Why deficits matter

[TexasTiger 13,006]

Somebody has to fund them. Guess who that is?

China threatens 'nuclear option' of dollar sales

By Ambrose Evans-Pritchard

Last Updated: 1:48am BST 08/08/2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.

He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

http://www.telegraph.co.uk/money/main.jhtm...cnchina107a.xml

[otterinbham 0]

Yep. The Republicans and Democrats should both be shot for allowing this to go on. Both have been equal parties to this over the past forty years.

Yet, when I start bitching up a storm about the Medicare Prescription Act, some people on this board don't seem to get that it, along with the looming entitlement crisis, is as big a threat to this country's security as Al Queda. Because a failure of economic discipline in this country will destroy it as surely as any nuclear weapon.

[AUman43 5]

Otter, I hope you never need to use the Medicare Prescriptions OR avail yourself of Social Security benefits OR anything else this reckless carefree, socialist government provides ! Heaven forbid! Hope you invest well and earn a lot! You better!

[otterinbham 0]

Otter, I hope you never need to use the Medicare Prescriptions OR avail yourself of Social Security benefits OR anything else this reckless carefree, socialist government provides ! Heaven forbid! Hope you invest well and earn a lot! You better!

Actually, I have. It's what prudent adults do.

But, more to your point, the Prescription Act was wholly unnecessary, simply because most of it could have been handled by tweaking existing programs. In addition, if you really think that Social Security, Medicare and Medicaid are, as designed, fiscally tenable over the next thirty years, then you're smoking crack. Social Security in particular is the world's biggest Ponzi scheme. Even if we increase contributions by a third, it only adds a few years to the program's viability. Unless, of course, we have mass privitization of the program.

So what you're really trying to defend is the fact that, from a sheer statistical standpoint, the current entitlement structure of our government can be funded indefinitely. Which, independent economists from Greenspan and Friedman on down agree, is simple fantasy on the part of the left.

[otterinbham 0]

Somebody has to fund them. Guess who that is?

China threatens 'nuclear option' of dollar sales

By Ambrose Evans-Pritchard

Last Updated: 1:48am BST 08/08/2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.

He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

http://www.telegraph.co.uk/money/main.jhtm...cnchina107a.xml

Of course, the more interesting question has to do with this move's effect on China.

The Chinese are in an extraordinarily precarious economic state at the moment. Yes, they're booming. But their entire economic momentum relies exclusively on manufacturing export and, in many, many ways, the Chinese economy remains very primitive. So, if there's a wholesale economic collapse in the West because of this move, then the Chinese will ultimately fare even worse. Meanwhile, while the Western economy would go through several years of economic dislocation, the West would recover much more quickly.

The key to the Chinese is that they're in a race against time. The truth of the matter is that, with their One Couple One Child policy, they're facing a demographic crisis that makes our Social Security problems look like a temporary cash flow problem. Unless their government policy is changed to resemble something out of Logan's Run, the country will become a extraordinarily old country in 20 years, with a resultant drag on productivity, health care, and government. So if they have a serious slowdown or reversal in their economic fortunes, they'll be screwed as a nation.

[AUman43 5]

Let me see if I get this straight. I assume you are advocating everyone should pay the full freight for medical care.....regardless of their economic situation AND you're saying that private investments (Social Security Privatization as proposed by Bush) is a fair and equitable way to address the funding problem? Right?

Well, first of all what makes you think that poorer, uneducated people have the technical knowledge toknow HOW to invest their monies prudently to insure a good return on their investment. (unlike most educated, stock market savvy people) Is the goverment going to advisse them on how to invest to insure they are not screwed or do you believe it's every man for himself like most republicans?

Secondly, the U.S. spends an average of $7,000 per capita on health care. According to a 2007 analysis by McKinsey Global Institute, that's 28 percent more than any other industrialized country, even after adjusting for its relative wealth. So I'm also assuming that government should keep their mits off the doctors, pharmisuitcal companies and their lobbyists while they continue to run rough shod over the American people unchecked. It's no secret that in the wake of managed care, NOBODY is effectively reining in spiraling costs according to the above poll. "We have very high prices because people can get away with charging them," says David Blumenthal, M.D. Directorof the Institute of Health Policy at Massachusetts General Hospital. "In our decentralized, pluralistic system, no single purchaser has the market power or political authority to impost cost controls."

