Exporting Inflation to the Rest of the World
weird effects caused by the weak dollar
By blackhedd Posted in Economy | inflation — Comments (36) / Email this page » / Leave a comment »
Like many people, I'd let myself hope that last August's global financial crisis was just that: a phenomenon arising from and largely contained within the narrow world of finance and capital markets. Much like the 1998 Long-Term Capital Management crisis, or the 1987 stock-market crash.
How wrong I was. The last two weeks have seen growing evidence that disorders in financial markets are having serious spillover effects in real economies around the world.
Everyone is talking about the extreme weakness of the US dollar, which has lost ground against every one of the world's major trading currencies and continues to slide. The proximate causes of the weaker dollar are poor economic fundamentals in the US, and the Federal Reserve's interest rate cuts.
Dollar weakness is evidently resulting in a very large and worrisome burst of inflation. In nearly every major economy except the United States.
We're exporting inflation to the rest of world and not suffering much or any of it ourselves. This is really weird.
More...
Every day brings headlines about the contortions central bankers are putting themselves to, in an attempt to stem the inflationary effects of the weaker dollar. Some key examples:
China is about to raise interest rates and bank-reserve requirements for the seventh time this year (by my count). Food-price inflation, particularly for vegetables and pork, are contributing to an expected rise in inflation this year to almost 6%, from about 1.5% last year.
Chinese stock markets which are off-limits to foreign investors are in the middle of a price bubble that makes the Clinton-era Internet bubble look like a little fart. That's logical when the inflation rate is higher than the government-controlled rate of interest on individual savings.
The China bubble is going to pop (in fact it may have started to pop already), and it's anybody's guess what will happen in this unprecedented situation. Not only has there never been an asset bubble that featured several companies worth nearly $1 trillion each, but it's also never happened in a tightly-controlled economy with no free markets to pick up the pieces.
India has flirted with controls on currency movements for most of this year. They just pulled the trigger on some new restrictions on derivatives trading that are designed to restrict dollar sales by investors and speculators. The dynamics are somewhat different, but as in China, India is seeing asset-price spikes that are not justified by fundamentals. This can only end badly for India, which attracts only a fraction of the foreign direct investment that China does.
States across the Arab world are feeling the bite from higher oil prices. Oil is traded in dollars around the world, and the weaker dollar puts up the barrel price. There is talk of revaluing dollar-pegged currencies across the Persian Gulf, as the pseudo-economies of these states can't handle the inflation.
South Korea is seeing serious declines in the results of major exporting companies like Hyundai Heavy Industries, and they're blaming the strong won. Japan is seeing that effect with companies like Honda and Sony. (Toyota Motor's problems appear to be more self-inflicted). And the Japanese are also getting an ugly spike in food and consumer-goods prices, just as they appear to be slowing into recession.
Pound Sand
And Europe has started talking trade war. The strong euro leaves them no flexibility to raise interest rates, which they have wanted to do to curb high inflation, particularly in Germany. And now their economies have started to slow down as well. Hence the sudden tough talk by French President Sarkozy and European Central Bank governor Jean-Claude Trichet.
But here in the United States, inflation has been muted. There's been a minor (but politically noticeable) uptick in food prices, that has farmers tickled pink for the first time in a decade, and consumers starting to grumble. And of course energy prices have faintly shadowed the increase in crude prices. I think you can make a case that the domestic food-price increases are partly caused by government-mandated production of ethanol from corn.
And our trade deficit has unexpectedly narrowed in recent weeks as American exporters are suddenly finding their products newly competitive in world markets. That's the main reason why the Europeans are mad as wet hens. They want the US Treasury to go out and take concrete steps to increase the value of the dollar.
It's also why Treasury Secretary Paulson's mouth is saying "a strong dollar is in our nation's interest" but his (in)actions are telling the rest of the world to go pound sand.
Policy Tools
What does a central bank traditionally do when it considers foreign-exchange rates to be out of balance? It intervenes in the currency markets, buying and selling reserves in order to signal desired price moves to the markets.
