Sell your house, buy IDNs.

[Rubber Duck]

Originally Posted by touchring

So, by that, you mean there won't be bust since it's possible to control it? So far, the western world has avoided bust by printing money and giving out credit in a run away train manner.

That is not strictly true. The Europeans have been very conservative, and even the Americans have kept inflation under control to date, although because they have been less risk adverse the chances of a deep recession in the US is much higher. The Americans have always had more leeway due to the inherent stability of the currency due to the status as the supreme economic heavyweight. That is an advantage that they can no longer rely on.

The US doesn't need to print money to run into problems. If it status as a reserve currency is eroded, the domestic money supply will increase on its own.

In China and India the shear size of the potential labour pool will keep a check on wage inflation. China is many ways much less likely to have a problems with inflation, as the Achillies Heel, has always been the need for democratic leaders to get re-elected. Non-Democratic leaders are less likely to shy away from unpopular measures.

[touchring]

Originally Posted by Rubber Duck

That is not strictly true. The Europeans have been very conservative, and even the Americans have kept inflation under control to date, although because they have been less risk adverse the chances of a deep recession in the US is much higher. The Americans have always had more leeway due to the inherent stability of the currency due to the status as the supreme economic heavyweight. That is an advantage that they can no longer rely on.

The US doesn't need to print money to run into problems. If it status as a reserve currency is eroded, the domestic money supply will increase on its own.

In China and India the shear size of the potential labour pool will keep a check on wage inflation. China is many ways much less likely to have a problems with inflation, as the Achillies Heel, has always been the need for democratic leaders to get re-elected. Non-Democratic leaders are less likely to shy away from unpopular measures.

I don't know about China - the system is one of a kind, no where found in the world today, except maybe 1920s America, where the primary stock index can go up 20% in 1 week, down 10% in 2 days, and up again.

But for the rest of Asia that got into the financial crisis in 1997-98, the killer is not inflation but debt.

[Rubber Duck]

Originally Posted by touchring

I don't know about China - the system is one of a kind, no where found in the world today, except maybe 1920s America, where the primary stock index can go up 20% in 1 week, down 10% in 2 days, and up again.

But for the rest of Asia that got into the financial crisis in 1997-98, the killer is not inflation but debt.

Well, I cannot actually say whether debt is going to cruxify individuals in Asia or not. Governments don't care about individuals. They look at the picture for the economy as a whole. If consumer debt is dragging the economy down then increasing interest rates is only likely to exacerbate the problem. It is much more like that the solution is keep interest rates low and pump in more liquidity, whilst closely monitoring inflation.

It must, however, be recognised that willingness to take on debt can be a good thing in an entreprenurial society.

Inflation is not just a monetary phenomenon. It is also one of public education. The populus as a whole must understand that their expectations on remuneration cannot exceed their ability to deliver on productivity. Britain, ran into trouble in the Seventies because the link between productivity and wages was ignored. It took nearly two decades to recover.

[touchring]

I like to bring up this thread again, the situation has deteriorated, since just a month and half ago.

Now the FEDs are saying, they might increase interest rates!




Source: http://bloomberg.com/apps/news?pid=2...h7k&refer=home

Fed Revives Prospect of Higher Rates, Questions Price Forecast

By Scott Lanman

April 12 (Bloomberg) -- Federal Reserve policy makers, questioning their forecast that inflation will recede, revived the prospect of interest-rate increases.

Records of the Fed's meeting last month, released yesterday, said officials agreed tighter credit may ``prove necessary.'' Those words, similar to the language used by the central bank since August, were absent from the five-paragraph statement on March 21, leading some economists to predict a cut.

The minutes didn't refer to lower borrowing costs and said the risk had increased that inflation wouldn't slow as the Fed has forecast. The Fed's preferred inflation gauge rose to a five-month high in February, while signs of economic weakness have spread to areas such as business investment.

``The Fed won't entertain easing with inflation this elevated and without clear evidence that it is moderating,'' said Brian Sack, vice president of Macroeconomic Advisers LLC in Washington. ``It is hard to see tightening in the near term, but it is also hard to see easing.''