In 2006, the nation's largest health insurance companies collectively earned almost 11 billion in profits despite the fact that insurers haven't been paying much of a penalty for failing to contain costs. Insurers typically keep 15 to 25 percent of the premiums they collect to cover administrative and marketing costs, plus profit (the exact percentage varies according to individual state regulations, if any) The rest goes to pay for health care for customers.

I suppose you don't see anything wrong with picture but I sure as Hell do. Otter, the problem is unrestrained greed and corruption and no oversight. When individuals within a free market society turn to widespread greed and corruption then somebody should step in and right the ship. This ship has been sailing right along now for over 7 years with record corporate profits, failures to reinvest, and absurd CEO salaries. I see a lot wrong with the picture and so do most Americans. When this economy collapses, I wonder where all these fat cats think they will spend their dollars when it's not worth the paper it's printed on? China can just about do us in right now economically!

[TitanTiger 20,510]

What part of "we can't afford this" isn't getting through?

[AUman43 5]

I understand it perfectly......but apparently Republicans seem to find the $$$$ for anything they want or value!

[TitanTiger 20,510]

I understand it perfectly......but apparently Republicans seem to find the $$$$ for anything they want or value!

I'm conservative, not a Republican. There is a difference.

[AUman43 5]

You must be lonesome these days since your great helmsman has deserted you.

[otterinbham 0]

Let me see if I get this straight. I assume you are advocating everyone should pay the full freight for medical care.....regardless of their economic situation AND you're saying that private investments (Social Security Privatization as proposed by Bush) is a fair and equitable way to address the funding problem? Right?

Well, first of all what makes you think that poorer, uneducated people have the technical knowledge toknow HOW to invest their monies prudently to insure a good return on their investment. (unlike most educated, stock market savvy people) Is the goverment going to advisse them on how to invest to insure they are not screwed or do you believe it's every man for himself like most republicans?

Secondly, the U.S. spends an average of $7,000 per capita on health care. According to a 2007 analysis by McKinsey Global Institute, that's 28 percent more than any other industrialized country, even after adjusting for its relative wealth. So I'm also assuming that government should keep their mits off the doctors, pharmisuitcal companies and their lobbyists while they continue to run rough shod over the American people unchecked. It's no secret that in the wake of managed care, NOBODY is effectively reining in spiraling costs according to the above poll. "We have very high prices because people can get away with charging them," says David Blumenthal, M.D. Directorof the Institute of Health Policy at Massachusetts General Hospital. "In our decentralized, pluralistic system, no single purchaser has the market power or political authority to impost cost controls."

In 2006, the nation's largest health insurance companies collectively earned almost 11 billion in profits despite the fact that insurers haven't been paying much of a penalty for failing to contain costs. Insurers typically keep 15 to 25 percent of the premiums they collect to cover administrative and marketing costs, plus profit (the exact percentage varies according to individual state regulations, if any) The rest goes to pay for health care for customers.

I suppose you don't see anything wrong with picture but I sure as Hell do. Otter, the problem is unrestrained greed and corruption and no oversight. When individuals within a free market society turn to widespread greed and corruption then somebody should step in and right the ship. This ship has been sailing right along now for over 7 years with record corporate profits, failures to reinvest, and absurd CEO salaries. I see a lot wrong with the picture and so do most Americans. When this economy collapses, I wonder where all these fat cats think they will spend their dollars when it's not worth the paper it's printed on? China can just about do us in right now economically!

Let's address your incoherent screed one point after another. That is, if you're actually interested in the facts.

The way that Social Security is structured, the anticipated return that those under 40 can expect on their contribution is 1.5%. In other words, for your 7.5% deduction from your paycheck, your so-called pension loses money due to inflation. I cannot imagine a more risky investment in that, unless of course you're going to the track.

As far as your condescending notion that the poor are too stupid to be trusted with their own money, the answer is pretty simple and has already been solved by other choice: Allow people dozens of choices into which their contribution can go. With very few exceptions that I can think of, every mutual fund around provides a better return over a 10 year period than Social Security. And if there are signs of mismanagement, then the government can address that. But you cannot seriously advocate a system like Social Security where the account holder begins losing money the moment his first withholding takes place.

