Will the Russian/Chinese Gas Deal Significantly Devalue the U.S. Dollar?

[icanthearyou 4,468]

http://america.aljazeera.com/articles/2014/5/20/russia-china-bankdeal.html

a symbolic blow to U.S. global financial hegemony, Russia and China took a small step toward undercutting the domination of the U.S. dollar as the international reserve currency on Tuesday when Russia’s second biggest financial institution, VTB, signed a deal with the Bank of China to bypass the dollar and pay each other in domestic currencies.

The so-called Agreement on Cooperation — signed in the presence of Chinese President Xi Jinping and Russian President Vladimir Putin, who is on a visit to Shanghai — was followed by the long-awaited announcement on Wednesday of a massive natural gas deal 10 years in the making.

“Our countries have done a huge job to reach a new historic landmark,” Putin said on Tuesday, making note of the $100 billion in annual trade that has been achieved between the two countries.

Demand for the dollar, which has long served as a safe and reliable reserve currency in international transactions, has allowed the U.S. to borrow almost unlimited cash and spend well beyond its means, which some economists say has afforded the United States an outsize influence on world affairs.

But the BRICS countries — Brazil, Russia, India, China and South Africa, a bloc of the world’s five major emerging economies — have long sought to diminish their dependence on the dollar as a means of reshaping the world financial and geopolitical order. In the absence of a viable alternative, however, replacing it has proved difficult.

For its part, “China sees the dominance of the dollar in international trade transactions as a remnant of American global dominance, which they hope to overthrow in the years ahead,” said Michael Klare, a professor of peace and world security studies at Hampshire College. “This is a small step in that direction, to reduce the primacy of the dollar in international trade.”

Some have been tempted to view Tuesday's deal in the context of Putin's showdown with the West over the crisis in Ukraine. After the U.S. and Europe imposed sanctions on Moscow for its annexation of Ukraine's Crimean peninsula, Putin may have finally made good on promised retaliation against what he views as Western hegemony in Russia's near abroad.

“Breaking the dominance of the U.S. dollar in international trade between the BRICS is something that the group has been talking about for some time,” said Chris Weafer, a founding partner of Macro-Advisory, a consultancy in Moscow. “The Ukraine crisis and the threats voiced by the U.S. administration may well provide the catalyst for that to start happening.”

To be sure, the Russia-China bank deal is mostly a symbolic step. Liza Ermolenko, an emerging markets economist at Capital Economics in London, said that the deal was still “a very small one, in the grand scale of things,” and that it wouldn’t change Russia’s reliance on the dollar “overnight.” Most of Russia’s export contracts in the oil and gas markets are still priced in dollars, she noted, and on a wider scale, replacing the dollar with the ruble is much too risky to even consider.

Likewise, even though China has agreed to the gas deal, which could see over $450 billion of Russian natural gas flow from eastern Siberia into China over the next 30 years, Russia is not in a position to abandon its ties with Europe.

"From the commercial standpoint, Europe is the most profitable market for Gazprom,” said Mikhail Korchemkin, the founder of Eastern European Gas Analysis, who has consulted for Gazprom, the Russian state-owned gas company. "Exports to China can generate a small profit, [but] only if the government makes it free of taxes and duties.”

But the bank deal is another indicator that Russia and China are in the middle of a wider rapprochement, which analysts say is premised not on ideological alignment but on a mutual desire to undercut the U.S. in their respective spheres of influence.

Both countries are wary of President Barack Obama’s “pivot east,” a recalibration of U.S. foreign policy away from decades of war in the Middle East and toward the fast-growing economies of the East. Cynical observers have interpreted the shift as an effort to contain China.

"This is a marriage of mutual strategic interests, not a marriage of love," said Klare. “China wants energy and weapons from Russia, and Russia wants diplomatic backing and cash. It’s a quid pro quo.”

Yet even if China feels threatened by U.S. encroachment, it is Russia that is desperately pursuing closer ties with China.

