Median Home Price Reaches 20-Month High
CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Thursday, July 22, 2010
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
Previous Posts
- One More Reason Wal-Mart Deserves Nobel Prize
- California Mortgage Defaults Fall to 3-Year Low
- ASA Staffing Index 24% Above Same Wk. Last Year
- High Stakes Test: Can Big Government Successfully ...
- LEIs/CEIs: U.K., China, Spain, France and Germany
- Markets in Everything: You Drink, They Drive
- Markets in Everything: Rent-A-Friend
- Vogue's September Issue: +100 Ad Pages vs. 2009
- Double Dip? Seven Reasons Why Not
- Exhibit A: Increased Worker Productivity
56 Comments:
http://online.barrons.com/article/SB50001424052970203587804575378642917121542.html?mod=BOL_hpp_dc
on the other hand, existing home sales were down 5.1% from may and the months of inventory figure was up yet again (and has been trending higher for about 9 months. expect to see months of inventory increase significantly in july as the lower sales volumes affect the ratio.
Too slow. The Fed needs to get aggressivem expanisve and accomodative whatver words you like.
Mr Inflation has cement shoes on. He is sitting in the back seat of car owned by Mr. Deflationatino. At night, in the dark and it's raining. Parked by an abandoned dock.
The Fed has decided the psychic income they derive from a zero inflation rate is equal to the real income Americans will not get by meeting a new, low inflation target.
It seems, what's coming out of the Obama Administration, e.g. inefficient fiscal policies, private sector attacks, costly regulations, etc. are offsetting the Fed's quantitative easing and TARP initiated under the Bush Administration. There should've been a V-shaped recovery after this severe recession.
Also, I may add, all recessions have financial crises to some degree. However, not all financial crises result in recessions. Each recession is different and there are appropriate policy responses. It's likely, the Obama Adminstration has made this recovery weaker.
What else do we expect the NAR to do? They will trumpet the small increase in sales and prices while they stay very silent on the massive growth of inventory and the pending sales collapse due to the ending of the tax credit. Sorry Mark but the US housing market is going to be moving down in real terms for quite some time even if inflation is used to bail out over-indebted homeowners. I see no reason to be optimistic and would still be betting against housing and the USD by choosing gold or energy investments instead.
On the not so bright side, home sales have slowed after the tax credit expired (hoodathunkit) and the inventory of existing home is rising again.
There won't be much rise in residential investment for a year or more. So what sector will bring us out of malaise now?
Exports are increasing, but those are vulnerable. Asia is gaining market share in chip sales and China's bubble could burst any day.
CleanTech will have a mini boom, all supported by government subsidies and mandates.
Retail has never led an economy out of recession before. Will Apple save us?
Governments are finally and necessarily cutting jobs.
Healthcare job growth is positive but slowing.
Business services is picking up, but mostly temp jobs.
The optimists are flaunting a 44 magnum, but all six cylinders are empty. I'm feeling pretty lucky about a second half dip in GDP growth. There's little appetite in Congress for Simulus II.
Vangel: Gold has increased four fold in the past 10 years and powerful inflationary forces which drive gold higher tend to drive real estate prices higher also (although the two do not always move in concert).
There is significant evidence that real estate is beginning to rebound from its crash (see chart for confirmation) while there is also evidence that gold is in a bubble and is now declining in value.
Also, nominal price increases for real estate are very important as they make mortgages less onerous and provide collateral for new loans. Real prices are not important in that equation.
@Benjamin:
There's not one school of economic thought which believes monetary policy is safe or effective in this economy. The Fed is powerless to do anything except prevent deflation.
If any active policy would work, it would be fiscal. But that failed already. The multiplier effect has been less than 1 for almost all the spending and close to zero (complete crowding out) for about a quarter of it.
Government is achieving nothing except running up more debt and giving the unemployed more reasons to adapt to changing economic conditions. They are waiting for a return of jobs which aren't coming any time soon. They need to be picking lettuce and changing sheets in hotels.
There is significant evidence that real estate is beginning to rebound from its crash (see chart for confirmation) while there is also evidence that gold is in a bubble and is now declining in value.
You have to look at the bigger picture. Obama is a failure and the US is stuck in Afghanistan for several more years. Federal debt levels are rising rapidly and unfunded SS and Medicare liabilities stand at more than $100 trillion. The Chinese are now downgrading the US and are claiming that it is near bankruptcy. Clearly most of the states are past the point of no return and will be unable to pay off their debts. As the municipal bond market collapses we are likely to see gold well over $2,000 and silver above $50. Once the USD begins to melt down the price will really begin to rise.
Now you may argue that this would be good for real estate because those underwater mortgages will become easy to pay off once the printing presses go into overdrive. But what will be missed by those making that argument is the real loss of purchasing power that will make those now struggling to keep their homes unable to pay to live in them even if their mortgage liabilities go away.
I don't know about you but I still like gold as much as I did in 2000, when I first started to buy the PM sector. If you don't have any exposure I would look to add some physical by looking at the Sprott funds or by purchasing shares in closed end funds that hold physical metals rather than the ETFs, which still use futures and paper metal claims.
Vangel: If you got into gold in 2000, then I salute you. I do believe however that, once a recovery becomes obvious, gold will drop in value considerably as it is being used now by people like you hedge against disaster. As more and more time passes and the disaster fails to materialize, the desire of many people to own gold will wane, they will sell and prices will come back to Earth.
Vangel: If you got into gold in 2000, then I salute you. I do believe however that, once a recovery becomes obvious, gold will drop in value considerably as it is being used now by people like you hedge against disaster. As more and more time passes and the disaster fails to materialize, the desire of many people to own gold will wane, they will sell and prices will come back to Earth.
I am not using gold to hedge against disaster. I am using it because I do not trust the purchasing power of fiat currencies.
There is no doubt that gold can go down against a particular currency for a while, particularly if it has had a huge run or if there are supply side responses to keep the price low but I do not see those events in the near future. The bottom line is that central banks have already divested themselves of most of their holdings. A lot of gold that is on their books has already been sold on the spot market and is not coming back because the borrowers can never get it back. At the same time most governments can't keep their pension and medicare promises and will resort to money printing as a default mechanism.
I hate to tell you this but the crisis is far from over. When we do recover we may not have the same currencies that are in use now. For those who have gold that will not be a problem because gold will continue to be accepted long after the FRN is as much a part of history as the Continental and Greenback.
