Want a Manufacturing Renaissance? Here’s How
by ilene - October 7th, 2010 4:38 am
Want a Manufacturing Renaissance? Here’s How
Courtesy of Charles Hugh Smith, Of Two Minds
The keys to launching a renaissance in manufacturing and industry in the U.S. are not just financial.
Given the widespread angst over the dwindling role of manufacture and industry in the U.S. economy, you’d think commentators and pundits might actually know something about manufacturing. Remarkably, they don’t.
I see precious little evidence that anyone on either side of the issue--those bemoaning the loss of industry, and those who brush aside the whithering as a positive consequence of globalization, wage arbitrage and free capital flows--has ever worked in a factory or even toured factories in various countries to see for themselves.
The standard-issue pundit/academic may well have glanced through the viewing window at some high-tech factory with robots and workers in clean jumpsuits, and this one slice of manufacturing colored their scanty experience: this must represent all factories nowadays.
Only it isn’t so.
Others (again, with no direct experience with manufacturing) are quick to point out the huge wage differential between Chinese workers (who have received substantial raises in previous years) and U.S. workers and pronounce the eventual death of all U.S.-based manufacturing just on the basis of wage arbitrage.
It isn’t that simple. And what exactly is that wage differential? Few note that the dorms and food services provided to workers at large-scale factories in China are subsidized and thus constitute an additional "wage."
Today we look at issues which rarely if ever see the light of day in the mainstream media.
I happened to see two video clips filmed inside Japanese and German factories on TV recently, on the Japanese English-language channel NHK and on the German English-language channel DW.
As we all know, Japan and Germany are the world’s powerhouse exporters of advanced machine tools and other high-technology equipment and goods.
In the Japanese plastics factory in Nagano Prefecture, neatly uniformed workers were shown cleaning plastic parts by hand.
In the German packaging factory, neatly uniformed workers were shown guiding cardboard boxes onto a conveyor by hand.
To the observer who knows something about either nation, both personally and as a mercantilist culture/economy, there is a wealth of information in these two short videos.
1. A staggering amount of "manufacturing" in advanced mercantilist economies still involves human labor.
2. Factory work is respected and not denigrated culturally.
factory work in the U.S. is widely viewed…
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Hugh Hendry Interview With King World News: “If Inflation Is A Monetary Phenomenon, Hyperinflation Is A Political Phenomenon”
by ilene - September 28th, 2010 8:27 pm
Hugh Hendry Interview With King World News: "If Inflation Is A Monetary Phenomenon, Hyperinflation Is A Political Phenomenon"
Courtesy of Tyler Durden
In which we learn that that outspoken iconoclast has now taken on a $2 billion short position in Japanese credit, although presumably not cash-based as Ecclectica is well under that in AUM. For those who wish to recreate this position synthetically, we refer you to Dylan Grice’s ATM swaption in the 10Y10Y forward which is the cheapest way to follow in Hugh’s footsteps, and, ahem, may we remind you of Takefuji’s recent bankruptcy…).
His bet is in essence a gamble against the "China will never fail" bandwagon: "I am just intrigued as to the optionality, as to the profits that could be made, should that revert. And because it’s deemed to be impossible, the trade is actually asymmetric. By golly if I am right, I can make a lot of money." Another topic is the already much discussed malinvestment in China, which was the centerpiece of the argument between Hendry and Faber from some time ago (link for clip). But back to what actual things Hugh is doing, he gives the following specifics: "I am shorting 10 year industrial corporate debt with 1% yield. Should this ricochet, which began in America, should the west be grappling with fears of recession, it goes to Asia, it goes to China, and I do not believe they have the vitality and consumption to pull the global economy out." And just in case there is any doubt how Hendry views the endgame, here it is: "At these immense levels of yen strength, Japan is bankrupt. And when it’s bankrupt it has given up hope, and there is huge political legitimacy to then do quantitative easing, which leads to the debauchery of the system." In other words: the nuclear response of monetary debasement is certainly coming. We won’t spoil what Hendry says on gold (suffice to add the following quote: "We will see a joint meltup in US Treasrys and gold") – for his insights on where the metal will go, for a shoutout to all Zero Hedge Hugh Hendry fans, and for much more, listen to the whole interview.
Full King World News interview.
And for those who may have missed it the first time around, here is arguably the most succinct and comprehensive interview with…
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The Road to World War III – The Global Banking Cartel Has One Card Left to Play
by ilene - September 28th, 2010 2:19 am
The Road to World War III – The Global Banking Cartel Has One Card Left to Play
By David DeGraw (h/t ZH)
The following is Part I to David DeGraw’s new book, “The Road Through 2012: Revolution or World War III.” This is the second installment to a new seven-part series that we will be posting throughout the next few weeks. You can read the introduction to the book here. To be notified via email of new postings from this series, subscribe here.