Putin may have gotten the better of the Western powers in the showdown over Crimea, but at the cost of growing geopolitical isolation. Under intense pressure to demonstrate Russia's avowed independence from the West, he has repeatedly threatened that he could simply shut off its natural gas pipelines to Europe and find new markets for Russian energy exports.

Separate from that political posturing, the Russian imperative to find new markets for its energy exports is nonetheless very real. Energy demands in Europe have plateaued and may even decline in the long term because of stringent environmental regulations.

“If Russia wants to continue to be a petrostate, it has to shift marketing of its exports to Asia," said Klare, who noted that Western energy conglomerates like ExxonMobil have begun doing the same.

“We don’t want to push this too far and see it as a formation of a new, global anti-American bloc that is starting a new Cold War,” he added. "This is market-driven more than it’s political."

[homersapien 11,812]

I think the first sentence got it right - "symbolic".

I would be surprised if this had much impact on the value of the dollar. But I am not an economist.

[japantiger 4,077]

The currency threat comes from the RMB over time. At the point China is the dominant economy; consistently, that is when the USD ceases to be the global reserve economy. At that point, cost of oil and cost of goods in the US start to be driven by the whims of the Chinese politburo. Look at what happens today in high debt, high entitlement, low domestic manufacturing economies and that will be us within 30 years unless we modify the course we are on.

[icanthearyou 4,468]

I think you have to look at the value of the dollar in two ways. First, it's actual buying power. In this regard, I think Homer is correct, for now. It is more symbolic than significant. However, over time, I think you have to be concerned that the demand for dollars and, consequently the value of the dollar will be affected. Second, you have to look at the value of the dollar in terms of political influence. In this regard, I think you have to be concerned that our ability to influence the world is greatly diminished.

[Strychnine 1,804]

In itself, I also agree that it is indeed more symbolic than significant. However, I am beginning to look at it as a serious shot across our bow when taken in context with Russia and China buying gold and dumping US bonds.

[homersapien 11,812]

I think you have to look at the value of the dollar in two ways. First, it's actual buying power. In this regard, I think Homer is correct, for now. It is more symbolic than significant. However, over time, I think you have to be concerned that the demand for dollars and, consequently the value of the dollar will be affected. Second, you have to look at the value of the dollar in terms of political influence. In this regard, I think you have to be concerned that our ability to influence the world is greatly diminished.

The value of the dollar is linked more to the (perceived) stability of our political system than anything else.

I would be more concerned about the GOP wackos trying to default on our the U.S.'s good faith and credit that I would be about China paying Russia in rubles.

[TheBlueVue 177]

I think you have to look at the value of the dollar in two ways. First, it's actual buying power. In this regard, I think Homer is correct, for now. It is more symbolic than significant. However, over time, I think you have to be concerned that the demand for dollars and, consequently the value of the dollar will be affected. Second, you have to look at the value of the dollar in terms of political influence. In this regard, I think you have to be concerned that our ability to influence the world is greatly diminished.

The value of the dollar is linked more to the (perceived) stability of our political system than anything else.

I would be more concerned about the GOP wackos trying to default on our the U.S.'s good faith and credit that I would be about China paying Russia in rubles.

Actually the value of the dollar is more significantly tied to the fact that all currencies have to first be converted to US Dollars before buying oil. This props up the dollars value on world currency markets because of demand. It is imbecilic to think what is going on in China and Russia will not drive down the value of the US dollar. Its value is a relative measure versus other currencies in the global currency market. This issue is not about purchasing power of the dollar but rather about relative value of the dollar versus other currencies.

The idea that you think the GOP is a bigger threat to US financial security than the China/Russia deal only telegraphs your unbelievably complete lack of understanding of the implications of this issue.

[Strychnine 1,804]

I think you have to look at the value of the dollar in two ways. First, it's actual buying power. In this regard, I think Homer is correct, for now. It is more symbolic than significant. However, over time, I think you have to be concerned that the demand for dollars and, consequently the value of the dollar will be affected. Second, you have to look at the value of the dollar in terms of political influence. In this regard, I think you have to be concerned that our ability to influence the world is greatly diminished.