But the markets know that trick now. They also know that they are larger than all the central banks put together. In fact, they are vastly larger. A jumbo-sized multi-country intervention might involve the purchase of a few tens of billions of dollars. But nowadays the currency markets can easily trade $3 trillion in a single day.
That's why, even as they try to jawbone Hank Paulson to support the dollar with more than happy talk, none of the other central banks are willing to throw their own euros, yen, won, reals, sterling, kronor, loonies, Swiss francs, etc. into a gaping black hole. Traditional policy tools aren't working.
Exporting Inflation
But why on earth is it that the rest of the world is suffering from the inflation that we're creating? I think this exceptional phenomenon illustrates some perhaps under-appreciated features of the new integrated global economy.
In the first place, the United States still matters as much as ever.
It's received wisdom that emerging economies around the world are growing faster and attracting more investment than the US, and also that China is rapidly transitioning to a consumer-led economy that will replace the US as a source of demand for goods and services.
Given that, it's been nothing short of breathtaking to see how quickly the perception of economic weakness in the US has translated into slowdowns everywhere else. This exacerbates the effects of dollar inflation in economies that don't generate enough organic growth to deal with it. The US is still the critical driver for world growth.
Second, the US is less dependent on imports than many people seem to think (including economically illiterate Democratic Senators and Presidential candidates). Foreign trade amounts to perhaps 10% of our economy. This is probably insulating us from the inflationary effects of importing foreign goods with weaker dollars.
Third, our economy may be more resistant to the effects of higher energy prices than many people think. 90% of the US economy is engaged in providing services rather than manufacturing goods or exporting resources. We have much more opportunity to capture the efficiencies created by improved information technology than other countries do. Just think of the fuel savings if everyone were to work at home one day a week. Things like that are already happening.
That partly explains why countries like Japan, which is still almost as manufacturing-driven as anyone else, are seeing so much inflation. Making and transporting widgets is energy-intensive. Higher oil prices make everything from rice to rice-paper more expensive, but they don't have as much impact on your computer or your telephone.
Bottom Line
At this point in mid-November, I expect continued severe disturbances in financial markets around the world. Just about the only things many people want to buy right now are short-term government debt, and commodities priced in dollars. There's a lot of bears roaring out there, and they may be roaring for a good long time to come.
I also expect China to finally wake up, smell whatever they drink in the morning, and allow the yuan to appreciate sharply and rapidly against the dollar.
But the United States has a chance to emerge in a considerably stronger position in a somewhat smaller and slower-growing global economy, when we get to the other side of this big mishugas, two or three years from now.
What do we have to do make sure that happens?
Nothing. American businesspeople will figure it out and make all the right moves naturally.
But we have to make d*mned sure that no Democrat gets within spitting distance of the White House. Otherwise she'll turn a fragile but promising situation into our competitors' wettest dream.
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Exporting Inflation to the Rest of the World 36 Comments (0 topical, 36 editorial, 0 hidden) Post a comment »
Although I can't say I agree with every word, it seems mostly correct to me.
Thanks for saying that the Fed rate cuts are having a negative effect on the dollar. And that Paulson is a liar.
You have also given people some good short term strategies for how to mitigate inflation (which I believe is being felt here more than is getting reported).
Your point about American ingenuity is well taken, provided that they have accurate information on which to base their strategies.
Do you believe that if you had made this post in October, you would have been ridiculed?
I didn't say that Secretary Paulson is a liar. At no point has he made a commitment to intervene in currency markets to support the dollar. In fact, that hasn't happened at any point since G. W. Bush has been President.
Paulson's point is of course correct. Intervening in currency markets is a presumptive violation of free-market dogma. In this case, it also makes sense from a policy point of view.
Fed rate cuts: anyone who understands interest rates will tell you that the Fed's actions would sink the dollar. We all knew that going in, and it's not controversial to say so.
I wouldn't have made this post in October. I'm reacting to data, conversations, and other information from November.
I'm curious to know what's your basis for saying that inflation is having more effect in the US than is being reported. The first place I'd look for the effects of monetary inflation is overactive credit formation and (consequently) impaired credit quality. There is zero evidence that this is happening in the US. In fact all the markers are going the other way, and fast too.
