I brought the subject up almost 12 months ago.

I disagree...sort of. It is Governments who adulterate theories to suit their political careers. Just look at the constitution of the USA and it is clear that the Framers knew that Government couldn't be trusted and wanted its powers to be limited. Anyone with an ounce of common sense could see that is why they mentioned that only gold and silver should be made legal tender.

Section 10. No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

The coinage act of 1792 which was an act of congress made a Gold standard explicitly clear.

http://www.constitution.org/uslaw/coinage1792.txt

Modern economists (Keynesians) will try and convince you that the gold standard is a relic of the past which in my opinion proves they are absolutely clueless and naive.

The depression of 1920-21 is a good example of what a President with the right idea can achieve. It was very sharp but short lived and the roaring 20’s followed soon after.

Robert Gordon, a Keynesian, admits, “government policy to moderate the depression and speed recovery was minimal. The Federal Reserve authorities were largely passive. … Despite the absence of a stimulative government policy, however, recovery was not long delayed.”

Kenneth Weiher, an economic historian, notes, “despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.” He then briskly concedes that “the economy rebounded quickly from the 1920-1921 depression and entered a period of quite vigorous growth.”

Warren Harding’s (President of the United States, from 1921-1923) inaugural address is a great read and clearly contrasts the ideas of today's moronic leaders.

Warren G. Harding, Inaugural Address

Contrast this with the Great depression starting in 1929 (The one Ben Bernanke studied carefully) which lasted many, many years.

 

[Pat494]

Not many see in my view the central points:-

1. The Western Govts are vastly overspending. Public employees should get what the country can afford and live within their means.

2. Europe and the USA are falling behind competitively to the BRICS and others. Too many bureaucratic and needless expenses, greedy bosses etc.

 

[kimo'sabby]

Did anyone bother to read up on the policies (or lack of) Warren G Harding?
US President 1920-22

To cut a long story very short, he averted a major depression which had started to take hold after the end of the first world war. He did this by slashing welfare, slashing red tape, slashing taxes, slashing govt size and bureaucracy by 75% and generally creating the right conditions for the people to become productive and industrious.

He also was able to pay down a substantial part of the national debt.

The US, in the space of 18 months had returned to almost full employment. Anyone for the roaring 20's !

http://www.trade2win.com/boards/news-current-affairs/151340-government-problem.html

Ahhh the 20s. That was a time when young women who fell pregnant outside of wedlock, and did not know who the father was, were put into special asylums.

Bring the 20s back indeed.

 

[new_trader]

Not many see in my view the central points:-

1. The Western Govts are vastly overspending. Public employees should get what the country can afford and live within their means.

2. Europe and the USA are falling behind competitively to the BRICS and others. Too many bureaucratic and needless expenses, greedy bosses etc.

People don't want to look at the UNINTENDED consequences of Government interference that is why.

Here is a light-hearted example of what happens when the Government subsidizes an industry for whatever reason. Too bad if you were someone trying to make a living selling balloons or fishing equipment...

Condoms: not just for sex in Cuba | MinnPost

 

[barjon]

nt

you said, "I'll get my widgets from them" which implies you were getting them someplace else before Exactly right. So the widget manufacturer and the export business of his country benefit, don't they? So it's not "Government propaganda" but a market truth.

the local population can't afford to buy the product anymore. Yes, of course widgets will become more expensive locally, but you will note in my example that our widget manufacturer was able to increase his profit from $1 to $1:50 for his exports and still be nicely competitive internationally. He might be content with $1 locally which lessens the pain and/or widgets might not be sought after very much locally.

Why is the Government only favouring exporters? It doesn't make sense. I started off by challenging your assertion that an undervalued (weak) currency did not benefit exporters - nothing at all to do with Government policy. However, where an economy is export led - as China today - then it makes sense for a Government policy that facilitates exports.

but you suggest price should be in part, driven by Central Planners manipulating currency,. I did not suggest that - to repeat ad nauseam, I just said that an undervalued (weak) currency was beneficial to exporters and the country's export strength. In fact, I think that it should be left to the market to decide and that the natural adjustment of currencies via market force provides the necessary balance between competing countries.

This is the problem in Europe today. There is no such balancing between countries in the Euro club with the result that some (whose currency would otherwise have been strengthening internationally - maybe only one country!!) are enjoying the export benefit of an "undervalued" currency, whilst others (whose currency would otherwise have been weakening internationally) are suffering the export disadvantage of an "overvalued" currency.

