Chicago Fed: Midwest Manufacturing Grew 11% Over Last Year, vs. 5.6% for U.S., and 2.2% for GDP
The Chicago Federal Reserve reported today
that its Midwest Manufacturing Index increased 1.1% in June compared
to May, reversing most of the
revised 1.4% monthly decline in May. On an annual basis, regional manufacturing activity in the 7th Federal Reserve district improved by 11% in June from a year ago, about twice the annual 5.6% increase in the national manufacturing component of industrial production through June (see chart above). In
comparison, the overall U.S. economy (real GDP) grew by only 2.2% over the same
period from Q2 2011 to Q2 2012.
Here are some
other highlights of manufacturing activity in the 7th Federal Reserve district
that covers Illinois, Indiana, Iowa, Michigan, and Wisconsin:
1. Regional machinery output in April gained 12.2% from its year-earlier level, compared to a 7.3% increase in machinery output at the national level.
2. Regional steel output improved 11.0% from its June 2011 level, compared to a 6.4% increase in national steel output over that period.
3. The Midwest’s automotive output increased by 21.9% in June from its year-ago level, compared to a 15.2% gain in national automotive output. The index level of 95.8 for Midwest auto sector production in June marked the third straight month that auto manufacturing was above a reading of 95. That was the first time since December 2007 to February 2008 that Midwest auto production was above an index level of 95 for three straight months, indicating that the auto industry in the Midwest is returning to its pre-recession level of production.
MP: Midwest manufacturing output growth over the last year (11%) continues to lead national manufacturing output growth (5.6%), which continues to lead overall economic growth measured by real GDP (2.2%). Today's Chicago Fed report suggests that U.S. manufacturing, especially in the Midwest, remains at the forefront of the economic recovery measured by growth rates in real output.
1. Regional machinery output in April gained 12.2% from its year-earlier level, compared to a 7.3% increase in machinery output at the national level.
2. Regional steel output improved 11.0% from its June 2011 level, compared to a 6.4% increase in national steel output over that period.
3. The Midwest’s automotive output increased by 21.9% in June from its year-ago level, compared to a 15.2% gain in national automotive output. The index level of 95.8 for Midwest auto sector production in June marked the third straight month that auto manufacturing was above a reading of 95. That was the first time since December 2007 to February 2008 that Midwest auto production was above an index level of 95 for three straight months, indicating that the auto industry in the Midwest is returning to its pre-recession level of production.
MP: Midwest manufacturing output growth over the last year (11%) continues to lead national manufacturing output growth (5.6%), which continues to lead overall economic growth measured by real GDP (2.2%). Today's Chicago Fed report suggests that U.S. manufacturing, especially in the Midwest, remains at the forefront of the economic recovery measured by growth rates in real output.
36 Comments:
The business-to-business numbers (as evidenced by machinery production) is a positive sign. It looks like companies are doing what they should do: borrowing money now while it is cheap to upgrade/replace their machinery. This will not only allow them to make the most of the next four-to-six quarters of economic expansion (if the current trends in the leading indicators hold), but will also allow them to hedge against inflation down the road, as current rates are and will be below inflation. Additionally, this will put these companies in a position to grab market share when the next recession comes and their slow-to-improve competitors die.
This is very healthy business activity considering what is going on in the economy now and what is expected to happen (again, assuming the leading indicator trends hold) in another year. This gives me hope that the next recession will be mild. :-)
Declining annual change rates in PMI & INDPRO precede all recessions, and we have them now
Bart-
The INDOPRO data, is that a month-to-month comparison (the 12MMA from May compared to 12MMA from June), or annual over annual from one year ago (June 2012 over June 2011)?
I only ask for clearification.
Your point, while correct, does also lead to a lot of false signals. there are many periods where the ROC falls but the economy slips into a recession.
That being said, I think we will experience a situation similar to the past recessions since the 1970's, that is, we see a "soft shoulder" (the ROC declines, forms a low, moves back up, and then drops into a recession period). I have circled this here.