Irrippi said:
"There's not one school of economic thought which believes monetary policy is safe or effective in this economy. The Fed is powerless to do anything except prevent deflation."
When I was in undergrad and grad econ (taking the scientific method of NeoClassical economics), it was shown monetary policy was most effective:
The National Bureau of Economic Research
American Economic Review
Is Monetary Policy Effective During Financial Crises?
Frederic S. Mishkin
This short paper argues that the view that monetary policy is ineffective during financial crises is not only wrong, but may promote policy inaction in the face of a severe contractionary shock. To the contrary, monetary policy is more potent during financial crises because aggressive monetary policy easing can make adverse feedback loops less likely.
Monetary policy is a crude, but powerful tool. It's much more powerful, on the macro level, than fiscal policy. This is what I wrote a couple of years ago about the Fisher equation of exchange:
In the equation MV = PT, if M and P are constant, then V = T, i.e. V, the velocity of money, or the number of times money is exchanged, equals T, the number of transactions, or the quantity of goods exchanged. T can be represented by real GDP.
The goal of monetary policy should be to keep actual GDP close to potential GDP, which smooths-out the business cycle creating optimal growth (since there's neither strain nor slack in the economy). The fact that there are monetary tightening and easing cycles, to close output gaps, are attempts to smooth-out T in the short-run. V and T fluctuate in the short-run, which require adjustments in M to stabilize P and smooth-out T. For example, if people decide to hoard money, then V and T will fall (in the short-run). So, M needs to rise (higher than a constant growth rate).
This short paper argues that the view that monetary policy is ineffective during financial crises is not only wrong, but may promote policy inaction in the face of a severe contractionary shock. To the contrary, monetary policy is more potent during financial crises because aggressive monetary policy easing can make adverse feedback loops less likely.
Financial crises are created by expansionary monetary policies. Arguing that what caused the problem is also the solution is not supported by the facts.
Now you could argue that the government can use monetary policies to prevent the type of deep correction that is necessary to flush out malinvestments but that is not beneficial to the real economy. Shortening a crisis by kicking the can down the road will not make things better. All it will do is make the inevitable adjustment much deeper and the necessary pain much greater.
I note that plenty of Monetarists, Keynesians, and meddlers from other schools are quick to write papers in support for more meddling in the economy but that none of them were very good at seeing the crises that they want to correct when they were developing. Sadly, it is likely that those voices will be the victors and that things will get worse and worse for taxpayers who have to pay for the misguided policies. While that may be tragic for the average person and for society as a whole those of us who understand the reality and are prepared can benefit greatly from the immoral and wrongheaded actions by the government and its advisors.
In the equation MV = PT, if M and P are constant, then V = T, i.e. V, the velocity of money, or the number of times money is exchanged, equals T, the number of transactions, or the quantity of goods exchanged. T can be represented by real GDP.
Why would M and P ever be constant? And how can you even figure out what P is to begin with? or T or even M? This is the problem with make believe economics? We have arrogant people who are ignorant of their own lack of understanding trying to make up equations that tell us nothing more than a trivial tautology that says that the money paid out is equal to the money received and spin it into supporting meddling by central planners.
The goal of monetary policy should be to keep actual GDP close to potential GDP, which smooths-out the business cycle creating optimal growth (since there's neither strain nor slack in the economy).
A few problems that are being ignored come to mind. One is that you don't know what the potential is or how to really measure GDP with any degree of accuracy and meaning. (Does paying people to build pyramids that have no use but adds to GDP make sense?) Another is the fact that the business cycle is created by meddling.
The fact that there are monetary tightening and easing cycles, to close output gaps, are attempts to smooth-out T in the short-run. V and T fluctuate in the short-run, which require adjustments in M to stabilize P and smooth-out T. For example, if people decide to hoard money, then V and T will fall (in the short-run). So, M needs to rise (higher than a constant growth rate).
This is total nonsense. The government cannot deliver the mail effectively, figure out if there are WMD's in Iraq, teach kids how to read but it is somehow able to determine what should happen in the entire economy. Sorry but you have absolutely no empirical evidence that suggests that it is even possible in theory to do what you propose. On the other hand, I have no such problem. We already know that central planning is incapable of working because it destroys the price discovery process. Some reading may be in order.
http://tinyurl.com/67oyjn
VangelV says:
"Financial crises are created by expansionary monetary policies."
Actually, financial crises are created (in part) by restrictive monetary policy (and then monetary policy becomes accommodative when it's too late).
Perhaps, in early 2007, if we had accommodative or neutral monetary policy and expansionary or neutral fiscal policy, we would've achieved a soft-landing at worst, i.e. a correction would've taken place slowly rather than suddenly, over many years, and the systemic problem in the financial industry would've been avoided.
VangelV, the Fed isn't the post office, and generally has an improving track record smoothing-out business cycles. Of course, the Fed works in the future economy, because of lags in the adjustment process.
Actually, financial crises are created (in part) by restrictive monetary policy (and then monetary policy becomes accommodative when it's too late).
That is not the way things work. A crisis is created during the good times when the bubbles are inflated by inflationary monetary policies. They are triggered by restrictions in monetary policies that are necessary to prevent a huge spike in price inflation.
Perhaps, in early 2007, if we had accommodative or neutral monetary policy and expansionary or neutral fiscal policy, we would've achieved a soft-landing at worst, i.e. a correction would've taken place slowly rather than suddenly, over many years, and the systemic problem in the financial industry would've been avoided.
2007? The crisis was created in the 1990s when Greenspan kept adding money into the system to prevent corrections and by doing so blew up a huge bubble in equities. When that bubble burst the Greenspan and Bernanke Fed kept the party going by adding even more liquidity into the system. By the time that 2007 came there was a mountain of debt that was supporting malinvestments that had no hope of ever providing adequate returns to speculators.
http://tinyurl.com/2g3yb89
VangelV, the Fed isn't the post office, and generally has an improving track record smoothing-out business cycles. Of course, the Fed works in the future economy, because of lags in the adjustment process.
You are right; the Fed is not the Postoffice. While the Postoffice can only screw up the mail delivery system the Fed can destroy the purchasing power of money and harm savers and workers as it transfers wealth from the general public to the banking system. The sooner the Fed is eliminated the better it will be for the country.