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Editor’s Note: The following is Part I to David DeGraw’s new book, “The Road Through 2012: Revolution or World War III.” This is the second installment to a new seven-part series that we will be posting throughout the next few weeks. You can read the introduction to the book here. To be notified via email of new postings from this series, subscribe here.
I: Economic Imperial Operations
When we analyze our current crisis, focusing on the past few years of economic activity blinds us to the history and context that are vital to understanding the root cause. What we have been experiencing is not the result of an unforeseen economic crash that appeared out of the blue with the collapse of the housing market. It was certainly not brought on by people who bought homes they couldn’t afford. To frame this crisis around a debate on economic theory misses the point entirely. To even blame it on greedy bankers,…
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Prepare for Currency/Trade Wars; How Might China Respond to US Tariffs?
by ilene - September 27th, 2010 1:57 am
Prepare for Currency/Trade Wars; How Might China Respond to US Tariffs?
Courtesy of Mish
Patience of US legislators regarding the value of the Yuan has finally given out. Last Friday, Congress jumped into the fray after exceptionally harsh statements from Treasury Secretary Tim Geithner, who up until now had always preached diplomacy. Here is a brief sequence of events.
Patience Runs Out
MarketWatch reports Patience runs out on quiet diplomacy on China currency.
Sept. 15, 2010
Patience appears to have run out in Washington for the standard White House approach that favors quiet diplomacy for dealing with China over the dispute over the value of its currency.In testimony to the House Ways and Means Committee, a wide array of experts said that quiet diplomacy has essentially been a failure. The only debate at the hearing was what new approach should be tried.
Geithner Enters the Battle
One day later Geithner calls for faster yuan appreciation
Sept. 16, 2010
“China needs to allow significant, sustained appreciation over time to correct this undervaluation and allow the exchange rate to fully reflect market forces,” Geithner said in testimony prepared for the Senate Banking Committee. Geithner will also talk about the yuan with the House Ways and Means Committee this afternoon.“It is past time for China to move,” Geithner said.
An undervalued yuan has helped China to boost exports and encouraged U.S. companies to outsource manufacturing to China from the U.S., Geithner said. He added that the yuan is held at a undervalued level by “heavy intervention” even as Chinese officials have pledged to allow the yuan’s value to be guided more by market forces.
China Rebuffs Geithner
Responding to Geithner China says it won’t repeat Japan’s mistake
Sept. 20, 2010
China pledged not to repeat Japan’s mistake and allow its currency to rise in response to foreign pressure, countering criticism from U.S. lawmakers that the yuan is undervalued amid a growing cross-Pacific row over Beijing’s currency regime.“China will not go down the path that Japan did and give in to foreign pressure on the yuan’s exchange rate,” Li Daokui, an economist and member of the monetary policy committee of the People’s Bank of China, was cited as saying in a report by the state-run China Daily.
Li’s comments appeared to reference to the 1985 Plaza Accord that resulted in coordinated government
…
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SEC Denies China’s Dagong of Market Entry After U.S. Debt Downgrade
by ilene - September 26th, 2010 9:13 pm
SEC Denies China’s Dagong of Market Entry After U.S. Debt Downgrade
Courtesy of asiablues at Zero Hedge
By Dian L. Chu, Economic Forecasts & Opinions
The U.S. Securities and Exchange Commission (SEC) on Thursday denied the application by China’s largest credit rating firm--Dagone Global Credit Rating Co.--to become a Nationally Recognized Statistical Rating Organization (NRSRO) in the U.S. 
The SEC cited concern regarding cross boarder supervision since “It does not appear possible at this time for Dagong to comply with the record keeping, production, and examination requirements of the federal securities laws."
Media report quoted an SEC official that Dagong is the first firm to be denied by the SEC since the regulations governing the application process went into effect in 2007.
Dagong’s claim to fame came with its first international sovereign ratings report released in July of this year. In the report, Dagone stripped the U.S. the AAA rating, while giving emerging economies like Brazil and China higher credit ratings than the US , the UK, and Japan. Those ratings widely contradict the ones assigned by the Big Three – Moody’s, Standard & Poor’s, and Fitch.
Dagong, then followed up with some sharp criticism of its western counterparts, and a verbal clash with Harold "Terry" McGraw III, whose company owns Standard & Poor’s credit agency.
So, it is of no surprise that Dagong immediately issued an angry rebuff calling the SEC’s decision discriminatory against China and a barrier specifically set for Dagong. It also took it to a few octanes higher –citing China’s sovereignty and financial assets safety are at issue here. From People’s Daily Online:
“….the contention by U.S. authorities… amounts to bias against Chinese credit-rating agencies. Dagong will not accept the NRSRO status at the price of betraying national sovereignty….. Dagong will consider conducting activities at the right time to protect its rights, including seeking legal actions against the SEC."