Sack, a former central-bank economist who has conducted research with Fed Chairman Ben S. Bernanke, forecasts no change in the benchmark rate this year or next.

Bernanke and his team voted unanimously at the meeting to leave the target for the overnight lending rate between banks at 5.25 percent, where it's been since the Fed ended a two-year run of increases in August.

Sowing Confusion

Minutes of the meeting revealed that officials hadn't ruled out future rate increases even though the March 21 text didn't list tighter policy as an option.

``We thought they didn't believe that anymore,'' said Jeffrey Kleintop, who helps oversee more than $150 billion as chief market strategist at LPL Financial Services in Boston. ``At the same time the Fed is trying to communicate more effectively, this seems like a bit of a stumble.''

Since the meeting, policy makers have stressed their concern that inflation remains too high. Richmond Fed President Jeffrey Lacker yesterday became the third official this week to hold out the prospect of higher rates. Fed Governor Frederic Mishkin and Dallas Fed President Richard Fisher on April 10 indicated the central bank may still need to act.

Inflation is ``running too high'' and outweighs the risk of slower growth, Chicago Fed President Michael Moskow said late yesterday.

The Fed's preferred inflation benchmark, the ``core'' personal consumption expenditures price index minus food and energy, has been at or above the top of the comfort zone articulated by at least six Fed officials for almost three years. It rose 2.4 percent for the year to February.

Climbing Gasoline Price

The average U.S. retail price of regular unleaded gasoline rose to $2.80 a gallon on April 10, the highest in seven months and up 30 percent from this year's low of $2.15 on Jan. 24.

``The latest readings on core inflation were higher than expected, and it was difficult to discern whether the apparent downward trend in core inflation during the past few quarters was continuing,'' the Fed minutes said. ``Also, the recent increases in prices for energy and some non-energy imports likely would boost overall inflation in the near term.''

Even so, most Fed policy makers forecast a ``gradual decline in core inflation over the next year or two, fostered by stable inflation expectations, a likely deceleration in shelter costs, and a slight easing of pressures on resources.''

Meantime, the Fed was attempting to deal with multiplying signs of a weaker economy, including ``surprisingly weak'' business spending and turmoil in the subprime-mortgage market that threatened to derail a housing recovery.

Revised Growth

The U.S. economy grew at an annualized pace of 2.5 percent in the fourth quarter, the Commerce Department said March 29, revising the 2.2 percent estimate the Fed had in hand for the March meeting. Growth, hobbled by slumps in home building and in corporate spending that show few signs of abating, was initially calculated at 3.5 percent for the period.

``They want to keep the bias on the hiking side, but their entire viewpoint of the future is that they'll be able to cut,'' said Kurt Karl, chief economist at Swiss Re in New York, who forecasts an interest-rate reduction in August. ``That's where you get the confusion.''

Inflation remained the ``predominant'' concern of policy makers for reasons that included the growing job market, which ``remained relatively tight,'' the Fed minutes said.

That was two weeks before the Labor Department's monthly jobs report showed that American employers added a greater-than- forecast 180,000 workers in March while the jobless rate fell to 4.4 percent, matching a five-year low and defying predictions it would climb.

``The possibility that labor costs might rise more rapidly was seen as an upside risk to inflation,'' the minutes said.

After the labor report, investors pared bets on an August interest-rate cut. As of yesterday, traders saw about a 27 percent chance the Fed would lower its benchmark rate in August, down from 92 percent on March 21 after the latest statement. Investors see a quarter-point cut by the end of the year as a near-certainty.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net .
Last Updated: April 12, 2007 00:29 EDT

[Rubber Duck]

All adds up to the nightmare Stagflation scenario that Britain faced in the the 1970's.

Country could not face up to the fact it was living beyond its means. Result was interest rates too low to stall inflation, but too high to promote new investment. Worst of all possible World's.

Solution will involve a slump, but it is essential to increase interest rates to stablise the currency and control inflation. Only, then will the conditions be right for the fresh investment that is required to bring growth and employment.