VangelV, your statements are full of false assumptions, although they're somewhat popular misperceptions. However, I'll just respond to a few of them.
The Fed uses its crude tools to smooth-out business cycles, i.e. of goods and services, rather than micromanage asset bubbles.
Throughout the 2000s, the U.S. economy generally underproduced. So, monetary policy was less accommodative than you think.
The U.S. economy became much more efficient after the quick and massive Creative-Destruction process, mostly from 2000-02. The U.S. subsequently produced more output with fewer inputs in the 2000s.
From 1995-00, there was a U.S. production boom, where actual output exceeded potential output. I give credit to the Greenspan Fed for optimizing U.S. living standards and creating the longest expansion in U.S. history, which was followed by a mild recession (recall there were also Y2K and 9-11, and yet the U.S. achieved a mild recession).
The Greenspan Fed further optimized U.S. living standards through a consumption boom (from 2002-07). Excess U.S. consumption was finance by foreigners through inflation, interest rates, and currency exchange rates.
However, dollars were drained out of the U.S. private sector and flowed to the U.S. government, when foreigners sold their goods too cheaply, inducing U.S. demand, and bought U.S. Treasury bonds.
U.S. financial firms captured and created excess capital in the global economy, which was distributed to the U.S. masses, and those dollars ultimately flowed to the U.S. government.
The U.S. budget deficit shrunk to $162 billion in 2007 (or roughly 1% of GDP), although U.S. actual and potential output were roughly equal in the mid-2000s (i.e. the U.S. didn't overproduce and taxes weren't raised for increased government spending).
In 2007, restrictive monetary policy (the Fed Funds Rate was hiked from 1% in 2004 to 5 1/4% in 2006 and kept at that level till late 2007), contractionary fiscal policy (shrinking budget deficits), and foreigners shifting dollars from the private sector to government slowly grinded the cycle to a halt. There wasn't enough liquidity to keep the cycle going. So, we had a liquidity crisis.
The solution would've been accommodative monetary policy and expansionary fiscal policy. The Fed was behind the curve easing the money supply. However, the Bush tax cut in early 2008 gave the Fed time to catch-up. Unfortunately, the tax cut was too small (i.e. $168 billion). A $750 billion tax cut (e.g. $5,000 for the 150 million workers at the time) could've averted the financial crisis and subsequent bail-outs.
Also, I may add, you stated: "By the time that 2007 came there was a mountain of debt that was supporting malinvestments that had no hope of ever providing adequate returns to speculators."
The reality is the U.S. created 17.6 million jobs between 1993-98, and created only 3.7 million jobs between 2001-06. However, U.S. real GDP growth was only slightly higher from 1993-98 than from 2001-06. So, the U.S. became much more productive in the 2000s, i.e. using fewer inputs to produce more output (and in a structural bear market that began in 2000, after the 1982-00 bull market).
Just like the volume of output in itself will cause declining prices and induce demand, the volume of capital will in itself cause interest rates to fall and induce demand. The U.S. economy was a Black Hole, attracting imports and capital, in the global economy.
We didn't have an L-shaped recovery after 2000. We had a double bubble (from 1995-00 and 2002-07). We could've had another bubble, i.e. more of a production than a consumption bubble, to correct imbalances. However, Obama stated we can no longer afford bubbles. So, he squandered trillions of dollars to prevent one, or at least reduce it substantially. Instead of a shift from consumption to production, we had a shift into big government.
The Fed uses its crude tools to smooth-out business cycles, i.e. of goods and services, rather than micromanage asset bubbles.
You are wrong. The Fed is responsible for the business cycles in the first place by its constant inflation of the money supply and bailouts of weak financial players.
Throughout the 2000s, the U.S. economy generally underproduced. So, monetary policy was less accommodative than you think.
Not true. The Fed was pumping up the money supply to offset the effects of the IT bubble that it helped to create. You seem to be ignorant of the fact that the Fed is constrained by the bond markets. If it inflates too much, the bond market will crack and the USD will collapse. The only way to keep the game going is to inject enough liquidity to prevent activity from getting out of hand.
The U.S. economy became much more efficient after the quick and massive Creative-Destruction process, mostly from 2000-02. The U.S. subsequently produced more output with fewer inputs in the 2000s.
Nonsense. The Fed did not allow the creative destruction process to take place. As soon as the IT bubble collapsed the Fed reduced rates to nearly zero and created a housing bubble to form. We are now printing money to reduce the damage caused by that bubble and are in the process of creating the biggest bubble of all in the bond market.
From 1995-00, there was a U.S. production boom, where actual output exceeded potential output. I give credit to the Greenspan Fed for optimizing U.S. living standards and creating the longest expansion in U.S. history, which was followed by a mild recession (recall there were also Y2K and 9-11, and yet the U.S. achieved a mild recession).
The Fed is incapable of optimizing the economy. As I said, central planning does not and has never worked for very long. It only makes things worse by distorting the market.
So, the U.S. had a steeper rise in living standards from 1982-07. It was inevitable U.S. consumption would slow (in part, because of diminishing marginal utility).
The question should be is it better for imbalances to correct slowly or suddenly, or is a severe recession needed to correct a long-expansion?
I think, sudden corrections or severe recessions are inefficient and unnecessary, or do more harm than good.
The U.S. budget deficit shrunk to $162 billion in 2007 (or roughly 1% of GDP), although U.S. actual and potential output were roughly equal in the mid-2000s (i.e. the U.S. didn't overproduce and taxes weren't raised for increased government spending).
This is not entirely a true picture. It is easy to show small deficits when you don't count the cost of your military adventures or the accrued liabilities in the SS and Medicare systems. The true debt level for the US goes over $100 trillion when the unfunded promises in the entitlement programs are added into the total.
http://www.nolanchart.com/article4880.html
In 2007, restrictive monetary policy (the Fed Funds Rate was hiked from 1% in 2004 to 5 1/4% in 2006 and kept at that level till late 2007), contractionary fiscal policy (shrinking budget deficits), and foreigners shifting dollars from the private sector to government slowly grinded the cycle to a halt. There wasn't enough liquidity to keep the cycle going. So, we had a liquidity crisis.
You are forgetting that the malinvestments were created by the previous decline in interest rates that the Fed used to deal with the end of the IT bubble. Like I said, you are ignoring the entire picture and choosing which pixels to look at. That does not make for a good analysis or shed any light on what is really going on.