The value of the dollar is linked more to the (perceived) stability of our political system than anything else.

I would be more concerned about the GOP wackos trying to default on our the U.S.'s good faith and credit that I would be about China paying Russia in rubles.

If that were true, the dollar would have already collapsed. The fact that the dollar is the world's main reserve currency is what has kept it (and us) alive. China and Russia are very interested in breaking apart our currency's hegemony on finance (and the power it delivers), but they intend to do it gradually. A sudden collapse of the dollar benefits no one. This is the very reason they bought US bonds in the first place. A deal like this, combined with the fact that they've both been quietly unloading US bonds and stockpiling gold, demonstrates their ultimate goal and what they expect to happen (or cause to happen). In effect, we have an energy giant and a manufacturing giant joining forces with the intention of drastically reshaping the global order of finance and power, and they do have the resources to pull it off. Things in the world are such that one of three things (or a combination) are eventually going to happen: the United States (and possibly Europe) will collapse under their own weight, there will be a massive war, or the United States will have to drastically alter itself. Given the history of our elected leadership that I've observed in my lifetime, I have very little faith in the United States altering itself in a positive way.

[Tigermike 3,425]

I think you have to look at the value of the dollar in two ways. First, it's actual buying power. In this regard, I think Homer is correct, for now. It is more symbolic than significant. However, over time, I think you have to be concerned that the demand for dollars and, consequently the value of the dollar will be affected. Second, you have to look at the value of the dollar in terms of political influence. In this regard, I think you have to be concerned that our ability to influence the world is greatly diminished.

The value of the dollar is linked more to the (perceived) stability of our political system than anything else.

I would be more concerned about the GOP wackos trying to default on our the U.S.'s good faith and credit that I would be about China paying Russia in rubles.

And that statement shows what a total partisian idiot you are. China has been pushing for years for the U.S. dollar to be replaced for international exchange.

China Pushing for Yuan to be Global Currency

January 23, 2011

Business leaders have mixed views about how soon the Chinese currency might replace the dollar as the world’s dominant currency as Beijing promotes greater use of the yuan. Some say Beijing must carry out more reforms for that to happen.

link

China's Global Yuan Push Accelerating

3/19/2013

China‘s push to make its currency, the yuan, a global reserve currency is accelerating. Only, this is China. And China is more tortoise than rabbit (though we know who wins the race in that fable).

HSBC bank said Tuesday that it expects the country to enact various measures that will increase the yuan’s use as a global trade currency, especially throughout China’s Asian trading partners.

link

China pushing to be world's banker

March 24, 2014 Date

China's push to make the yuan the world's reserve currency could spell a period of increased volatility for the Australian dollar even as it opens up new opportunities for local investors and businesses.

The world's second-largest economy has sped up its internationalisation of the yuan, also known as the renminbi (RMB), with the central bank, the People's Bank of China, doubling its daily trading band in mid-March.

link

What China’s Push for An Alternative World Reserve Currency Means

June 28, 2009

link

UN wants new global currency to replace dollar

The dollar should be replaced with a global currency, the United Nations has said, proposing the biggest overhaul of the world's monetary system since the Second World War.

link

What China’s Push for An Alternative World Reserve Currency Means

Sunday, June 28, 2009

Yesterday, after China called for a super-sovereign currency, the dollar slid as investors started seeing the writing on the wall. Specifically, the People’s Bank of China said the International Monetary Fund should manage part of members’ foreign-exchange reserves. See this.

link

In China, Tentative Steps Toward Global Currency

Published: February 10, 2011

link

link

March 24, 2009 2:00 am

China wants to oust dollar as international reserve currency

By Jamil Anderlini in Beijing

China's central bank yesterday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund....

link

[icanthearyou 4,468]

Can we/should we pull back from doing business with communist China. Should we promote policy that would bring manufacturing back home?

