An Important post. We need to look back and try to figure out what caused past problems.

Why did the foreign Central Banks have the dollars to be invested in the high end of the yield curve? Because of the large U.S. trade deficit.

Everywhere I look, I see the hand of the large U.S. trade deficit. Am I seeing things or is my vision clear?

Now that is just the sort of challenge I like. Unfortunately, I saw it too late. No one around to talk with.

It is late and I am not up to repeating myself. But I would ask mr. H. to review what I have said above and point out anything that is irrational or not persuasove.

You may not see the connection (at least as I do): but the US has the oldest constitution in the world.

France, for example, is an older nation. But they’re currently in their 5th Republic. Which implies 5 constitutions.

The continuity (in US governance) is a subtle (and flexible) one which many people from older, supposedly more ‘mature’ cultures often don’t understand.

There are advantages to being young and naive. For example you don’t think reflexively in zero-sum terms and you can actually come up with (and implement [youthful vigor]) such things as the Marshall Plan.

precisely the point dear judy

Grameen focusses on microcredit , not the “traditional” consumer credit markets as seen in the west. Wonder if anyone tried getting a loan from them to buy the iPhone?!

grameen treads way deeper than countrywide and leaves footsteps full of flowers.

so how low do ya wanna go before u know?

Twofish: People follow the regulations as it is written. What else do you want to them do? Mind read?

How about using some common sense? When you buy a CDS from an under-capitalized counter-party and then use it as insurance for reducing your capital requirements, it should be clear to any rational non-mind-reading person, that you are engaging in deception to deliberately violate the plain intent of the regulation.

If you don’t think that that is unethical, you need to think carefully about your value system.

Asian economies can not permanently rely on the US and Europe to make up for their own shortfalls of domestic demand

Asia’s development has never been too regular or evenly spread. The average Asian consumer, whatever their profile (and however unrealistic that profile is) is miles away from being the typical American or European consumer, there simpoly isn’t the means to consume on the same basis. Unless you’re envisioning a socialist/communist redistribution of wealth, that isn’t going to change any time soon, the concentration of affluence in the hands of the few % of society means that any change in consumption patterns is not likely to be sustainable or quick in any meaningful way, of course, that % is measured against a population that constitues 20% of the world population. Go do the math.

With a few exceptions, extravagant expenditure on the scale seen before the Asian financial crisis has not quite taken place , least not without sensible hoarding of reserves by the government before expenditure is even considered. In a sense, the chickens have come back to roost for the IMF , the world bank and the governments who gave those lectures on austerity and the folly of reckless expenditure in the years following the crisis. However, it’d be foolish to expect everyone to remain unscathed in the present crisis, just a question of how serious the fallout and therepore the degree of suffering. When you have nothing to lose, there is really nothing that you can lose or for that matter spend. The lack of demand is sometimes tied up to the lack of means.

There is also the faint line which seperates looser credit policies and poor credit controls – which is something few sensible governments are willing to test, many banks have trodden the ground that angels fear to tread, the results of which are not very pretty.

This is not a defence of Asian attitudes towards the present situation but rather the questioning of what is entailed by the idea of expanding demand. The means by which you expand demand and the realities of what it takes to expand demand are as important as recognising thaqt demand needs to be expanded. And no one denies that Asia needs to expand demand; after all, that is another aspect of power in this world right?

Twofish is usually right but some people here are a little to prejudiced to look at his arguments. Tian Chee has a point though (Malaysian?) . Such talent could be used more profitably. Unless Twofish is, like me, not interested in making money, but in just thinking and arguing about it.

Anyway, most people on this blog who think the trade deficit (a) is important and (b) can be reduced by US government unilateral change of trade rules do not impress me by their arguments.

First of all there is a multitude of underlying business problems. Everyone is familiar with the spectacular failure of US carmakers to hang on to or regain their home market retail base. That started with imports but that is no longer the case. In fact some a big share f US car exports (by value) consist of things like BMW and Mercedes SUV’s or Honda Accords (they even make them with left hand drive for Australia and South Africa). Do you think any government action (barring subsidies to individual firms as are now being considered) and especially action targeting China would change that? And what about the workers in Kentucky etc?

Second, whatever business China (or in a smarter version of trade intervention, other non-NAFTA countries) would lose would probably not come to the US for manufacturing, because (a) wrong workforce (b) different preferences business owners and managers (c) other parts of NAFTA may be more attractive than the US.

Third, the movement of manufacturing out of high cost locations began when it became technically possible and cost effective (container transport, telecommunications, computer aided design and manufacturing, etc). And these things were not invented to assist greedy capitalists to rob worthy Ohio workers of their birthright to high wages. It just got accelerated (and is bound to slow down within 10-15 years) when the Chinese government realized that slavery is less productive than capitalism and offered its surplus workers to the outside world on the condition that they would stay (mostly) in China. That was convenient because most high cost countries did not want to import lots of workers (that is legally) from abroad, it suppressed inflation (by alleviating manual labor scarcity) and in fact greatly improved western standards of living (how about a $150K plasma screen or $20K laptop?). Also, it helped end the silly geopolitical situation called WWIII, that kept over 200 million “caucasians” in slavery.

Fourth,

Government intervention has to be very good, well designed and executed with absolute credibility over very long periods (one of the true lessons of Asian development), and even then the result may be only a modest increase in living standards and a legacy of corruption (when the model becomes obsolete for the level of development achieved). The US does not have that type of government credibility (administrations come and go, electorates change their preferences) and it does not have even the foundations for a successful implementation system. What you would get is something like the US military, health care or criminal justice system. Would you like any of those presiding over say, Consumer Electronics?

The trouble with this is that the bank agrees with the regulation completely, it’s just got a hundred lawyers that have figured out how to use that regulation to get what it wants. You might say that the bank should follow the “meaning of the law” except that the law was passed with 535 people each with a different idea on what the law means.

Also very few regulations are legislative. For example the Securities Exchange Act basically says “securities fraud is illegal.” So what actually determines what a regulation means are thousands of pages written by judges and bureaucrats.

observer: Deliberately circumventing regulation is highly unethical and is pure fraud just like tax evasion.

People follow the regulations as it is written. What else do you want to them do? Mind read? If you want people to do something, write the laws so that they do it. You can’t write a law and then complain when people follow it.

Charles: As for assigning the opinions of “the person next to you” to me, the United States is a country of 300 million individuals.

You support a bill for nice reasons. The guy next to you supports the same bill for nasty reasons, and then you find the day after that the person that supports the bill for nasty reasons has pushed you out of the way, and is determining how the new law is used. Most of the Communists that overthrow the Nationalists in 1949 were absolutely nice, sweet, and wonderful people. It’s too bad that they got pushed aside once the revolution was won.

Also, if you are supporting something that you think will help China, and the guy next to you is supporting it precisely because he thinks it will hurt China, you simply can’t ignore that other guy, because Beijing is going to be seeing and listening to both of you.