The solution would've been accommodative monetary policy and expansionary fiscal policy. The Fed was behind the curve easing the money supply. However, the Bush tax cut in early 2008 gave the Fed time to catch-up. Unfortunately, the tax cut was too small (i.e. $168 billion). A $750 billion tax cut (e.g. $5,000 for the 150 million workers at the time) could've averted the financial crisis and subsequent bail-outs.
The best solution would have been not blowing up bubbles in the first place. But that solution is not possible in the world where the Fed exists so the proper action would be to eliminate it.
"VangelV, the Fed isn't the post office, and generally has an improving track record smoothing-out business cycles"...
It does?
According to whom please?
Others aren't so sure...
John Taylor penning a piece in the WSJ is skeptical...
Some are skeptical at the Hoover Institute...
VangelV said: "The best solution would have been not blowing up bubbles in the first place. But that solution is not possible in the world where the Fed exists so the proper action would be to eliminate it."
Much of the 1995-00 bubble was created by U.S. demographics (i.e. the Baby-Boomers reaching their peak productive years, at the tail end of the 18-year bull market) and much of the 2002-07 bubble was created by export-led economies.
The U.S. had a relatively free market compared to its trading partners, i.e. export-led economies, which promoted exports through government. The U.S. captured greater gains-of-trade than its trading partners through free trade, open markets, and unrestrictive capital flows.
The goal of the Fed is sustainable growth through price stability (of goods & services), not controlling asset bubbles. Asset prices are residuals of economic policies.
Juandos, according to the data. The U.S. averted a deep depression in the 1970s and had two mild recessions from 1982-07.
Juandos, Krugman believes we didn't go far enough with government spending. However, he's likely wrong.
Similarly, Taylor may be wrong, because we didn't provide enough liquidity (which I stated above).
The problems with Bernanke are he didn't have enough experience dealing with actual crises, and he had to prove he wasn't an inflation "dove." So, he kept the money supply too restrictive for too long.
Much of the 1995-00 bubble was created by U.S. demographics (i.e. the Baby-Boomers reaching their peak productive years, at the tail end of the 18-year bull market) and much of the 2002-07 bubble was created by export-led economies.
You are ignoring the growth of the money supply again and simply creating a narrative to support your own view. As I wrote before, all we need to do is look at the Fed's monetary printing activity and we can explain the housing and IT bubbles.
http://tinyurl.com/23bje8p
The U.S. had a relatively free market compared to its trading partners, i.e. export-led economies, which promoted exports through government. The U.S. captured greater gains-of-trade than its trading partners through free trade, open markets, and unrestrictive capital flows.
While not as bad as Europe, the US has a very highly regulated economy. Because the regulatory burden is increasing the US is sliding backwards compared to economies that are liberalizing. As we debate this issue it is clear that the US is broke and that it will never be able to meet the obligations it promised to its own citizens and lenders. States like Illinois, Pennsylvania, New York, Michigan, and California are on the brink of bankruptcy and the only way for the federal government to pay its debts is to use newly printed money that would destroy the purchasing power of accumulated savings. The US is about to become the next Britain as it moves from the greatest superpower in the world to a has been power.
The goal of the Fed is sustainable growth through price stability (of goods & services), not controlling asset bubbles. Asset prices are residuals of economic policies.
The goal of the Fed is to keep the game going as it benefits its owners and transfers wealth from taxpayers and savers to the financial system.
Juandos, Krugman believes we didn't go far enough with government spending. However, he's likely wrong.
Krugman is a fool. He was calling for a creation of a housing bubble in 2002 when he wrote, "The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
Well, Krugman got his wish. To mitigate the damage that he created in the 1990s Greenspan dropped interest rates and created a housing bubble that diverted scarce capital into the building of excess housing units. When that bubble burst as predicted by the Austrian economists, Krugman argued that the Fed should have blown an even bigger bubble to keep spending higher. That is a statement of ignorance because it shows that Krugman knows nothing about the fiat currency dependence on confidence. Had the Fed continued its reckless expansion we would be looking at $300 oil and $5,000 gold and wiped out the bond market. (Now we may have to wait a few years before we get there.)
VangelV, foreigners absorbed dollars. The U.S. trade deficit reached over $800 billion annually. The world was flooded with dollars. Yet, there were too few dollars (or too many assets and goods) in the U.S. private sector (which I explained above).
However, I agree, the U.S. is in a absolute decline, although not a relative decline (compared to its major competitors). Of course, small economies can expand faster. China and India have their own economic problems. The rest of the world's economic policies are still worse than U.S. economic policies.
Also, I may add, NeoKeynesian policies are based on the belief we're all dead in the long-run. The problem is the long-run eventually shows up. Krugman doesn't see (or want to see) it's showing up in a big way.
The problems with Bernanke are he didn't have enough experience dealing with actual crises, and he had to prove he wasn't an inflation "dove." So, he kept the money supply too restrictive for too long.
The problem is that he is an empty suit who does not understand economics. He is supposed to be an expert on the Great Depression but has not learned anything from it and is repeating the same mistakes that have been made before. He means well but just isn't all that bright because he can't seem to understand the danger of building a logical structure on a foundation of false assumptions.
As James Grant wrote a decade ago, a smart man can get very rich by betting that Greenspan and Bernake succeed in their goals. So far that bet has paid off handsomely as the USD has taken a beating and the price of gold has gone up nicely in the first stage of what will be a long and powerful bull market.
VangelV, foreigners absorbed dollars. The U.S. trade deficit reached over $800 billion annually. The world was flooded with dollars. Yet, there were too few dollars (or too many assets and goods) in the U.S. private sector (which I explained above).
The last time I was in China I got a call from an old friend who took me out for brunch at one of my favourite places in Xi'an. I brought up the whole USD reserve issue and suggested that China could be in for a major crisis when the fiat currency that Bernanke was printing suffered a crisis of confidence. He simply laughed and suggested that I do not underestimate what he and his government were doing. He pointed out that in the previous decade the Chinese had borrowed against those dollars to build a massive amount of infrastructure and to buy reserve rich natural resource companies with sizable debt loads. If the USD collapsed, as he believed that it would, than the liabilities that were assumed to build the infrastructure and to prove and develop those deposits would disappear. What would be left behind after the dust cleared would be new houses, roads, schools, power plants, airports, water treatment plants, ports, mines, plantations, oil fields, etc., unencumbered by debt. The Chinese people will still have all that capital while the US will have nothing to show for their consumption other than a few depreciating consumer goods and larger waistlines.