It does not look as though the US has the political will to do what is necessary. It can take years for an Electorate in a democracy and their Politicians to face reality. Why should they understand what is going on? Living Americans have not experienced real economic hardship, except those that are were too young to understand the Great Depression and who are now too old to be listened to.

[rofsjan]

Real estate in Europe is still going up.
For me it looks like IT-bubble in the past.

[SciFi]

Thanks to George 'the DickHead' Bush we, as a country, go down the drain. Real fast.

Time to file for bankruptcy.

[touchring]

Originally Posted by SciFi

Thanks to George 'the DickHead' Bush we, as a country, go down the drain. Real fast.

Time to file for bankruptcy.

No bankruptcy, jobs still aplenty. But currency will devalue, non-asset based inflation sets in??

[Rubber Duck]

Originally Posted by touchring

No bankruptcy, jobs still aplenty. But currency will devalue, non-asset based inflation sets in??

Jobs are in jeopardy because many of them are being financed on money borrowed by the Federal Government, which not only can it not continue doing so, but it actually needs to repay some of it. Whether, the losses will occur in Public Services or whether they will actually trim the size of the corrupt and government sponsored defence sector is another matter.

Removing large sections of government spending removes a huge stimulus for the economy and the effects of job losses in government agencies and government sponsored industries trickles down through the economy right down to the Mam and Paps, mainy of whom will close. When the Factory closes, the sandwich shop around the corner closes as well.

All recessions are about jobs. Economics 101.

[touchring]

Originally Posted by Rubber Duck

Jobs are in jeopardy because many of them are being financed on money borrowed by the Federal Government, which not only can it not continue doing so, but it actually needs to repay some of it. Whether, the losses will occur in Public Services or whether they will actually trim the size of the corrupt and government sponsored defence sector is another matter.

Devaluation of US assets is a confirmed thing, but wouldn't the weakened dollar boost exports, especially to Europe, and create more jobs?

[Rubber Duck]

Originally Posted by touchring

Devaluation of US assets is a confirmed thing, but wouldn't the weakened dollar boost exports, especially to Europe, and create more jobs?

In theory, yes lower exchange rates do make you more competitive, but there is no way that the US can compete with most of the rest of the World on wage costs in the short-term. Investment makes for more advanced and more competitive products, but most of the Investment in recent years has been heading to China and India and a small change in the exchange rate is not going to affect that drastically.

Furthermore, lowering the value of the currency will be inflationary at home as, imports will be more expensive. Also if those able to export can shift there product abroad more easily so some will be more inclined to raise prices.

The other problem is that a depreciating currency will make any international players much less likely to invest in the US and therefore further undermine their competitiveness. It is fresh investment in the latest technology and production methods that make you productive and when this is combined with a low cost base that makes you competitive. The evidence is that is not happening for a number of reasons, and further depreciation of the dollar is likely to greatly exaccerbate the problem in the long-term.

The other problem you have is attitude. Microsoft charge more less exactly double in the UK that they do in the States. Small changes in the currency are not therefore going to make much impact.

Perhaps, the biggest problem that the US faces like the UK did in the past is having a workforce that frankly is not that hungry. Americans generally have not had to sweat for a living like much of Asia, which is clear from the huge obesity problem which afflict the general population. Investment tends to go where there are pools of skilled and motivated workers who are prepared to work below average market rates. It will be sometime before the US gets a look in, in many industries.

One famous domain blogger that cannot be mentioned for various reasons, once told me that a depreciating dollar would kick start the Florida Real Estate Market. Just another topic he is completely wrong about!

[touchring]

Originally Posted by Rubber Duck

One famous domain blogger that cannot be mentioned for various reasons, once told me that a depreciating dollar would kick start the Florida Real Estate Market. Just another topic he is completely wrong about!

A dollar that is slowly depreciating will cause foriegn investors to flee the Florida Real Estate Market. Like you said, there seem to be no easy solution other than to implement lifestyle changing measures, which in turn is unthinkable with a corporate controlled government.