[Tigermike 3,425]

Can we/should we pull back from doing business with communist China. Should we promote policy that would bring manufacturing back home?

Manufacturing jobs are not coming back to the U.S. or so the experts have been saying for years.

But it seems to me there should be ways to help it happen.

As for doing business with China, I make it personal and don't buy anything from there if I can avoid it. Remember the sheet rock manufactured in China? Poisoning people and had to be taken out of new homes. Just recently PETCO said they would no longer sell dog or cat food manufactured in China. After 1,000's of dogs and cats had died.

I have nothing against Chinese people, I just don't want to purchase products from there because of quality of products.

[homersapien 11,812]

I think you have to look at the value of the dollar in two ways. First, it's actual buying power. In this regard, I think Homer is correct, for now. It is more symbolic than significant. However, over time, I think you have to be concerned that the demand for dollars and, consequently the value of the dollar will be affected. Second, you have to look at the value of the dollar in terms of political influence. In this regard, I think you have to be concerned that our ability to influence the world is greatly diminished.

The value of the dollar is linked more to the (perceived) stability of our political system than anything else.

I would be more concerned about the GOP wackos trying to default on our the U.S.'s good faith and credit that I would be about China paying Russia in rubles.

And that statement shows what a total partisian idiot you are.

And you are supposed to be a moderator?! :-\

(And you misspelled partisan.)

[Tigermike 3,425]

I think you have to look at the value of the dollar in two ways. First, it's actual buying power. In this regard, I think Homer is correct, for now. It is more symbolic than significant. However, over time, I think you have to be concerned that the demand for dollars and, consequently the value of the dollar will be affected. Second, you have to look at the value of the dollar in terms of political influence. In this regard, I think you have to be concerned that our ability to influence the world is greatly diminished.

The value of the dollar is linked more to the (perceived) stability of our political system than anything else.

I would be more concerned about the GOP wackos trying to default on our the U.S.'s good faith and credit that I would be about China paying Russia in rubles.

And that statement shows what a total partisian idiot you are.

And you are supposed to be a moderator?! :-\ (Yes I am and your overboard highly partisan comment was stupid.)

(And you misspelled partisan.) (Nice pick up on a typo.)

Your partisan comment was stupid. You do it well.

[homersapien 11,812]

I think you have to look at the value of the dollar in two ways. First, it's actual buying power. In this regard, I think Homer is correct, for now. It is more symbolic than significant. However, over time, I think you have to be concerned that the demand for dollars and, consequently the value of the dollar will be affected. Second, you have to look at the value of the dollar in terms of political influence. In this regard, I think you have to be concerned that our ability to influence the world is greatly diminished.

The value of the dollar is linked more to the (perceived) stability of our political system than anything else.

I would be more concerned about the GOP wackos trying to default on our the U.S.'s good faith and credit that I would be about China paying Russia in rubles.

And that statement shows what a total partisian idiot you are.

And you are supposed to be a moderator?! :-\ (Yes I am and your overboard highly partisan comment was stupid.)

(And you misspelled partisan.) (Nice pick up on a typo.)

Your partisan comment was stupid. You do it well.

This forum exists to express partisan comment. And for you to complain about "stupid partisan comments" is beyond ironic. How many stupid partisan threads do you start per day, never mind the comments?

Anyway, the point is you are serving to foster a poisonous tone and civility with your insults and poo flinging.

Maybe you should reconsider that "moderator" thing. You are anything but.

[Tigermike 3,425]

I think you have to look at the value of the dollar in two ways. First, it's actual buying power. In this regard, I think Homer is correct, for now. It is more symbolic than significant. However, over time, I think you have to be concerned that the demand for dollars and, consequently the value of the dollar will be affected. Second, you have to look at the value of the dollar in terms of political influence. In this regard, I think you have to be concerned that our ability to influence the world is greatly diminished.

The value of the dollar is linked more to the (perceived) stability of our political system than anything else.

I would be more concerned about the GOP wackos trying to default on our the U.S.'s good faith and credit that I would be about China paying Russia in rubles.