However, I agree, the U.S. is in a absolute decline, although not a relative decline (compared to its major competitors). Of course, small economies can expand faster. China and India have their own economic problems. The rest of the world's economic policies are still worse than U.S. economic policies.
The US can recover nicely but only if it shrinks its government by around 90-95%, cuts taxes, stops playing global cop, and concentrates on cultivating commercial relationships with other countries. I don't see that happening and see the US in a major decline from which it will not recover until voters say 'enough' and vote out the Democrats and Republicans from power. Before that happens we will see the USD get crushed, gold go up against housing, stocks, and other asset classes, and a default on SS and Medicare obligations.
VangelV, let's be real. China has very poor economic policies. The masses are working almost for free, the state owned firms pay premiums for natural resources (to continue producing heavy goods with declining prices), while the communist elites construct empty buildings and American capitalists make huge profits. If the dollar depreciates, and the yuan appreciates, Chinese will have to exchange more dollars for yuans.
Here's what James Fallows said about China:
James Fallows studied American history and literature at Harvard, where he was the editor of the daily newspaper, the Harvard Crimson. From 1970 to 1972 Fallows studied economics at Oxford University as a Rhodes scholar.
January/February 2008
Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.
Any economist will say that Americans have been living better than they should—which is by definition the case when a nation’s total consumption is greater than its total production, as America’s now is. Economists will also point out that, despite the glitter of China’s big cities and the rise of its billionaire class, China’s people have been living far worse than they could. That’s what it means when a nation consumes only half of what it produces, as China does.
Neither government likes to draw attention to this arrangement, because it has been so convenient on both sides. For China, it has helped the regime guide development in the way it would like—and keep the domestic economy’s growth rate from crossing the thin line that separates “unbelievably fast” from “uncontrollably inflationary.” For America, it has meant cheaper iPods, lower interest rates, reduced mortgage payments, a lighter tax burden. The average cash income for workers in a big factory is about $160 per month. On the farm, it’s a small fraction of that. Most people in China feel they are moving up, but from a very low starting point.
This is the bargain China has made—rather, the one its leaders have imposed on its people. They’ll keep creating new factory jobs, and thus reduce China’s own social tensions and create opportunities for its rural poor. The Chinese will live better year by year, though not as well as they could. And they’ll be protected from the risk of potentially catastrophic hyperinflation, which might undo what the nation’s decades of growth have built. In exchange, the government will hold much of the nation’s wealth in paper assets in the United States, thereby preventing a run on the dollar, shoring up relations between China and America, and sluicing enough cash back into Americans’ hands to let the spending go on.
Also, a few Chinese economists understand:
Plunder: to rob of goods or valuables by open force, as in war; despoil, or fleece; to take wrongfully, as by pillage, robbery, or fraud; loot.
U.S. has plundered world wealth with dollar: China paper
Fri Oct 24, 2008
BEIJING (Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said.
"The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University.
Shi, who has before been strident in his criticism of the U.S., said other countries had lost vast amounts of wealth because of the financial crisis, while Washington's sole concern had been protecting its own interests.
Shi suggested that all trade between Europe and Asia should be settled in euros, pounds, yen and yuan, though he did not explain how the Chinese currency could play such a role since it is not convertible on the capital account.
VangelV, let's be real. China has very poor economic policies.
The standard of living increased faster for more people than ever in history. While China has serious problems and its government can still meddle too much and ruin things that does not hide the great gains that have been made over the past three decades.
The masses are working almost for free,...
You obviously have never been to China and seen how Chinese workers live. Since I have, I will provide a few examples based on personal experience plus a few from the available data.
The company that I worked with in China paid its workers around $450 tax free a month. The total compensation was not limited to pay. The company offered free housing for its workers and paid for a big chunk of the utilities that they used. It offered free health care and free on-site daycare. On occasion it would distribute free tea, sugar, detergent, and other goods to all workers.
Because it is easy to start businesses families were able to use savings to start small businesses and pursue other activities. The great success of some ventures caused workers to leave and the company was forced to increase the general pay.
If you looked at the way the people were dressed, the activities that the children were able to take part in, and the way that people ate, you would have to conclude that the workers had very nice lifestyles that was not all that different from those of their Western counterparts.
During my last trip I visited a friend who is a music professor at the local university. His place would cost approximately $1.5 million in Canada. He had more than 4,000 square feet on the 30th floor of a great building with nice views and close to public transit. The apartment was full of granite finishes and furnished with art and antiques that would cost hundreds of thousands of dollars. There were five large flat screen TVs, a high end stereo system that would cost at least $30K in my local high end outfit that sells similar equipment, including two tube amps that I wanted to purchase but could never justify the price. The custom made furniture would also cost a small fortune here.
The lifestyle was made possible by some private music lessons for which he charged around $200 an hour. His wife, who is not quite as good as he is was charging $150 per hour. This is all after tax income in a country in which you can purchase 1 liter of premium beer for $0.50 and can have a good meal for less than $5.
My own brother-in-law just took some of his savings and opened up a small business. He is now making about ten times the money he used to make in his old job, which he still holds because he gets to live for free while he can rent out the five fully paid apartments that he owns to others. This was made possible with the savings from an ordinary job in a state owned company after 20 years of working.
I suggest that things are not exactly what you think that they are. Chinese workers have done very well over the past few decades and now have lives that their parents could never have dreamed of. Many of them live quite well and eat, dress, and live better than most North Americans can imagine.
the state owned firms pay premiums for natural resources (to continue producing heavy goods with declining prices), while the communist elites construct empty buildings and American capitalists make huge profits.
Many state companies are not doing very well. The more important players are private and they usually stay in business by generating profits. Which American companies are raking in the profits again?
If the dollar depreciates, and the yuan appreciates, Chinese will have to exchange more dollars for yuans.
They don't care. Saudi Arabia will still sell them the oil that they need and the resource companies that they own will still have reserves in the ground. As the USD is no longer the reserve currency because of a loss of confidence the Chinese are hoping to be able to take advantage by trading their own currency for oil, copper, corn, etc.