 

[Atilla]

Economies of scale for a start. Manufacturing techniques become more efficient which means you can manufacture more at a lower price. This is a fact, not fantasy. How much do you pay for computer RAM nowadays? How much did it cost 15 years ago? What about Flat screen TV's? Jon keeps talking about debasement to make things cheaper...why? Because when things are cheaper you sell more...it isn't rocket science. That's why every 2nd furniture ad is someome having a sale...



I explained, prices fall so the quantity you can buy with the same amount of money increases. I recall in the late 1980's when the company I worked for bought a CD recorder...I couldn't believe my eyes. The price of a blank disk was around £25 and the recorder itself was around £10,000 and I'm talking late 1980's!! How much does a blank CD disk cost now? What about CD recorders?



You're asking the same questions over and over. I suggest you turn to history for the answer. The Industrial revolution happened when the world was on a gold standard. America became the richest nation on the planet and the worlds largest exporter and manufacturer of high quality, low cost goods all while on a gold exchange standard. Henry Ford mass produced the motor vehicle before the Federal reserve was even created...History is there, read it, study it, learn from it.

"Ford was always eager to sell to farmers, who looked on the vehicle as a commercial device to help their business. Sales skyrocketed—several years posted 100% gains on the previous year. Always on the hunt for more efficiency and lower costs, in 1913 Ford introduced the moving assembly belts into his plants, which enabled an enormous increase in production."

Look NT here is a very simple formula that has stood the test of time. Think about it for a couple of minutes and hopefully it should cut out a lot of the micro-economic noise.


G&S x Pr = Ms x Freq

G&S = Total Goods and Services - Total Output
Pr = Price of each G&S
Ms = Money Supply
Freq= Frequency / Transactions - Level of Economic Activity


The two sides must balance. This is a very simple formula.

What you are saying is that the colossal increase in output G&S can be supported by;

1. decrease in price and
2. Increase in economic activity

with Ms remaining constant. I'm afraid whilst this is a mathematical possibility it does not translate into the real economy at all.



To get back to the thread yes politicians do over promise and over spend and are reluctant to make social cuts as they are eager to over promise tax cuts and deliver them by borrowing more. Which ever side one sits on is immaterial but the formula stands.

If one keeps Ms constant in a recession with Freq falling then this will entail a VERY DRAMATIC drop in G&S and Prices (includes employment). Moreover, just as the multiplier effect can be +ve it can also be -ve.


Which routes we go down are obvious imo. Let inflation act as a shock absorber to redistribute and facilitate the restructuring of debt/credit and productive output until new nominal values are reached in prices and exchange rates.

 

[new_trader]

nt

you said, "I'll get my widgets from them" which implies you were getting them someplace else before Exactly right. So the widget manufacturer and the export business of his country benefit, don't they ? So it's not "Government propaganda" but a market truth.

Either you are missing the point, or, I didn't make it clear enough. Manufacturers work to tight margins. Their profits aren't arbitrary as you imply. If their input costs rise then either their margins are squeezed to the point where they go out of business OR they must raise their prices. If they raise their prices then they will lose business locally which cancels out any benefits of increased exports.

I didn't specifically say it doesn't help some exporters, it might help raw material producers who can't move their operations to China. The idea that the Government is devaluing to boost exports is propoganda, governments inflate the money supply to help themselves but they aren't going to say that are they? When I explained all the adverse consequences of debasement you dismissed it, and that is the point I am making. One group benefits but another group loses. Net benefit to society is ZERO or worse. All the benefit is for the Government.

the local population can't afford to buy the product anymore. Yes, of course widgets will become more expensive locally, but you will note in my example that our widget manufacturer was able to increase his profit from $1 to $1:50 for his exports and still be nicely competitive internationally. He might be content with $1 locally which lessens the pain and/or widgets might not be sought after very much locally.

Yes, this increase in profit was arbitrary, what if he can't do that? What must he do to cut costs? Fire some workers, decrease quality, etc...etc...ALL of this is observed in the real world. You know the saying "They sure don't make things like they used to"

Why is the Government only favouring exporters? It doesn't make sense. I started off by challenging your assertion that an undervalued (weak) currency did not benefit exporters - nothing at all to do with Government policy. However, where an economy is export led - as China today - then it makes sense for a Government policy that facilitates exports.