When it comes to the skyrocketing cost of healthcare in this country, I'm amazed how apologists for Medicare and Medicaid never ever fess up to how government is responsible to a large portion of the problem. As Milton Friedman said, "My estimate that if the pre–World War II system had continued—that is, if tax exemption and Medicare and Medicaid had never been enacted—expenditures on medical care would have amounted to less than half the current level, which would have put us near the bottom of the OECD list rather than at the top." Chances are, he's right. Since Medicare and Medicaid were implemented in 1965, healthcare costs have risen from its once stable 5.9% portion of the GDP to a staggering 17% today. Think there's a cause and effect there?

What's more, if you actually knew anything about the healthcare biz, you should also know that it is the most heavily regulated and subject to the most government intervention of any industry in America. Want to put a competitive hospital in your hometown? Sure thing. Just go through the five-year certification of need process. Want to put in an MRI and charge 50% less than the place across town? No problem, apply to the state government for approval. In other words, rather than it being a industry filled with rapacious capitalists lighting cigars with $100 bills, it is in reality a business that is extraordinarily regulated on pricing and services, and where it is extraordinarily difficult to enter into competition. If you want lower prices on healthcare, then allow more hospitals, rather than throw up obstacles to prevent construction. Even now, I'm involved in a fight to put a hospital in Madison, Alabama. You simply cannot imagine the hoops that are involved.

Now let's move onto your understanding of the profits that health insurance companies make. In one sense, you are right. Healthcare insurance companies typically make a gross margin of anywhere from 15-25%. However, as anybody who's ever taken Business 101 knows, there's a huge difference between GROSS profit and NET profit. After paying for their army of workers and other operating costs, health insurers typically have a NET profit in the 6-7% range. When you realize that typical gross margins in any service sector industry typically runs more than 50%, with a net profit of 8-10%, then health insurers typically underperform other service industries in terms of financial performance. If you don't make a profit, you don't have shareholders. And if you don't have shareholders, you don't have a business.

As far as your ramblings are concerned on the subject of unrestrained greed, are you referring to the Enron, Tyco and WorldCom scandals that took place on Clinton's watch? It seems to me that the securities laws enacted by Congress over the past six years have pretty much squelched the loosey-goosey, anything-goes accounting standards of the 1990s. I have been personally involved in the development of several annual reports for publicly traded companies over the past several years, and I know what conversations go on when the numbers are tabulated. "I'm not going to print that. I'm not going to jail," seems to be the most prevalent thing I hear.

When it comes to reinvesting profits, you really don't have a clue what you're talking about. Companies are forever reinvesting in terms of new machinery, new capacity, strategic acquisitions and expansions, and new quality control procedures. This is borne out by the fact that, for the past decade, productivity rates in this country have increased 2.5-4% annually, a rate that's been consistently higher over time than the rest of the industrialized world, with the exception of China. That is why per capita income after taxes in this country has increased relative to the rest of the industrialized world, particuarly Europe, since 1980. To suggest that, in the face of this information, American industries are not reinvesting is bizarre to say the least.

As far as your envious Marxist rant on CEO salaries, it's really not even worth discussing. What constitutes a correct compensation level? There is no good answer. Because if a CEO delivers profitability and long-term corporate viability to shareholders without breaking the law, the shareholders are free to pay him anything they think he deserves.

[Bottomfeeder 244]

I would go for a DRIP plan with some invested in PSEG.

http://www.pseg.com/

And maybe some of,

The Monthly Dividend Company®.

And, there are many others I would consider if I had control of the investment and not the government.

[otterinbham 0]

I would go for a DRIP plan with some invested in PSEG.

http://www.pseg.com/

And maybe some of,

The Monthly Dividend Company®.

And, there are many others I would consider if I had control of the investment and not the government.

Welcome to the rational economic world, Bottomfeeder. Now go to the library and check out two really good economic primers: Free To Choose by Milton Friedman and The Commanding Heights by Daniel Yergin. Both are straight-up terrific economics books for laymen like you and me.