In a world where oil production has peaked some users at the margins will have to be pushed aside by rising energy prices. It is now looking as if Americans will have to cut back sharply because they will not be able to bid for as much of the available oil as they could when the USD was strong. Many of the exurbs will die off as homeowners are forced to move closer to where they work and stop commuting as far as they do at this time. With a lower USD it will become harder to pay to upgrade the failing American infrastructure and American airports, roads, bridges, railawys, etc., will continue to compare badly with their Asian counterparts. (Try to figure out which Amerian airports are as nearly as good as the airports in Hong Kong, Beijing, Seoul, Singapore, or Shanghai?)
Here's what James Fallows said about China:
Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States....
You will not see me dispute this. The US has lived a higher lifestyle than it should have and the Chinese a lower one than they should have. That is why I maintain that the American standard of living will decline relative to the Chinese standard of living; the unnatural conditions cannot remain in place for long.
...This is the bargain China has made—rather, the one its leaders have imposed on its people. They’ll keep creating new factory jobs, and thus reduce China’s own social tensions and create opportunities for its rural poor. The Chinese will live better year by year, though not as well as they could. And they’ll be protected from the risk of potentially catastrophic hyperinflation, which might undo what the nation’s decades of growth have built. In exchange, the government will hold much of the nation’s wealth in paper assets in the United States, thereby preventing a run on the dollar, shoring up relations between China and America, and sluicing enough cash back into Americans’ hands to let the spending go on.
Here I disagree. We have already had the Chinese government send signals to its population that changes are coming. Chinese rating agencies have made strong statements about the problems with the US borrowing and the insolvency of the American government. Chinese analysts are telling their citizens to buy gold and to hold physical assets as a way to protect themselves from the effects of a devaluation of the USD.
I think that the end game is near. The Chinese will continue to hedge by moving away from USDs and will use their power as lenders to push the US in a direction it may not wish to go. That may create a crisis in China but I suggest that over the longer run things will be far worse for the US as it has to cut back and better for the Chinese as workers get to consume the things that they are actually producing.
VangeIV,
I agree with a great deal of your pessimistic outlook on the US, but I'm not quite sure China's long-term outlook is as rosey as most suspect. She's far too addicted to her over-inflated real estate market for my taste; also, a few analysts are getting jittery about the ridiculous rate of loans made by Chinese banks, the implications they may carry. Couple that with a large, easily agitated population, and it's not hard to see problems will arise if the economy sputters; it's not hard to see why the Communist Party has maintained a "growth at all cost" strategy.
Anyway, China's red hot growth has been and continues to be fueled by fantastic volumes of exports to Europe and the US. While China has recently recognized it needs to decouple herself from the two and focus on internal consumption - and she is showings signs of this - the truth is she's still far too dependent on the two to spin her economy; moves towards truly becoming self-sufficient will take many years, even with her fantastic growth.
You might want to check out a recent presentation by Vitaliy Katsenelson: China - the Mother of All Grey Swans.
It's truly an interesting time we live in.
Shi suggested that all trade between Europe and Asia should be settled in euros, pounds, yen and yuan, though he did not explain how the Chinese currency could play such a role since it is not convertible on the capital account.
The Chinese will push to have the convertible RMB as part of a reserve currency system in order to weaken the US by removing its one major advantage. Eventually that will be a major problem for American consumers who find many of the things that they now use no longer affordable.
VangelV, I'm sure some Chinese workers are much better off than others, particularly if they're "elites" (who believe the centralized communist system is the best in the world). Also, small economies can expand faster. I stated before:
In 2007, U.S. per capita income was $45,000 and China's per capita income was $2,000. If the U.S. gains $700 and China gains $300 for each $1,000 in trade, then U.S. income rises less than 2% and China's income rises 15% (however, when social costs are included, the U.S. may capture all the gains of trade).
From recent articles:
The factory workers in China do survive on their wages, because they work 12 to 14 hours a day, seven days a week during peak seasons, often with just one day off a month. They survive because most factory workers are migrants from rural areas who, once they arrive at the factory are housed 10 to 20 people to one small, crowded company dorm room.
It costs $12.05 a month in China just to provide milk for one six-month old infant. So this expense alone would consume 19 percent of your total wage. A very modest diet for a three-person family costs approximately $72.29 a month, which is more than most factory workers earn.
U.S. companies claim they are developing a middle class in China. But how could a factory worker afford a new 15 by 17-inch color TV that costs $343.37, which is nearly half a year’s wages. Just the tax on purchasing a new car is $1,205, and to install a phone, the cost is $361.
Illegal discrimination based on gender, age, height, province, and origin.
Wages below subsistence level.
After mandatory deductions for dorm and food expenses, daily earnings drop.
Routine 10 hour shifts, six days a week.
Mandatory overtime shifts, without full overtime pay.
Denial of paid holidays, marriage and bereavement leaves, to which Chinese workers are legally entitled.
Lack of benefit rights for workers such as health insurance, work injury insurance and pension programs.
Physical and verbal abuse.
Mattel and foreign distributers received $9.65 for each Barbie Doll produced in China, while China received $0.35 for labor, plant & equipment, and electricity.
VangelV says: "The Chinese will push to have the convertible RMB as part of a reserve currency system in order to weaken the US by removing its one major advantage."
The U.S. has many major advantages over China and other countries, which is why the dollar is the world's reserve currency and the ultimate hard currency (the Euro is a distant second, and I doubt people will begin using gold as a medium of exchange). It's more likely China will continue to be much of the world's factory, like Japan before it, until another country takes its place.
I agree with a great deal of your pessimistic outlook on the US, but I'm not quite sure China's long-term outlook is as rosey as most suspect.
For about a decade I have been predicting that China could have a major crisis and that the country could split. But that does not mean that the Chinese people will be worse off over the longer term. Those buildings, railways, roads, etc., will still be there and will help them produce real goods and services that can be sold to end consumers domestically, regionally, and globally.
She's far too addicted to her over-inflated real estate market for my taste; also, a few analysts are getting jittery about the ridiculous rate of loans made by Chinese banks, the implications they may carry.
Once again I agree. In 1996 I went on a vacation in the jungles of Yunnan near the border with Burma. My hotel was in one of those empty new cities that had been built right next to a perfectly good older city where most people preferred to live. I was certain that the developers would take a huge bath but by 2000 that area was full of people and they seemed to have done well.