And that statement shows what a total partisian idiot you are.

And you are supposed to be a moderator?! :-\ (Yes I am and your overboard highly partisan comment was stupid.)

(And you misspelled partisan.) (Nice pick up on a typo.)

Your partisan comment was stupid. You do it well.

This forum exists to express partisan comment.

You are serving to foster the tone and civility with your insults and poo flinging. Maybe you should reconsider that "moderator" thing. You are anything but.

Your comment was stupid.

Your partisan slant was stupid.

That's the points.

The other point is that you have, in this forum, made claims of being nonpartisan.

[icanthearyou 4,468]

Got to go with TM on this Homer. That was definitely partisan rhetoric. And, if anyone here is an expert on stupid partisan comments, it should be TM.

[Strychnine 1,804]

Can we/should we pull back from doing business with communist China. Should we promote policy that would bring manufacturing back home?

Personally, I would agree with the assertion that we should do less business with China and promote domestic manufacturing. However, how many people will be excited about Wal-Marts and Targets no longer being stocked wall-to-wall with cheap Chinese goods? They never cared about the origins of those goods before, or about any of the long-term effects of replacing almost our entire retail experience with stores that stock them; they only cared that they were cheap. They will not care about the reasons why the same goods are no longer cheap; they will only care that they are cheap no longer.

There are arguments for embracing even more of a service economy over manufacturing. In that context, domestic manufacturing becomes less relevant. My problem with a service economy is that you're always relying on an external market to do something that they could just as easily do themselves. The only advantage you can provide is doing it cheaper, because no one cares anymore if you do it better or not. Manufacturing, agriculture, fishing, and extraction are the core of present and past economics, and they will likely remain that way until the world figures out a way to get along that is more akin to Star Trek's Federation than it is to how we live now. The problem that manufacturing presents is from the general desire in manufacturing to replace humans with automation.

Developing nations have been exporting their services well for some time (think about those foreign call centers you reach when seeking technical support), and they've been picking up manufacturing too. I would say that economics and the rest of the world are taking a giant dump on the concept of American Exceptionalism, as they grow and we exhibit symptoms more consistent with eventual collapse than recovery. Our leaders (both political and business) have brought us here over a fairly long course. It is no more Obama's fault than Bush's, and Romney, McCain, Kerry, or Gore would not have been able to fix it either in the sense that no band-aid stops the bleeding from limb amputation. It is the nature of capitalism (some would argue its flaw).

[telling tiger 156]

Whoa, careful Strychnine....all that truth and stuff is more than this forum can handle.

[homersapien 11,812]

Got to go with TM on this Homer. That was definitely partisan rhetoric. And, if anyone here is an expert on stupid partisan comments, it should be TM.

I think it's funny that people would take such offense to the term "wacko" when describing politicians who would deliberately default on US financial obligations. What would that do to the dollar's value?

Figuratively speaking, it's the same as addressing a slow leak by scuttling the ship. That qualifies as "wacko" to me, but apparently, to TM that standard is too low.

I suppose that's not surprising. He probably thinks defaulting would be a good idea, which would make him a .....

[icanthearyou 4,468]

Can we/should we pull back from doing business with communist China. Should we promote policy that would bring manufacturing back home?

Personally, I would agree with the assertion that we should do less business with China and promote domestic manufacturing. However, how many people will be excited about Wal-Marts and Targets no longer being stocked wall-to-wall with cheap Chinese goods? They never cared about the origins of those goods before, or about any of the long-term effects of replacing almost our entire retail experience with stores that stock them; they only cared that they were cheap. They will not care about the reasons why the same goods are no longer cheap; they will only care that they are cheap no longer.

There are arguments for embracing even more of a service economy over manufacturing. In that context, domestic manufacturing becomes less relevant. My problem with a service economy is that you're always relying on an external market to do something that they could just as easily do themselves. The only advantage you can provide is doing it cheaper, because no one cares anymore if you do it better or not. Manufacturing, agriculture, fishing, and extraction are the core of present and past economics, and they will likely remain that way until the world figures out a way to get along that is more akin to Star Trek's Federation than it is to how we live now. The problem that manufacturing presents is from the general desire in manufacturing to replace humans with automation.