I been through a bear housing market the past 10 years, and in Singapore, there is no land, there is a shortage of housing, but prices just collapsed after the Asian financial crisis and when the government imposed a 20% compulsory cash down rule.

Even when there's a shortage in housing, prices just dropped like an egg, some as much as 50% from peak. And that happened even when the economy is fine most of the time, and running at 5-8% growth. People just stayed away from real properties. They rather collect money in the bank and earn 1.5% fixed deposit.

The past one year and half, the market picked up, and because there is no land, developers had to buy over condos and apartments, some as new as 6 years old, tear them down, and build taller condos with smaller units.

Puzzling right?

[Rubber Duck]

Much of it is down to life style changes. America has to adjust to the fact the Earth resources are limited and some are going to go up drastically in price. The idea that an economy can be based on the presumption you can consume hydrocarbons as though they were seawater is clearly from the dark ages. The automobile industry has already fallen foul of this.

Consider the likelihood of export excess car production to the UK? Because of the much higher pump cost of gazoline in the UK or petrol as we call it, not to mention punative road tax, you would be hard pressed to give away a US SUV in London. Yes, the streets are full of SUVs but they are nearly all from the far east and most are much more fuel efficient than their US counterparts. US produce autos are almost absent from our streets. They are just no viable.

[touchring]

Originally Posted by Rubber Duck

Much of it is down to life style changes. America has to adjust to the fact the Earth resources are limited and some are going to go up drastically in price. The idea that an economy can be based on the presumption you can consume hydrocarbons as though they were seawater is clearly from the dark ages. The automobile industry has already fallen foul of this.

Surely, excessive spending and easy credit has created a bubble in the real estate market, and the biggest casualty will be young middle class americans

With pressing inflation from the failing dollar, and interest rates going to rocket, I think an across the board 40% retracement from peak prices in 2005 over the next two years is not inconceivable.

The question is, when is the breaking point coming - the breaking point when the dollar devalues against other major currencies, and oil rockets above $100. All commodities will become more expensive in dollar overnight. Mortgage rates will shoot thru the roof.

[Rubber Duck]

Well, if you are heavily invested in US Real Estate, the Savy thing would be to liquidate before things get much much worse and spread you investment in areas that are going to benefit from the boom in Asia. This is what a clever investor would do.

IDN would make a very clever side bet for those with lots of cash to relocate in a hurry and looking for above average returns. Even just turning all your money from dollars into Yuan would be a very clever thing to do, which is precisely why the Chinese are no longer willing to turn their Yuan into dollars. It is the reluctance of Asians and Arabs to invest their money in the US that will precipitate the crash.

Originally Posted by touchring

Surely, excessive spending and easy credit has created a bubble in the real estate market, and the biggest casualty will be young middle class americans

With pressing inflation from the failing dollar, and interest rates going to rocket, I think an across the board 40% retracement from peak prices in 2005 over the next two years is not inconceivable.

The question is, when is the breaking point coming - the breaking point when the dollar devalues against other major currencies, and oil rockets above $100. All commodities will become more expensive in dollar overnight. Mortgage rates will shoot thru the roof.

[Drewbert]

Words of wisdom from Lee Iacocca...

http://www.bordersstores.com/feature...theleadersgone

"as soon as I can pry them away from their iPods for five seconds and get them to pay attention"

[touchring]

I've been through this process, China imports more industrial machinery and software more than all the other asian countries (japan inclusive), but once they master the ability to manufacture themselves - and they are quick at that - the import slows down.

China exporters point to U.S. expertise

By DANIEL LOVERING, AP Business Writer 2 hours, 1 minute ago

PITTSBURGH - At a small laboratory in Pittsburgh, workers assemble 2-by-3-foot metal boxes connected to computers — devices used to measure the hydrogen-absorbing qualities of various materials.
ADVERTISEMENT

The instruments, designed to help researchers study possible sources of hydrogen fuel for hybrid vehicles, carry a hefty price tag — about $100,000 each. Advanced Materials Corp. has sold units to customers in Italy, Singapore, Taiwan, India and other countries.