I agree that allowing currencies to "float" is better than trying to "peg" them.
But what is this about poor economic fundamentals in the US?
I just heard about very good productivity growth in the US, very good (3.9 percent) GDP growth in the US and weekly jobless claims running just over 300,000.
How does that add up to poor economic fundamentals? Straighten me out if you can, please?
The Left thinks that the "axis of evil" is Wal-Mart, Haliburton and Enron.
You said:
"It's also why Treasury Secretary Paulson's mouth is saying "a strong dollar is in our nation's interest" but his (in)actions are telling the rest of the world to go pound sand."
I assumed that if a strong dollar policy was in our country's best interest, he would indeed be pursuing one. Because by not pursuing one the Treasury wouldn't be acting in our interests. The rest of the sentence seems pretty clear, he is failing to actively pursue a strong dollar policy.
Q: If you make statements that lead people to believe you are pursuing a strong dollar policy, while NOT doing so, what is that called?
You also say the reason we have not felt much (if any) domestic inflation in response to the Federal Reserve's monetary policy, is that China's Yuan is "pegged" to the dollar. If that is indeed true, then I have another question:
Q2: Why did Paulson visit China and attempt to convince them to "un-peg" their Yuan from the dollar? Is he trying to ramp up the effects of inflation in the US?
Just to clarify the Yuan situation:
China officially "un-pegged" the value of the Yuan from the dollar in 2005, while restricing how fast in can rise through regulation. It has risen almost 10% compared to the dollar in the last year. Paulson acutally argued for allowing the Yuan to rise faster.
Your thoughts on those two questions would be appreciated. And to reiterate, thanks for the post.
He's said many times that he intends not to intervene in currency markets because those markets are free and should stay free. He's also said that a strong dollar is in the best interests of the US, but that the dollar should strengthen in response to economic reality, not government intervention.
He hasn't initiated any interventions in currency markets to support the dollar.
I don't think he's been lying.
In regard to China, I think he's about to make his fourth trip to sit down with Vice Premier Wu Yi to make the case for ending China's deliberate undervaluation of the yuan.
I always get a kick out of the publicity photos of Paulson shaking hands with Madame Wu. He's a big, gruff, intimidating man, and she's a grandmotherly-looking woman about half his size. But she's kicked his ass every time so far.
His argument to the Chinese is that they should stop managing their currency through daily government intervention, and let the market determine its value.
It's consistent with what he says about the dollar.
Valuation: the yuan is now creeping up to 7.40 against the dollar. I think it needs to be closer to 5.5. That's nearly another 40%.
If he's making a fourth trip, it must be pretty important to him. There must be more to it than he feels it's his place to tell a communist government that they should have a free market when it comes the value of their currency.
What is he trying to achieve that is so valuable, he would risk exposing our economy to that kind of inflation, especially when we are likely headed for an economic slow down or recession?
Don't you know what protectionism is?
It's the tendency of economic populists to look at the fact that another nation is benefiting greatly from trade with us, and see it as a bad thing.
The Democrats look at China's record-high trade surplus and see a deliberate attempt to destroy the jobs of Americans. (Never mind that jobs are so plentiful in the US that we have to import people illegally to fill them all.) For more than a year now, Senator Schumer has been threatening to impose huge tariffs on Chinese imports unless they revalue their currency. He defines success as a lower Chinese trade surplus.
Paulson is an old China hand. Remember he was the CEO of Goldman Sachs, a company that has done a lot of business in China and would like to do a lot more.
He would far rather get the Chinese to move off this dime voluntarily. Because a trade war would be enormously damaging to both sides.
This problem goes way back, much farther back than the current expectations for a US economic slowdown.
I was just wondering how different your take on the soundness of Paulson's plan would be from mine.
Since, as you alluded, it is a complex issue, I have decided to post about it, rather than comment.
How much of the missing inflation do you think is caused by China pegging their currency to ours? It seems that many of our imported consumer goods come from China these days. I think that if they allow their currency to float to market, we'll see that missing inflation come into the market fairly quickly.