Developing nations have been exporting their services well for some time (think about those foreign call centers you reach when seeking technical support), and they've been picking up manufacturing too. I would say that economics and the rest of the world are taking a giant dump on the concept of American Exceptionalism, as they grow and we exhibit symptoms more consistent with eventual collapse than recovery. Our leaders (both political and business) have brought us here over a fairly long course. It is no more Obama's fault than Bush's, and Romney, McCain, Kerry, or Gore would not have been able to fix it either in the sense that no band-aid stops the bleeding from limb amputation. It is the nature of capitalism (some would argue its flaw).

Good post. Very thought provoking.

I would argue that the savings to consumers has become more perception than reality. I believe that more of the "savings" associated with Chinese products, over time, has been absorbed by distributors and retailers in the form of profits. Could this be the source of wealth and income inequality rather than ideology? I believe the real cost must also include the amounts we spend supporting those who's jobs have been outsourced. We must also include the cost of creating a wealthier, more powerful China. I think that we would be wise to remember, their basic philosophy of government is directly opposed to ours. I think we should realize that they play the game of capitalism with nationalistic motives rather than the individual profit motive.

I also believe we fail to appreciate that we were once the most diverse economy in the world. Specialization may be important for the success of an individual business but, diversity represents national economic security as well as a certain safeguard to sovereignty.

I believe we still have the power to determine our own fate. However, we do not have the leadership ( as you stated, political or business) to do anything to reverse the current trend. I believe we need a more long-term vision. What we have are CEO's driven by this quarters results and politicians driven by opinion polls and the next election. Our narrow, short-sited view of what constitutes success, may be our undoing.

[homersapien 11,812]

Can we/should we pull back from doing business with communist China. Should we promote policy that would bring manufacturing back home?

Personally, I would agree with the assertion that we should do less business with China and promote domestic manufacturing. However, how many people will be excited about Wal-Marts and Targets no longer being stocked wall-to-wall with cheap Chinese goods? They never cared about the origins of those goods before, or about any of the long-term effects of replacing almost our entire retail experience with stores that stock them; they only cared that they were cheap. They will not care about the reasons why the same goods are no longer cheap; they will only care that they are cheap no longer.

There are arguments for embracing even more of a service economy over manufacturing. In that context, domestic manufacturing becomes less relevant. My problem with a service economy is that you're always relying on an external market to do something that they could just as easily do themselves. The only advantage you can provide is doing it cheaper, because no one cares anymore if you do it better or not. Manufacturing, agriculture, fishing, and extraction are the core of present and past economics, and they will likely remain that way until the world figures out a way to get along that is more akin to Star Trek's Federation than it is to how we live now. The problem that manufacturing presents is from the general desire in manufacturing to replace humans with automation.

Developing nations have been exporting their services well for some time (think about those foreign call centers you reach when seeking technical support), and they've been picking up manufacturing too. I would say that economics and the rest of the world are taking a giant dump on the concept of American Exceptionalism, as they grow and we exhibit symptoms more consistent with eventual collapse than recovery. Our leaders (both political and business) have brought us here over a fairly long course. It is no more Obama's fault than Bush's, and Romney, McCain, Kerry, or Gore would not have been able to fix it either in the sense that no band-aid stops the bleeding from limb amputation. It is the nature of capitalism (some would argue its flaw).

And that's a major problem. Lowering the cost of living is one of the arguments often used to support oversea sourcing. But as you point out, it has problematic implications for the long term.

You might like a book I read years ago on a different economic model geared more to local economies rather than "global" ones.

For the Common Good: Redirecting the Economy Toward Community, the Environment and a Sustainable Future by Herman E. Daly and John B. Cobb Jr.

[Strychnine 1,804]

Can we/should we pull back from doing business with communist China. Should we promote policy that would bring manufacturing back home?