But one nation has bought more than any other: China.

The country better known for flooding the U.S. market with cheap toys and other imports is injecting billions of dollars into the bottom lines of U.S. manufacturers of certain big-ticket, highly engineered products — including locomotives, nuclear power plants and aircraft. But analysts warn that demand will likely wane as China's manufacturing capabilities improve.

"There is no question that jobs are being created here in the United States ... because of increased exports to China," said Louis B. Schwartz, president of China Strategies LLC, a Pittsburgh-based consulting firm. "This is economy-wide. There are so many nooks and crannies."

The products generally depend on the expertise of workers and technologically advanced facilities in the United States. Advanced Materials builds its high-tech instruments domestically because local workers have the necessary skills and scientific knowledge, according to S.G. Sankar, the company's president and chief executive officer.

Larger companies tell a similar story.

Westinghouse Electric Co., which is owned by Japan's Toshiba Corp., recently forged a deal worth an estimated $4 billion to build four nuclear reactors in China. That contributed to the nuclear energy company's plan to build a new $100 million research center in the Pittsburgh area and add at least 1,000 employees within five years.

At a production facility in Erie, GE Transportation, a division of General Electric Co., has built nearly 100 locomotives for China and has orders for 300 more. The 450-acre plant, which employs about 4,600 people, has been adding employees, said Patrick Jarvis, a company spokesman. Engines for the locomotives are made in Grove City, about 68 miles away, at a plant that employs more than 800 workers.

Another company, Berlin-based Bombardier Transportation, recently completed 11 transit vehicles for Beijing's airport at a facility outside Pittsburgh.

The company, a subsidiary of Bombardier Inc. of Montreal, has plants across the globe and three joint ventures in China. But for the people movers, "there's not a capability to build that technology in China yet," said company spokesman David Slack. "It's high-tech work," he said.

U.S. exports to China rose 32 percent in 2006 compared with the previous year, from $41.8 billion to $55.2 billion, according to figures compiled by the U.S. Department of Commerce. Imports grew about 18 percent, from $243.5 billion to $287.8 billion, during the same period.

Leading exports included integrated circuits, parts and accessories for automated data processing machines, parts for oil and gas field machinery and semiconductor measuring and checking devices. Other major exports included aircraft, medical and surgical instruments and plastics.

Pennsylvania alone exported about $1.26 billion in machinery, transportation equipment and other goods to China in 2006, up from $933 million in 2005.

"We're seeing exports go up by double digits each year ... which translates into jobs back here," said Dan Onorato, Chief Executive of Allegheny County. He will be traveling to China with a delegation in mid-April.

Peter Morici, a professor at the University of Maryland's Robert H. Smith School of Business, said demand for sophisticated U.S.-made products had grown because "the Chinese can't make those products for themselves yet, and you can't readily transfer production over there."

China's advantageous currency exchange rate, which keeps its exports cheap and has long been a point of diplomatic contention, has not affected high-tech products as much as it has goods made with low-cost labor, he said.

"The real problem on the export stuff is that they're not letting stuff in," Morici said. "It's hard to sell cars there. ... They want you to build them there."

Companies that can export to China will benefit, but "there is a real danger we will export a good deal of our industrial know-how and have nothing left to sell," Morici said.

The United States has filed complaints against China at the
World Trade Organization over copyright policy after U.S. Trade Representative Susan Schwab said American companies were losing billions of dollars annually from piracy levels in China that "remain unacceptably high."

For some companies, it may be better to avoid putting such intellectual property rights at risk by doing business with China, said Dennis Unkovic, a lawyer who works with companies that export products to China.

"Before, it was a manufacturing job-shop for the world," he said. Now, "they're buying more of the kinds of products they wouldn't have bought five or 10 years ago," such as medical technology devices.

At the Advanced Materials laboratory, the chief executive officer, Sankar, said part of his small firm's cachet is that it sells more than scientific instruments — it offers his 30 years of experience and the support of his staff.

"I don't think we can move this operation to China or any other country at this point," he said. "It wouldn't make sense."