I think you're also underestimating the effects of high energy prices. Energy does have a profound effect on the prices of goods, though I think the effects may take a few quarters to actually make their way into the prices of goods. Probably less time for low shelf life consumables because of frequesnt deliveries (bread, milk, etc), but longer lead time items that are delivered by the truckload instead of the pallet will have to have increased prices to cover their higher delivery costs.
But you're right. If the government tries to intervene too much to "fix" the problems, they're more likely to make things worse. I believe that's why the great depression was as deep and long as it was. Rooseveldt's policies made things worse.
Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.
I'm with Fred!
Our inflation isn't "missing," it's just showing up elsewhere. If China were to revalue the yuan, inflation would suddenly show up here, all else equal, which of course it never is.
For one thing, China will have to take such a step with extreme caution. Their system is fragile as glass because it's all controlled by so few people. They will do traditional things like absorb bad credits in order to keep the cheap imports coming to us. They won't be able to keep it up forever, but they will give us time to make the adjustments and probably keep US inflation muted in the process.
You're absolutely right about the energy-cost impact on the price of manufactured and transported goods. But my point was that, as a service-based economy, much of our value-added is insulated from that effect. Or at least more of it than in other countries.
The policies that the Democrats are promising to implement will simply make the US the worst place in the world to invest. That's the danger. My underlying point in this whole post is that the global perception of the US as a bad place to invest may be wrong. Hillary Clinton wants to prove that perception correct.
I'm hesitant to engage about the Depression since we've already done that to death. But don't underestimate the effect of commercial bankers responding to the endless financial crises of the 1930-33 period by preferring liquidity to credit formation. If no one is willing to fund your business expansion, then you won't expand, no matter how favorable conditions are. That situation was the case for most of the Thirties.
I should know better. But thanks for clarifying.
I'm already on the work from home plan and have been for over 16 years now. So you're right, higher fuel prices only effect my dicretionary travel decisions and even then they're such a small part of my budget that I rarely do more than blink a few times when gas prices increase. I think fuel would probably have to double or more before it really started to impact my decisions. Others have a lower threshold and a few are changing at this level, but I've never thought it was as big a part of the economy as the pundits claim. Having said that, I still think many of the energy effects are yet to come.
I'll leave the depression arguments alone so as not to threadjack.
Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.
I'm with Fred!
The proximate causes of the weaker dollar are poor economic fundamentals in the US, and the Federal Reserve's interest rate cuts.
Recent economic reporting shows very high productivity gains, 3.9 percent GDP growth, weekly jobless claims just over 300,000, the consumer price index showing inflation under control.
So, where do we get this idea that there are poor economic fundamentals in the US?
The Left thinks that the "axis of evil" is Wal-Mart, Haliburton and Enron.
Take all of those numbers you quoted and compare them to the corresponding ones from any other large economy. The only one that's doing worse than us is Japan.
I see. So, investors are more likely to invest outside of the US than in the US. That probably explains the weaker dollar. Or at least some of the weakness.
But is Europe growing at faster than 3.9 percent? I thought France is still struggling and Germany too and Italy too. I would bet that Eastern Europe has rapid growth rates though.
The Left thinks that the "axis of evil" is Wal-Mart, Haliburton and Enron.
That was before the credit crunch hit. They will still probably come in well ahead of us.
The 3.9 percent was for Q3, also before the real-world effects of the credit crunch. Don't be surprised if Q4 (once forecast to be about 2%) comes in negative.
I was last in Europe in May, and the business outlook at that time looked great. Even in Italy, which has had seven years of subpar growth.
it has been said, "America sneezes and the world catches cold."
Thanks for a good post, Blackhedd.
I meant what I said and I said what I meant. An elephant's faithful 100 percent.
Good stuff. Needless to say I don't think your criticisms of Democrats are all that accurate but other than that it is a very good read.
Sooner or later the Chinese are going to have to float their currency. However I suspect it will be later and much more painful.
One question. Are you sure that 90% of our economy is service driven? I thought it was in the 20-25% range.