China Daily also cited Dagong statement that having China’s own say in credit rating in the United States is significant to safeguarding the security of China’s overseas financial assets. And Dagong aims to enter the U.S. market to protect China’s interests as the largest creditor there. As of July, China held $846.7 billion worth of U.S. Treasurys, according to official U.S. data. …
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THREE THINGS I THINK I THINK
by ilene - September 23rd, 2010 8:05 pm
THREE THINGS I THINK I THINK
Courtesy of The Pragmatic Capitalist
1) Am I too bearish?
Some commenters have noted that I seem a bit too bearish all the time. Some have even gone so far as to imply that I am a permabear. These are fair comments, but require some clarification. The other day I mentioned my top down approach to the markets. Most of what I write about here at Pragmatic Capitalism is a
What I am not, however, is a permabear. Within this macro outlook I have been bullish at many of the most opportune moments in the last few years. Most notable was my bottom call on March 8th when everyone in the universe was negative and I said the government was about to engage in an unprecedented
“Ideally I would, however, I think it’s dangerous to build shorts right now. If the market is about to collapse then it’s about the most widely known collapse ever. Markets don’t tank when everyone is this bearish unless there is some sort of extreme event (which isn’t occurring currently). I think the April period when I was very negative (and short) is a great example.
I have actually been looking for a spot to get long even though my macro outlook is negative (which it has been for several years).”
Now, in fairness, I did not buy for my macro equity strategy so don’t take this as some form of revisionist history where I am patting myself on the back for a trade that never occurred. On September 2nd I got what I later referred to as a “soft buy signal” as opposed to a conviction buy signal (more on this below). In hindsight it’s easy to say that I should have had more conviction in the signal and simply bought stocks, but that’s not…
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Currency Intervention Madness; Japan Intervenes to Weaken the Yen; Selected Quotes
by ilene - September 15th, 2010 4:45 pm
Currency Intervention Madness; Japan Intervenes to Weaken the Yen; Selected Quotes
Courtesy of Mish
After months of attempting to talk the Yen down, Japan Intervenes First Time Since ’04 to Rein in Yen.
Japan intervened in the foreign-exchange market for the first time since 2004 after a surge in the yen to the strongest against the dollar in 15 years threatened to stunt the nation’s economic recovery.
Finance Minister Yoshihiko Noda confirmed the intervention, speaking to reporters today in Tokyo. He said Japan contacted other nations about the step, without specifying that today’s measure was taken unilaterally. Chief Cabinet SecretaryYoshito Sengoku said the ministry considers 82 per dollar to be the line of defense, after it reached a high of 82.88 earlier today.
Japan hadn’t intervened to sell yen in the foreign-exchange market since 2004, when the yen was around 109 per dollar. The Bank of Japan, acting on behest of the Ministry of Finance, sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Noda didn’t say how much was used in today’s action, while that figure will be released at a later date.
U.S. Treasury Secretary Timothy F. Geithner declined to comment about the prospects for currency intervention in an interview last week, instead saying that Japanese officials should do what they can to help their economy grow.
Recent Japanese data have pointed to the expansion losing momentum. The government yesterday revised its July industrial output figures to show that output fell rather than increased from a month earlier. Japan’s economy expanded at a 1.5 percent annual rate in the second quarter, less than half the pace of the previous period, and consumer confidence slid to a four-month low in August.
Is Currency Manipulation OK or Not?
Both China and Japan are intervening in the Forex markets for the same reason, to strengthen exports and stimulate the economy.
Pardon me for asking the obvious question but it needs to be asked: Why does Geithner give the green light for Japan to intervene in the currency markets but China is threatened with a currency manipulator label for doing the same thing?
Boosting the Dollar
Please consider a few select quotes from the New York Times article Japan Moves to Boost the Dollar
JOHN VAIL, CHIEF GLOBAL STRATEGIST, NIKKO ASSET MANAGEMENT
"Clearly the U.S. is
…
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SocGen’s Dylan Grice: China Is A Decade Away From Japan Style Doom
by ilene - September 14th, 2010 2:32 pm
SocGen’s Dylan Grice: China Is A Decade Away From Japan Style Doom
Courtesy of Gregory White at Business Insider
Dylan Grice of Societe Generale has released another of his scathing reports, this time targeting the rise of China and why it might soon become the new Japan, only much, much worse.China is currently experiencing a tremendous amount of cash inflows, as it has been labeled the best of the emerging markets kings, the BRICs. But all that money could be funding a massive bubble.
But the bubble story, which is well heard of, is only part of the comparison. Grice notes that China also has a similar population problem, brought on by the one-child policy, that will eventually lead to a demographic crisis similar to Japan’s.