The same can be seen now. We see developers build up massive new areas even though there is little demand for them. But with a mass migration into urban areas and plenty of jobs in some regions those empty developments will get filled up fairly quickly. When I ask my Chinese friends why they would risk their savings on an apartment that they will not live in and do not exactly want to rent the answer is usually about protecting themselves from a currency crisis or a banking crisis. Given what is happening that may pay off for many of them.
Keep in mind that there are few investments that are suitable for Chinese citizens. While the economy was booming the Shanghai index managed to lose about 50% and is still weak now. Banks are not trustworthy and nobody wants to have piles of depreciating cash hanging around. That leaves real estate for most and gold for the leading edge of Chinese investors.
Couple that with a large, easily agitated population, and it's not hard to see problems will arise if the economy sputters; it's not hard to see why the Communist Party has maintained a "growth at all cost" strategy.
I witnessed three protests in about a week not too long ago. Those protests were about the government taking away homes from people and promising new ones that had yet to be completed. About 15 years ago I witnessed a strike where workers got pissed off because they were not allowed to buy shares when the company went public. Then there were the bombs that went off in Urumuqi when I was there because the locals were protesting some activities by the federal government. I suspect that the complaints will continue and that the government will continue to be under pressure from its citizens. But that pressure is a good thing for both the government and the people.
Anyway, China's red hot growth has been and continues to be fueled by fantastic volumes of exports to Europe and the US.
I agree that the Chinese will have to use more of the goods that they make. But that will be a good thing as their standard of living will increase.
While China has recently recognized it needs to decouple herself from the two and focus on internal consumption - and she is showings signs of this - the truth is she's still far too dependent on the two to spin her economy; moves towards truly becoming self-sufficient will take many years, even with her fantastic growth.
This may be true. But the Chinese have been working on a strategy for more than a decade. It may involve a crash of the USD and the rise of the RMB. As it purchases raw materials with its own fiat money, China will be able to have domestic consumption increase substantially to offset the decline of Western consumers who cannot afford to bid for the same goods. This may take some time and create hardship but the growing pains should be expected. For reference we need to look at the US from the late 1770s to 1900. During that period there were wars, including a major civil war and a number of depressions. But the standard of living exploded and those that were long the US should have become much wealthier. The same may be true for China.
You might want to check out a recent presentation by Vitaliy Katsenelson: China - the Mother of All Grey Swans
I saw it, thank you. And I share many of the concerns brought up. Where I differ with the analysis is on the effect of urbanization. China has overbuilt but it still needs much more building to accommodate the rural population looking for a better life. Surplus real estate may wipe out many investors but it will remain useful and serve to shelter people looking for affordable housing. I know many young people in China who would like nothing better than to see the price of real estate fall so that they can finally afford to purchase their own homes as we have been able to.
VangelV, I'm sure some Chinese workers are much better off than others, particularly if they're "elites" (who believe the centralized communist system is the best in the world).
LOL. Chinese workers are less likely to trust central planning than Americans. They know that big government can't be efficient from experience. That is why so many are shocked at the stupidity of the Obama Administration, which has chosen to become more like the old Chinese system than like the old American system.
Also, small economies can expand faster. I stated before:...
China's total real economy is not exactly small. If you look at actual goods and services produced rather than the accounting value assigned to those goods and services you will find that China has a bigger real economy than the US. It builds more cars, trains, ships, tanks, trucks, buses, subway lines, railway cars, roads, bridges, schools, houses, factories, power plants, etc., than the US does. It uses more cement, iron, copper, coal, and most other commodities than the US.
What China does has a much bigger effect on the price of commodities than what the US does because it is China that is setting prices at the margin.
The factory workers in China do survive on their wages, because they work 12 to 14 hours a day, seven days a week during peak seasons, often with just one day off a month. They survive because most factory workers are migrants from rural areas who, once they arrive at the factory are housed 10 to 20 people to one small, crowded company dorm room.
Take a drive in the Chinese countryside some time. You see very large homes where there used to be huts not all that long ago and lots of small businesses where there were few. The capital for those homes and those businesses came from the savings of those migrant workers, many of whom have become quite well off because of the jobs that you look down on.
http://tinyurl.com/ybyx22z
The human rights group that provided you with the quote that you cited was dead wrong in its conclusions. It assumed that people flocked to factories because they were stupid or because they were victims. But the reality was very different. Those jobs that they put down and consider abusive have made ordinary peasants much wealthier and freer. That only makes sense because if the jobs were harmful people would not be fighting to work in those factories.
It costs $12.05 a month in China just to provide milk for one six-month old infant. So this expense alone would consume 19 percent of your total wage. A very modest diet for a three-person family costs approximately $72.29 a month, which is more than most factory workers earn.
U.S. companies claim they are developing a middle class in China. But how could a factory worker afford a new 15 by 17-inch color TV that costs $343.37, which is nearly half a year’s wages. Just the tax on purchasing a new car is $1,205, and to install a phone, the cost is $361.
I have no idea where the people you are quoting are getting their information from because the picture that they paint does not reflect the reality. I used to buy my lunch from the local store owner. A liter of my favourite beer was $0.25 and my usual sandwich was about the same. If I wanted to splurge I would go to a local restaraunt with my co-workers and for $3 we would have a number of very good dishes and a beer. A similar meal here would cost around $25-$30 per person plus tip in after tax money. In the little town that I used to work in I would say that most families ate out at least four or five times per week because the food was so cheap. Feeding babies was not a problem because most women have the ability to produce milk and have little trouble letting their babies drink the milk that they produced.
While I share some of the serious concerns I am not stupid enough to fall for some of the scare stories that were created to sway the ignorant. If you want real poverty I suggest that you avoid the factory workers and look at the farmers who are struggling to survive and would kill to be able to get those factory jobs that the left keeps calling to be abolished.
The U.S. has many major advantages over China and other countries, which is why the dollar is the world's reserve currency and the ultimate hard currency (the Euro is a distant second, and I doubt people will begin using gold as a medium of exchange).
First, the US has more than $100 trillion in unfunded liabilities, two wars that are off book, massive deficits, more than $13 trillion in federal debt and states that are bankrupt. The only way to prevent a crisis is to crank up the printing presses. That makes USD holders very nervous.
Second, gold will have purchasing power after the USD is finished as a fiat currency and joins the Continental and Greenback.