There are those who look at things the way they are, and ask why ... I dream of things that never were and ask why not. - Robert Kennedy
I also appreciate the clarity and education, not being finance-savvy but very interested just the same.
What strikes me is that, as difficult as it is to manage and maintain a national economy, the global economy is 1,000 times more difficult and volatile, what with all the different and clashing economic policies, workforces, political environments, natural resource allocations, etc. On the macro level it puts me in mind of Earth shortly after her birth when she was a bubbling caldron of pops and froths and shifting plates and volcanic eruptions and mass changes, all interrelated. Our global economy is very new and the big picture (decades if not centuries in the future) looks to be volatile and rocky.
One question related to the post but not exactly matching it: a story (by a blogger or other, can't remember) over the weekend suggested that last year's Bankruptcy Reform legislation, now in effect, has exacerbated the subprime mortgage ills that are now impacting the global economy. This may be something for a separate post but is it something you can comment on at some point? I do find all these interconnected variables endlessly fascinating.
Thanks for a great post, Blackhedd! Man do I wish I'd been a business major...
You may not be interested in war, but war is interested in you.
Respectfully, I wish you would tone down your rhetoric. Your hyperbolic claims that we have the least popular currency in the world, that our economic fundamentals are the worst in the world, yadda yadda yadda, just aren't appropriate for a site like this I think.
You and I may both know that when you say things like that, you're actually thinking of a much narrower subset of the world, an from a particular perspective. Democrats don't know that though, and the Democrats in the press say things like this without any perspective.
Remember when the Democrats compared Bush with Hoover?
I wish you wouldn't feed into that.
thanks!
Least popular currency: I think you have in mind a post I did last week rather than this one. I stand by that. The dollar is currently the least attractive major currency in the world by the combination of interest-rate differentials and risk-adjusted investment opportunities in the US.
Japan is arguably a less-attractive currency on both of those points, but it's been strong recently because of the unwinding of carry trades as global investors dial down their risk tolerance. The strength in the yen relative to the dollar is actually a potent danger signal, in my book.
But keep in mind that dollar weakness cuts both ways. We're getting a lot of demagoguery from our own side (you know who I mean) about strengthening the dollar. What I'm saying with this post is that the weak dollar is realigning the global economy in ways that the US can turn to our advantage.
About the Democrats: they and their media allies are going to lie about absolutely everything, regardless of reality. That includes people who don't know their backsides from a hole in the ground (like Hillary Clinton) and people who actually know a very great deal (like Paul Krugman). And they get away with it precisely because their lies sound plausible.
What I'm trying to do in this forum is cut away as much of the garbage as possible so that people can get a clear picture of what's really happening. And that will hopefully enable them to see through the economic nonsense that will get flung at us from now until the election, and beyond.
I guess it's pretty unnatural for me to take issue purely with language, as seen from a political perspective, but sometimes I get picky that way, heh.
Basically in a political context, it's a nitpicky habit of mine that I insist on using the language as I see it, refusing to let my opposition control the discussion by accepting even the language he uses.
So it's just that part of me that comes out, when you say things that, taken out of context, could be thrown right up in our faces next year.
Thanks for taking my criticism in the spirit it was intended, heh. I appreciate the writing you share with us. It's because I care that I nitpick :-)
that almost all of the economic predictions missed GDP numbers and job numbers by a mile? The only guy I know who has been close is Brian Wesbury who predicted 4.0% for q3 and was a total outlier. Same with jobs. Now he's saying that the follow-on data will mean a revision of q3 to above 5%!
His 4q is now down to 2.5% from 3.0, but only because the upward revision in 3q will account for inventories Wesbury thought would come subsequently. He sees 08 at 3.5% for the year The consensus incidentally for q4 has been in the 1.5% range.
Wesbury has been more worried about inflation spilling over from an expanding economy. My own concern is the dollar and the apparent lack of interest in defending it. 1987's crash in my view led directly from that brilliant economist James Baker and his view that a weaker dollar was a good thing. I fear Paulsen has a similar blindspot. Besides that, the US economy looks pretty good to me.