This is getting tedius Jon, it really is. The Chinese economy is much more productive than Western economies. I have heard first hand from entrepreneurs and businessmen that have moved to China because taxes, rules and regulations make it much more 'business friendly'. It is utter folly to suggest that it has everything to do with a weak currency.

China may be keeping its citizens poor through monetary policy, thereby appearing helping exporters, but then that completely supports my initial assertion. How are the Chinese workers benefiting from a policy if they only get the work but none of the stuff? If the Chinese governemt allowed the Renminbi to appreciate, then instead of selling stuff to over-indebted Westerners on credit, they would have a booming local economy. The Chinese workers would have the work and the stuff. China has something like $2 trillion in US reserves....what good is that to them when the stuff they will want to buy is made in China?

Do you think it's right for a Chinese factory worker to be assembling a dishwasher for an American consumer while having to wash his/her own dishes by hand? Is that what you want to happen in the U.K? We get all the work but none of the stuff because everyone has been impoverished?

but you suggest price should be in part, driven by Central Planners manipulating currency,. I did not suggest that - to repeat ad nauseam, I just said that an undervalued (weak) currency was beneficial to exporters and the country's export strength. In fact, I think that it should be left to the market to decide and that the natural adjustment of currencies via market force provides the necessary balance between competing countries.

Well what do you know, we agree. Remember that the next time the Government says they are devaluing the currency to boost exports...the next time it will be for another reason...and another reason...etc...etc

 

[new_trader]

Look NT here is a very simple formula that has stood the test of time. Think about it for a couple of minutes and hopefully it should cut out a lot of the micro-economic noise.


G&S x Pr = Ms x Freq

G&S = Total Goods and Services - Total Output
Pr = Price of each G&S
Ms = Money Supply
Freq= Frequency / Transactions - Level of Economic Activity


The two sides must balance. This is a very simple formula.

What you are saying is that the colossal increase in output G&S can be supported by;

1. decrease in price and
2. Increase in economic activity

with Ms remaining constant. I'm afraid whilst this is a mathematical possibility it does not translate into the real economy at all.



To get back to the thread yes politicians do over promise and over spend and are reluctant to make social cuts as they are eager to over promise tax cuts and deliver them by borrowing more. Which ever side one sits on is immaterial but the formula stands.

If one keeps Ms constant in a recession with Freq falling then this will entail a VERY DRAMATIC drop in G&S and Prices (includes employment). Moreover, just as the multiplier effect can be +ve it can also be -ve.


Which routes we go down are obvious imo. Let inflation act as a shock absorber to redistribute and facilitate the restructuring of debt/credit and productive output until new nominal values are reached in prices and exchange rates.

Magic formulas...stood the test of time...if I remember rightly, the £UK was once the reserve currency wasn't it? England had a much larger industrial and manufacturing base and who ever heard of Q.E before?

I never said the money supply should remain constant. It should grow in proportion to REAL economic growth, not through arbitrary decisions made by Governments and Central banks.

Let inflation act as a shock absorber to redistribute and facilitate the restructuring of debt/credit and productive output until new nominal values are reached in prices and exchange rates

I don't understand your economics Atilla, no offence, it just doesn't make sense to me at all. Inflation is a shock absorber?

 

[Atilla]

Magic formulas...stood the test of time...if I remember rightly, the £UK was once the reserve currency wasn't it? England had a much larger industrial and manufacturing base and who ever heard of Q.E before?

I never said the money supply should remain constant. It should grow in proportion to REAL economic growth, not through arbitrary decisions made by Governments and Central banks.
Here I agree with you 100%.

I don't understand your economics Atilla, no offence, it just doesn't make sense to me at all. Inflation is a shock absorber?

Inflation is the Pr factor in the equation which must always balance.

Thus as the Ms increases sooner or later without a correpsonding increase in Goods & Services (Output/Productivity) or dramatic decrease in level of economic activity then Prices inflation will rise.

It is an adjustment process for the equeation to always balance.

 

[barjon]

...................This is getting tedius Jon, it really is...........

Yes, NT, you're right there

Let me retrace. You said in answer to a split post:

...You have bought into the idiotic Government propaganda that a weak currency helps exporters....

and it was that statement of yours - and only that - which I challenged and answered to demonstrate that it was market fact and not Government propaganda.