It's more likely China will continue to be much of the world's factory, like Japan before it, until another country takes its place.
That may be true. China is hoping to ship off many of the low value added activities to poor countries so that it can keep prices lower. While there are many bad Chinese companies that will have to go out of business and release their workers China still needs more workers for other, higher value added activities.
VangelV says: "Chinese workers have done very well...Many of them live quite well and eat, dress, and live better than most North Americans can imagine...you would have to conclude that the workers (in China) had very nice lifestyles that was not all that different from those of their Western counterparts...China's total real economy is not exactly small. If you look at actual goods and services produced rather than the accounting value assigned to those goods and services you will find that China has a bigger real economy than the US... You see very large homes...and lots of small businesses. The capital for those homes and those businesses came from the savings of those migrant workers, many of whom have become quite well off because of the jobs that you look down on...A liter of my favourite beer was $0.25 and my usual sandwich was about the same...Feeding babies was not a problem because most women have the ability to produce milk...a friend who is a music professor at the local (Chinese) university. His place would cost approximately $1.5 million in Canada...more than 4,000 square feet...full of granite finishes and furnished with art and antiques that would cost hundreds of thousands of dollars...five large flat screen TVs, a high end stereo system that would cost at least $30K...custom made furniture would also cost a small fortune...The lifestyle was made possible by some private music lessons...This is all after tax income in a country in which you can purchase 1 liter of premium beer for $0.50."
And you call Krugman a fool!?
And you call Krugman a fool!?
Yes I do. And if you simply accept the quotes that you cited without doing any of the research necessary to verify them then so are you.
As for me, I have been in some of the poorest parts of China, where farmers have trouble surviving because they make around $250 a year and can't quite manage to provide a decent life for their families at that level. But I have been to villages where I see the average person have access to goods and services that their parents could never have hoped for. I look around and see the Chinese taking exactly the same path than Britain and the US did when they industrialized. And when peasants have cell phones I tend to reject the bleak picture that you are trying to paint.
Here is an excerpt from the Oregonian story that I cited above. I like the story because it reflects the things that I saw in my two years living in China and in my subsequent visits.
"It turns out that factory workers -- not the activists labeled "preachy" by one expert, and not the Nike executives so wounded by criticism -- get the last laugh. Villagers who "went out," as Chinese say, for what critics described as dead-end manufacturing jobs are sending money back and returning with savings, building houses and starting businesses.
.....
The pay is minuscule by Western measures. But Mon Xijian, a 31-year-old who has worked at Ever Rich since 1996, has saved enough with his wife, who also works there, to buy a six-unit apartment building back home.
The couple don't recommend the lifestyle. They see their two children -- who live at home with Mon's in-laws 1,200 miles away -- every year or two. Yet Mon far prefers factory work to farming. He's saving to send his son and daughter to college so they can escape both.
"I want them to get as much higher education as possible," said Mon, who irons Columbia garments.
.....
U.S. journalist Leslie Chang followed young Chinese assembly-line workers for her recently published book, "Factory Girls." Chang says money sent home, and migrants moving back, are changing rural China.
Line workers, she says, can earn several times the average $200 annual income of a farm family.
"They're sleeping 12 in a dorm, and it looks like a pretty crappy life," Chang said. "But you don't hear workers say, 'Oh, I have no hope, I'm a slave.' They say, 'I want to save some money. My dream is to be Bill Gates or to own a restaurant.'"
Chang views sweatshop critics as condescending. She notes that the 19th-century U.S. industrial economy developed in a similar way, as Vermont and New Hampshire farm girls migrated to work in Massachusetts textile plants, sending savings home. She says savvy Chinese workers, not preachy activists, are securing better conditions and wages in China's fast-developing economy.
The evidence is very clear. The sweatshop critics you cite were wrong. Nike did not harm its workers but allowed them to earn a salary that was many times higher than what they could have earned by farming and allowed them to save enough to invest in nice housing for private use, rental units, or other business activities.
In effect, Nike made those people rich because it gave them jobs that permitted them to save and invest. By providing them with the opportunity, the rate of increase in the standard of living has been many times greater than that of the UK and US during their periods of industrialization.
I never understood Chinese math. I hired an American Ph.D math tutor for $20 an hour in Colorado. Perhaps, I should've hired a math tutor in China for $200 an hour, and got premium beer for $0.50 instead of $3.50.
I never understood Chinese math. I hired an American Ph.D math tutor for $20 an hour in Colorado. Perhaps, I should've hired a math tutor in China for $200 an hour, and got premium beer for $0.50 instead of $3.50.
I do not believe that Chinese math tutors can get $200 an hour, no matter how good or famous they are. The big money goes to vocal teachers and instrumental teachers. If you are top notch you can charge anywhere from $50 to $400 depending on the instrument and how famous you are. My wife's old teacher, the most famous professors of the guzheng in the Shaanxi style, still gets an odd student or two who pays $500 or more for an hour of instruction just so that the students can say that they took lessons with him even though he retired quite some time ago. His daughter, also a famous player, also gets several hundred per hour. It does not take very long to earn enough to live quite well for a month.
My wife's mother teaches group lessons on weekends. She splits the take with the local music school and makes a nice living working about 16 hours per weekend. In one day she makes more than enough to pay for her maid for the entire year. My fiver year old niece is looking at $2,000 a year for 50 hours of music lessons for whatever instrument she has chosen. My former AA is paying a similar amount for her son's piano lessons.
The bottom line is that the China employment compensation picture is not exactly what the media says that it is. As I wrote above, the Western critics do not account for the other compensation (housing, utilities, food, health care, etc.) and are underestimating how much people who are motivated to work hard and save can accomplish after a few years of work. Those three story homes, residential rental units, fish farms, retail stores, etc., that are popping up all over the countryside were paid for by that saved capital and have made the sweatshop workers far wealthier than most Westerners can imagine. They are now making so much that they can afford the $10K per year to send their kids to a good university and to pay $50 an hour for a decent piano teacher.
If you know your history you should see the parallels with the improvements in lifestyle experienced by sweatshop workers in New York in the late 1800s or by those in London 50 years previously.
"Similarly, Taylor may be wrong, because we didn't provide enough liquidity (which I stated above)"...
Hmmm , the problem is that the federal government shouldn't be in the 'liquidity game' in the first place...
Post a Comment
<< Home