Personally, I would agree with the assertion that we should do less business with China and promote domestic manufacturing. However, how many people will be excited about Wal-Marts and Targets no longer being stocked wall-to-wall with cheap Chinese goods? They never cared about the origins of those goods before, or about any of the long-term effects of replacing almost our entire retail experience with stores that stock them; they only cared that they were cheap. They will not care about the reasons why the same goods are no longer cheap; they will only care that they are cheap no longer.

There are arguments for embracing even more of a service economy over manufacturing. In that context, domestic manufacturing becomes less relevant. My problem with a service economy is that you're always relying on an external market to do something that they could just as easily do themselves. The only advantage you can provide is doing it cheaper, because no one cares anymore if you do it better or not. Manufacturing, agriculture, fishing, and extraction are the core of present and past economics, and they will likely remain that way until the world figures out a way to get along that is more akin to Star Trek's Federation than it is to how we live now. The problem that manufacturing presents is from the general desire in manufacturing to replace humans with automation.

Developing nations have been exporting their services well for some time (think about those foreign call centers you reach when seeking technical support), and they've been picking up manufacturing too. I would say that economics and the rest of the world are taking a giant dump on the concept of American Exceptionalism, as they grow and we exhibit symptoms more consistent with eventual collapse than recovery. Our leaders (both political and business) have brought us here over a fairly long course. It is no more Obama's fault than Bush's, and Romney, McCain, Kerry, or Gore would not have been able to fix it either in the sense that no band-aid stops the bleeding from limb amputation. It is the nature of capitalism (some would argue its flaw).

Good post. Very thought provoking.

I would argue that the savings to consumers has become more perception than reality. I believe that more of the "savings" associated with Chinese products, over time, has been absorbed by distributors and retailers in the form of profits. Could this be the source of wealth and income inequality rather than ideology? I believe the real cost must also include the amounts we spend supporting those who's jobs have been outsourced. We must also include the cost of creating a wealthier, more powerful China. I think that we would be wise to remember, their basic philosophy of government is directly opposed to ours. I think we should realize that they play the game of capitalism with nationalistic motives rather than the individual profit motive.

I also believe we fail to appreciate that we were once the most diverse economy in the world. Specialization may be important for the success of an individual business but, diversity represents national economic security as well as a certain safeguard to sovereignty.

I believe we still have the power to determine our own fate. However, we do not have the leadership ( as you stated, political or business) to do anything to reverse the current trend. I believe we need a more long-term vision. What we have are CEO's driven by this quarters results and politicians driven by opinion polls and the next election. Our narrow, short-sited view of what constitutes success, may be our undoing.

I would counter that when you're talking about people, perception IS reality. The reality is that, as you said, the savings were never actually passed on to the consumers. In many of those cases, it was not an issue of US goods being more expensive, it was simply that costs could be cut and profit increased most rapidly by contracting a factory in China to make it instead while maintaining the original retail price point. It's become so blatant that even luxury goods do it. Coach is a great example. Those $400-500 purses are made in China now. Personally, I do not consider China's political structure ultimately relevant to the issue at hand, as the same thing would hold true if Europe were China in this case. As you said in your last paragraph, these are the kind of results that short-term business and political leadership thinking bring. Compound that with a generation or two's time span of successive revolving door short-term thinking. If a CEO can make millions annually, there is no logical reason that any employee anywhere in their operation should be pinching pennies to make sure the bills are paid.

We were indeed once the most diverse economy in the world. We made most of the things that we used, and sold them to others. We produced most of the food we ate, and sold it to others. Those two things alone are generally sufficient to guarantee indefinite prosperity. People always want things, but they simply have no choice in the matter when it comes to food. I think the same idiotic "too big to fail" concept that we've heard applied to a few banks in the last five years is what people kept in their minds as justification about the country itself when the outsourcing began.

You are quite right about long-term vision. Smart business has a short-term and long-term plan that work together, and does not consider compromising the nation's economic best interests an option. Smart political leaders would too.