Since then you have persisted in arguing about all sorts of contentions that I neither made nor suggested and you have the temerity to say that it is me who is missing the point. Heaven forfend

 

[Splitlink]

Why are manufacturers moving to China? I think it's you that is dense

There are a lot of social and moral issues involved when moving abroad is concerned. China is a "dollar-a- day" country for millions of labourers. It is a well known fact that the major fashion manufacturers use child labour for a lot of their clothes. and that European shoppers turn a blind eye to that fact when faced with the prospect of a 2 quid shirt made in India or Viet Nam. Even on this thread, that fact seems to have been carefully avoided.

The sad fact is that major manufacturers' mouths water at the profit potential and they, too, turn a blind eye to labour conditions. until some newspaper gets hold of the story.

It is all down to money and Western countries have powerful unions to contend with. How many times have we heard the immigrants argument "We do the work that the British (or other European) people do not want to do"?

We cannot stop manufacturers going abroad. It is a free country. But we must not use the argument that it is cheaper unless we investigate the reason why it is cheaper.

 

[new_trader]

Yes, NT, you're right there

Let me retrace. You said in answer to a split post:

...You have bought into the idiotic Government propaganda that a weak currency helps exporters....

and it was that statement of yours - and only that - which I challenged and answered to demonstrate that it was market fact and not Government propaganda.

Since then you have persisted in arguing about all sorts of contentions that I neither made nor suggested and you have the temerity to say that it is me who is missing the point. Heaven forfend

Ok Jon, maybe I should have said "That the Government is weakening the currency to help exporters"

The impact of Government policy is evident in the widening trade deficit. That is a fact.

 

[new_trader]

There are a lot of social and moral issues involved when moving abroad is concerned. China is a "dollar-a- day" country for millions of labourers. It is a well known fact that the major fashion manufacturers use child labour for a lot of their clothes. and that European shoppers turn a blind eye to that fact when faced with the prospect of a 2 quid shirt made in India or Viet Nam. Even on this thread, that fact seems to have been carefully avoided.

The sad fact is that major manufacturers' mouths water at the profit potential and they, too, turn a blind eye to labour conditions. until some newspaper gets hold of the story.

It is all down to money and Western countries have powerful unions to contend with. How many times have we heard the immigrants argument "We do the work that the British (or other European) people do not want to do"?

We cannot stop manufacturers going abroad. It is a free country. But we must not use the argument that it is cheaper unless we investigate the reason why it is cheaper.

I think it still all comes down to Government policy. If consumer disposable incomes are being squeezed by taxes and loss of purchasing power through inflation, then manufacturers have to respond by lowering their prices and finding cheaper and cheaper ways to manufacture. To say that it is all driven by greed is more ideological than fact.

The child labour argument is an emotive one but unfortunately, in some countries, people are so poor that children have to work or the families starve. It's easy to say that people should stop buying the products but what good will that do?

I recall a story of how some left wing do-gooders wanted to eliminate child labour in a country and the end result was the children ended up having to go into prostitution to survive. I will have to confirm this story and the country, but this is just another example of unintended consequences of Government interference. Governments cannot end poverty simply through legislation. Capitalism ended child labour in the Western world and will do so in the poorer countries if it is allowed to.

 

[Splitlink]

This argument sounds to me like an inevitable state of economic evolution. No matter who gets blamed, everything will come right in the end and Capitalism will get the credit. I suspect that the truth is that developing markets will prosper in spite of Capitalism, not because of it. The troublesome aspect of this is that the wealth gets diluted as the decades pass.

What is concerning us is our own, ie. European, survival more than the well-being of those living in emerging markets and you UK residents, want the EU to be disbanded or, at best, the UK to lreave the EU whlst the EU, having embarked on a very costly route towards unity, does not want to go that far, yet.

This whole mess has nothing to do, in my view, with anything other than bankers' greed and the ineptitude of our leaders to stop the rot in time but it is obvious that this is not a nasty Greek, Irish, Portugese, Spanish, Italian plot. Our mistake is that we created, and failed to properly control, a common currency. The British are pointing a finger at us, when their own financial system is, also, in as bad a state.

 

[barjon]

..................... whlst the EU, having embarked on a very costly route towards unity, does not want to go that far, yet................

split

....and some may say that the current mess is all a deep laid plot to create a United States of Europe by force majeur.

You blame the bankers but there was always going to be increasing imbalances between euro countries if their economies deviated from the relative position they were in when they joined the euro. Without central european control "rules" were created which would ensure (theoretically) minimal deviation, but those rules were just bent, twisted or downright ignored by country after country. That's not the bankers' fault - it's governments.