Wednesday, October 21, 2009

Jim Rogers needs to get out of the 15th century!



In a recent conference Jim Rogers said the following:

"How can the solution for debt and consumption be more debt and more consumption? How can that be the solution to our problems?"

The problem is not consumption, it's a lack of consumption. What is Jim Rogers looking at? GDP has fallen because consumption has fallen. Falling GDP equates to falling household income and job losses. The way to restore growth is to restore aggregate demand, which the government can do by spending (adding that demand).

Rogers does not understand the monetary system. The issuance of Treasuries by the government is not borrowing, but used to sustain an interest rate. The Government spends by crediting bank accounts electronically and there is no constraint to the amount of this spending that it can do.

When a nation's resources and capital (both physical and human) are idle or under-utilized, as is the case now, then that nation is said to be living below its means and the longer this situation persists, it raises the risk that the residents of that nation become poorer relative to citizens of other countries.

Finally, Treasuries are assets to people who hold them and, therefore, comprise part of the wealth of the non-governmental sector. The only way for government to reduce this "debt" is to take back some portion of that private sector wealth. Is this what Jim Rogers really believes to be the path to prosperity? He must get out of the 15th century.

11 comments:

TomatoBasil said...
This comment has been removed by the author.
Matt Franko said...

TB,
I'm not sure that they are saving it for future use...I think they use it to give the Chinese currency value via the USD peg; they probably need a continuous inventory of USD cash or equivalent.

But I also think you're correct that US export businesses would benefit greatly if they spent USD here to acquire medicines, food products, "know how", etc...that would increase the Chinese standard of living as well.

googleheim said...

Hi Matt,

Can multinational USA companies withhold foreign earnings and / or bring them "back" to the USA at will such as to manipulate Wall Street Earnings reports ?

On the one hand, they can keep the money off shore for some time to avoid taxes, and on the other hand they can bring it back to report earnings ( ? ) ?

There is much talk about making a flat tax of 5% or something to encourage them to bring the U$D home so that our currency can shore itself up without being pounced.

Or the present administration can change law and make them bring it home.

However, the very act of keeping the money off shore weakens the dollar so that they make more profit in foreign currencies / markets, and can export more easily due to weak dollar.

There is no incentive to make the dollar strong again and bring the higher standard of living back to the USA ?

Kish said...

Hi Mike,

If creating money had only +ve consequences and it can be done endlessly, its only about crediting people's account and it makes the economy grow, how about I give the govt my account number and you the financial expert talk them into crediting my and all our accounts a million $s?

there would be no poverty, no problems ever after, all would be rich n spending would go through the roof!!

And the US would be prosperous like never before! And whenever that money runs out we call Mike and he has the govt credit our accounts with a million more!

Mike Norman said...

Yes, they can do that up until the point that all the nation's resources and capital (both physical and human) are fully utilized. That would be called, "Living at our highest potential." However, just giving money to people does not guarantee that people will spend and invest to produce the real assets that need to be consumed. It is feasible to think that people would save the money and not spend it, which is why I think the government should do the spending rather than just giving people money. It could spend on education (how about free medical school? That would really make health care costs come down as you would have so many doctors), infrastructure, basic R&D, alternative energy..there are so many things that we can and should have as a modern, cutting edge, wealthy nation, but don't, simply because the government is allowing our capital to sit idle.

Matt Franko said...

Goooooooooooog!

FD Im not a intl tax advisor! That said if say Fruit of the Loom USA makes some t-shirts in thailand and sends them to australia for sale; if they dont repatriate the profits into the USA and instead leave them in australia then I think they would pay australia taxes and I dont think they pay USA taxes. I think they count the australian profits converted into USD at current exchange rates in their "earnings" that they report to Wall Street, even though the retained earnings in the foreign currencies stay offshore. Something like that.

As far as the USD my thinking lately is basically it looks like the Fed is ready to do almost anything to assure there is plenty of USD funding outside the USA, in fact they are doing more for the foreign systems than they are for our domestic banks! Right now the Fed has been putting limits on the liquidity programs to the US system but the swap lines to the ECB are unlimited/full allotment! With the Fed still willing to provide unlimited USD to the ECB via this facility, there is literally NO USD funding risk to any European bank, (and the shame is I dont think you can say the same for our own banks!) and I think this is reflected in the USD to Euro exchange rate.....

googleheim said...

LET'S TELL THE FED TO GET OUT OF THE ECB WITH OUR "TAX" MONEY, HAR.

HERE IS SOMETHING FROM KRUGMAN :
-----------------
The result was a huge Chinese trade surplus. If supply and demand had been allowed to prevail, the value of China’s currency would have risen sharply. But Chinese authorities didn’t let it rise. They kept it down by selling vast quantities of the currency, acquiring in return an enormous hoard of foreign assets, mostly in dollars, currently worth about $2.1 trillion.
-------------------

HE THINKS THAT THE CHINESE SOLD THEIR CURRENCY TO PAY FOR OUR DEBT, WHEN THEY SIMPLY OPENED UP A TREASURY ACCOUNT

Matt Franko said...

yes goog something doesnt sound right about how krugman breaks that down...I'm not really sure how the Chinese maintain the peg operationally. It may just be that the yuan is a currency that only has value within China itself and the Chinese monetary authority sets the value/exchange rate by fiat...

Matt Franko said...

Follow up wrt the Krugman article.

For Mike:

Mike does the Chinese currency vs USD trade on the Forex platforms you have been working with?

Matt

Mike Sandifer said...

It's horrible how uncritically media sources present this man. They fail to ask him questions about real fiscal and monetary policy. They just let him rant and rave about the need for liquidation as none have done since the 30s.

nick said...

Matt,

Yes. Oanda offers USD/CNY and I think it is the only platform that offers that.

-Mike