[Strychnine 1,804]

Can we/should we pull back from doing business with communist China. Should we promote policy that would bring manufacturing back home?

Personally, I would agree with the assertion that we should do less business with China and promote domestic manufacturing. However, how many people will be excited about Wal-Marts and Targets no longer being stocked wall-to-wall with cheap Chinese goods? They never cared about the origins of those goods before, or about any of the long-term effects of replacing almost our entire retail experience with stores that stock them; they only cared that they were cheap. They will not care about the reasons why the same goods are no longer cheap; they will only care that they are cheap no longer.

There are arguments for embracing even more of a service economy over manufacturing. In that context, domestic manufacturing becomes less relevant. My problem with a service economy is that you're always relying on an external market to do something that they could just as easily do themselves. The only advantage you can provide is doing it cheaper, because no one cares anymore if you do it better or not. Manufacturing, agriculture, fishing, and extraction are the core of present and past economics, and they will likely remain that way until the world figures out a way to get along that is more akin to Star Trek's Federation than it is to how we live now. The problem that manufacturing presents is from the general desire in manufacturing to replace humans with automation.

Developing nations have been exporting their services well for some time (think about those foreign call centers you reach when seeking technical support), and they've been picking up manufacturing too. I would say that economics and the rest of the world are taking a giant dump on the concept of American Exceptionalism, as they grow and we exhibit symptoms more consistent with eventual collapse than recovery. Our leaders (both political and business) have brought us here over a fairly long course. It is no more Obama's fault than Bush's, and Romney, McCain, Kerry, or Gore would not have been able to fix it either in the sense that no band-aid stops the bleeding from limb amputation. It is the nature of capitalism (some would argue its flaw).

And that's a major problem. Lowering the cost of living is one of the arguments often used to support oversea sourcing. But as you point out, it has problematic implications for the long term.

You might like a book I read years ago on a different economic model geared more to local economies rather than "global" ones.

For the Common Good: Redirecting the Economy Toward Community, the Environment and a Sustainable Future by Herman E. Daly and John B. Cobb Jr.

Yeah, I hear the argument of lowering the cost of living all the time. I might even agree with it, if it actually managed to lower the cost of living. Well, that's not true. It has lowered the cost of living...in China.

I'll make it a point to read that book, as I agree with the premise. The problem with global economies is the world's political climate. You have a handful of true allies, many allies of convenience, and a few enemies that are friends of convenience. That's the first and obvious problem. The second, and in my opinion biggest, problem is the multitude of nation-states (and nations) that are concerned solely with themselves economically. Since the globe consists of humanity in its entirety, global economies must concern themselves with humanity in its entirety. Xenophobia frequently makes us forget that we're all human sometimes, and in the case of economics frequently causes us to seek to enrich ourselves with little or no regard to whom's expense it occurs. We don't actually have global economies anyway, at least not beyond nation's desires to dominate it to their benefit. What we do have are global megacorporations, that are not concerned with anyone anywhere. Ideally, you either have local economies trading globally to mutual benefit, or you have a proper global economy. The latter is basically impossible without a massive change in humanity's social condition. What we see today is a result of those global megacorporations. To them, nations and people are things to be used, exploited, and profited from. They move on when one is exhausted. It's great for shareholders, and even great for some economies in the short-term.

[autigeremt 6,970]

To them, nations and people are things to be used, exploited, and profited from. They move on when one is exhausted. It's great for shareholders, and even great for some economies in the short-term.

Reminds me of locusts or the visiting aliens from the movie "Independence Day".

[icanthearyou 4,468]

To them, nations and people are things to be used, exploited, and profited from. They move on when one is exhausted. It's great for shareholders, and even great for some economies in the short-term.

Reminds me of locusts or the visiting aliens from the movie "Independence Day".

Reminds me of that line from North Dallas Forty. "Team, we're not the team. They're the team. We're the damned equipment."

We should take care not to anger our government. They might just go and find a better, more pliable population to govern.