First, on Japan’s lost decade, from Grice (emphasis his):
Something else happened in Japan in the early 1990s which receives less attention but provides a simpler explanation for its post-bubble experience: demand is deflating because the workforce is shrinking (see the first chart on page 3). The table below shows that while Japanese real GDP growth has indeed significantly lagged behind that of the US over the past 20 years, per worker GDP has broadly kept pace, even outpacing it over the last five.
Grice then notes the five things the two economies, Japan pre-bubble and China, have in common:
- Absence of democracy
- State-directed capitalism
- Currency manipulation and reserve accumulation
…
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The Marriage of Mercantilism and Corporatism: When Free Trade Is Not ‘Free’
by ilene - September 13th, 2010 10:45 pm
The Marriage of Mercantilism and Corporatism: When Free Trade Is Not ‘Free’
Courtesy of JESSE’S CAFÉ AMÉRICAIN
"The consequences of this policy are also stark and simple: in effect, China is taxing imports while subsidizing exports, feeding a huge trade surplus. You may see claims that China’s trade surplus has nothing to do with its currency policy; if so, that would be a first in world economic history. An undervalued currency always promotes trade surpluses, and China is no different." Paul Krugman
And he is exactly right. As regular readers know this matter of Chinese mercantilism and its toleration and acceptance by the West has been a key observation and objection here since 2000. Any economist who does not understand that devaluing and then maintaining an artificially low currency peg with a trading partner distorts the nature of that trade should review their knowledge of algebra.
And yet it was in 1994 during the Clinton Administration that China was permitted to obtain full trading partner "Most Favored Nation" status, while vaguely promising to float their recently devalued currency some day, and address the human rights issues that were endogenous to their non-democratic, totalitarian government.
"From 1981 to 1993 there were six major devaluations in China. Their amounts ranged from 9.6 percent to 44.9 percent, and the official exchange rate went from 2.8 yuan per U.S. dollar to 5.32 yuan per U.S. dollar. On January 1, 1994, China unified the two-tier exchange rates by devaluing the official rate to the prevailing swap rate of 8.7 yuan per U.S. dollar." Sonia Wong, China’s Export Growth
This served Mr. Clinton’s constituents in Bentonville quite well, and has some interesting implications for the Chinese campaign contributions scandals. It supported the Rubin doctrine of a ‘strong dollar’ while facilitating the financialization of the US economy and the continuing decline of the middle class wage earners, under pressue to surrender a standard of living achieved at great cost. "How I Learned to Stop Worrying and Love the Currency Collapse." and China’s Mercantilism: Selling Them the Rope
Not to limit this, George W. ratified the arrangement when he took office, and so it has gone on for almost fifteen years…
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New Job Opportunity – Spitting at the Moon
by ilene - September 5th, 2010 3:00 pm
New Job Opportunity – Spitting at the Moon
Courtesy of Mish
In multiple posts Paul Krugman is saying "I told you so". For example, please consider Nobody Could Have Predicted
Pictures support the view that stimulus worked as long as it lasted, boosting the economy — which is the same conclusion Adam Posen drew from Japan’s experience in the 1990s: Fiscal policy works when it is tried.
But the stimulus wasn’t nearly big enough to restore full employment — as I warned from the beginning. And it was set up to fade out in the second half of 2010.
So what was supposed to happen? The invisible cavalry were supposed to ride to the rescue.
I never understood why the Obama administration thought this would happen so soon; history tells us that the effects of a financial crisis on private spending are normally protracted. And sure enough, the cavalry has not arrived.
Stimulus and Full Employment
The idea we can stimulate the economy to full employment is about as silly as silly gets. Krugman wanted double the stimulus we got. Well, we got zero benefit unemployment-wise from the stimulus and in my book infinity times zero is still zero.
Yes, unemployment fell from 10.1% to 9.5% but all of that decrease, if not more than all of that decrease, was a result of a falling participation rate. The bottom line is neither the Fed increasing its balance sheet by $trillions nor a $1.4 trillion deficit did a thing to lower unemployment.
Of course the Keynesian clowns will holler things would have been worse in the absence of stimulus. Really?! Would banks be lending more? Would small businesses be hiring?
Full Employment Made Easy
Krugman wants full employment. I suppose the government could easily employ everyone who does not have a job. Then again, didn’t we effectively do just that?
Here is a snip from "Contained Depression" that suggests we did.
We are certainly in a depression. However, 40 million people on food stamps as of August 2010, masks that depression. The cost of the food stamp program is on schedule to exceed $60 billion in fiscal 2010. For comparison purposes, there was just over 11 million on food stamps in 2005.
Please note there are 14.6 million unemployed, but of them 4.5 million of them are receiving regular unemployment
…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(