A leading criticism I've seen of the latest GDP numbers, is that the deflator used to account for inflation was too low.
If that number is too low, then we'll be crediting with growth, figures that should actually be chalked up to inflation, which of course takes a bad thing and mistakes it for a good thing.
So we'll see if the numbers hold up to revision. If we're in recession, then last quarter's number will almost certainly be revised down.
I never really bought the case that the August liquidity crisis would impact the real world economy, and if you dig up my RS posts from the summertime, I probably said so a few times.
The received wisdom is that the decline in housing values will cause a slowdown or even a recession by putting a damper on consumer spending (the "reverse wealth effect"). I don't quite buy this but it's more plausible, and we'll see if it happens.
What concerns me is the fact that the liquidity crisis (a fairly narrow capital-market disruption) seems to have turned into a global credit crisis. A big part of this is because people lost so much money that they're choosing to sit out and rebuild rather than take on any new risk.
(That's the inner meaning of the strength in the Japanese yen. Yen interest rates are negligible, so everyone borrows money there to invest elsewhere. When they repay their borrowings without rolling them over, the yen rises.)
That means there's less credit than usual to fund business expansion. Hence, the global slowdown.
The 3rd quarter GDP numbers released last month are 'advance estimates', 'preliminary estiamtes' are due out by the end of november and 'final' numbers by late December.
I don't think we will see much if any of an upward revision and actually expect a slight downward revision. The most concerning numbers to me so far are the retailers poor october numbers and lowered holiday season forecasts - since invetories built up in the third quarter presumably in anticipation of holiday sales and personal consumption was still the largest contributer to GDP growth.
Its interesting to note the big increase in exports in initial data - before the dollar hit its recent lows.
Re 1987: I remember that summer. I was just a puppy but I've been obsessed with markets since I can remember. And you're right, there were severe disruptions in forex markets.
But I think it's a stretch to blame the October crash on the currency disorders. I think portfolio insurance had a lot more to do with it. In my own mind, I associate the push for a weaker dollar not with James Baker, but with Ronald Reagan. At least he was the public face of the 1985 agreements ("Plaza Accord") that led the Japanese to approximately double the value of the yen. Of course, they've regretted it ever since.
It's true that we've had a divergence between economic statistics and the expectations of the financial markets. Right up until the end of October, all the back-looking statistics (including the Q3 GDP number) were a lot stronger than expected.
There's still a very good case to be made that the US economy is a lot stronger than it looks right now. Let's see how the next few rounds of stats look. But it's pretty hard to ignore the obvious signs of slowing down in evidence all around the world. The best-case interpretation of that, is that our exports are now so attractive (because of the weak dollar) that we're starting to kick everyone else's butt.
Wubbies World, MSgt, USAF (Retired):
public static void main(String[] args) {
System.out.println("An argument is a sequence of statements aimed at demonstrating the truth of an assertion.); }
The question is will this mess end ugly or end in a nice orderly deflationary period.
...currency out from underneath the weight of the onerous WWI reparations payments.
A loaf of bread that cost 2 Marks at the begining of the month required a wheelbarrow full of the same Marks at the end of that month.
We have an oil dependant economy that produces very little of our oil needs. We have an economy in which approximately fifty per cent of the population either works for an unspecified branch of government, or receives some form of payment or subsidy from the public treasury.
Shortly after the stock market crash of October, 1987 a forgotten economist asked the question "How long can the United States continue managing the economy through either money supply manipulation or other arcane methods to avoid the unavoidable, inevitable recessions? When the end of the possible mainipulations are reached, the resulting economic decline will be longer and deeper than the sums of the normal, natural economic downturns would have amounted to over the intervening period."
The United States was fortunate in the early, formative years of its Democracy with an abundant, cheap labor supply and an equally abundant supply of natural resources. Today it's supply of natural resources are either severely depleted or artificially restricted by legal constraints (See Senator Ted Kennedy, D-Ma, and the wind farm) and its labor supply is comprised of immigrant workers who have zero loyalty to the United States.
Some of the items you are wrong on:
1. You're farthest wrong in the last comment so I'm moving it to the top. Yes, we have a portion of our workforce that is immigrant. But it's on the order of 10%, saying that it is "comprised" of immigrents suggests a majority. Also a fair number of those immigrants are VERY loyal to the US. We have immigrents who are part of our armed forces and who have laid down their lives for the USA. There's no deeper form of loyalty you can expect.
2. We STILL have abundent resources, though I will grant you that there are too many restrictions on accessing those resources.
3. It's not clear if you're talking about Germany or the US when you say 50% of the population works for the government. If it's the US then I think you're number is exaggerated. I don't know about Germany.
4. Some people think recessions are inevitable and are actually a useful correction. I'm not one of those people. I believe it's possible to avoid recessions, but we really don't know enough yet to completely prevent them. I think it's rediculous to NOT try to avoid a recession as long as your solutions don't cause more damage than the recession itself. Since Fed policy is as much art as it is science, their attempts are not always successful. For example, in hind sight, it looks like the Fed held rates too low too long, then overcompensated by raising rates to high too fast. But at the time, the outcome of their actions was not as clear.
Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.
I'm with Fred!
You opine that "...in the early, formative years..." America had "...an abundant, cheap labor supply.." and "...equally abundant..." resources. The first is patently untrue and the second is only sorta, kinda, maybe true, depending on how you look at it.
Read d'Toqueville and many others on early America's labor conditions. Colonial through Civil War America was marked by scarce and expensive labor, particularly skilled trades labor. Even the slave labor of the agricultural South was expensive both to procure and maintain and by the 1850s healthy adults were sold or leased for astounding prices, especially if they possessed a trade, e.g., smith, carpenter, wheelright, shipwright, etc. For example, Frederick Douglass, perhaps the most famous runaway slave, was a shipwright by trade and his own words regarding his economic lot in the slave South versus the free North are enlightening. As America began industrializing in the second quarter of the Nineteenth Century, it began to make a virtue of its labor costs and scarcity by developing processes that were less labor intensive, especially pattern-making and parts manufacturning, led by the armaments industry.
As to resources, America had agriculture and timber, but little of the agriculture was developed for use away from the homestead other than commodities like cotton and ship-building timber and naval stores. By mid-century, even the agricultural South imported much of its feed and fodder and even human foodstuffs from the North and, then, Northwest. In fact, lack of domestic supplies of feed, fodder, and human foodstuffs had a far more deleterious effect on the fortunes of the Confederacy than did any shortage of manufactured materiel such as armaments and powder. America's greatest resource lack, however, was in metals, especially precious metals. By mid-century America had a burgeoning iron industry, but had little other metal and especially little of the specie metals, gold and silver. America's fortunes in the maritime industries were driven by the fact that it had to develop trade that did not depend on specie exchange, e.g., the Golden Round trade in the Pacific. This dynamic only changed with the discovery of gold in California in 1849 and then dramatically postwar as the gold and silver of the interior West became available.
Beginning with the import of Potato Famine refugees in the '50s and "bounty men" for the Northern armies in the Civil War, America began to have a labor surplus in terms of "body count," but little of it was skilled. American manufactures were increasingly mechanized and standardized to reduce the amount of skilled labor required. This standardization combined with late-nineteenth century waves of immigrants did finally lead to a period of labor surplus in America - and the attendent social disruptions, labor unrest, and political upheaval in the first forty years of the new Century.
In Vino Veritas
I exported my sizable Etrade account today. whew!
Ask not what I can do for my country, ask what my country can do for me. Washington Elected Elite
I'd seen commentary that Ameritrade would be positioned best to capture those fleeing Etrade.
I think the initial report on Etrade potentially going bankrupt was overblown, but fear driving people away may make it a reality.
Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.
I'm with Fred!
They are one of the few sources of info on the global economies that are written in plain enough English that even someone like myself can follow.
Thanks
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Thou art the Great Cat, the avenger of the Gods, and the judge of words...-Inscription on the Royal Tombs at Thebes