This latest cycle bares striking resemblance to the pattern of 2005-2006 and 1995-1996. Unlike 1995-1996, however, I do not think the impending recession will be delayed as far. It will be more like the '06 cycle, where we saw a soft shoulder, a real brief uptick, and then a recession. This is the essence of what I expect over the next four to six quarters, with the final ROC decline beginning sometime in late 2Q2013, early 3Q2013.
Annual over annual from one year ago (June 2012 over June 2011).
Thanks, Bart. That's what I thought, but it never hurts to ask :)
No worries Jon, I agree that there are false signals... but a falling change rate still does precede all recessions. I also agree on your example circles on the chart, although I do think the better parallel is 1997-2001 and that we're closer than it seems.
I still won't publicly name a time when I expect the recession to start, since my primary prediction tool is broken due to the excess reserves issue.
More fodder:
A better view of INDPRO, adjusted both with population and with NFP+Gov't jobs
I still won't publicly name a time when I expect the recession to start, since my primary prediction tool is broken due to the excess reserves issue.
Yeah, we are just disagreeing about a matter of timing.
And I feel you about the prediction tool being broken. We are feeling the same pinch here: money supply is unreliable, corporate bond yields are unreliable, short-term interest rates and g-bonds are unreliable. With all the discussion of a QE3, one of the forecasters got frustrated and yelled "STOP *censored* WITH MY FORECAST TOOLS" at the TV when the Bernanke was on. It was kind of funny.
http://www.calculatedriskblog.com/2012/07/dallas-fed-slower-growth-in-july.html
based on the way the regionals are trending, i would be surprised to see ISM over 50 when they report it aug 1.
Jon:
You had me literally laughing out loud about the "STOP *censored* WITH MY FORECAST TOOLS", and I totally agree - and also agree that we're just talking about a timing difference of opinion.
You might be interested in my very recent take on velocity and the CPI & CPPI divergence:
http://www.itulip.com/forums/showthread.php/23126-Velocity-probable-bottom-CPI-CPPI-diverging-trends?p=234896
Jon:
You had me literally laughing out loud about the "STOP *censored* WITH MY FORECAST TOOLS", and I totally agree - and also agree that we're just talking about a timing difference of opinion.
You might be interested in my very recent take on velocity and the CPI & CPPI divergence:
http://www.itulip.com/forums/showthread.php/23126-Velocity-probable-bottom-CPI-CPPI-diverging-trends?p=234896
What could keep manufacturing rolling in the U.S.?
Continued high demand for drilling equipment.
The used car age is still ancient.
and a theoretical angle often hoisted with passion:
Over a trillion U.S. dollars held by China as foreign reserves...
that are supposed to return as purchases of U.S. goods and services...
waiting for confirmation of that theory...
Morganovich-
We probably will see a flat PMI report come Wednesday. Not much has changed in the past month to make me think it will shoot up for some reason: prices are still low, exports are likely still weak, New Orders could be a question mark. The devil will be in the details on that one.
Buddy-
You are probably right about drilling and automobile production supporting production in the near term. Refinery Production will also be key. Nondurable goods production (such as food, clothing, etc) will likely keep things up. In terms of durable goods, it would depend on the industry.
Regarding China, their economy is slowing. I'd be surprised to see any demand from China until things start heating up globally. They are tied very closely with Europe.
jon-
worse than just being made to fly blind, i fear that the us and european markets are entering the "crackhead" stage.
long periods of zirp and qe are like crack to markets.
they get badly addicted.
you get huge rallies from a bad gdp number because it means more qe is coming.
rather than focusing on nourishment (growth, earnings, etc) the market is like the poor emaciated money that ignores the bananas and just keeps wacking the feeder bar looking for another hit of qe.
i'm having a really difficult time building a scenario in which this goes well next year. this seems like it could end very, very badly.
i don't think the fed and the ecb have left themselves any kind of climb down at all.
jon stated:
"Regarding China, their economy is slowing. I'd be surprised to see any demand from China until things start heating up globally. They are tied very closely with Europe."
So Jon, demand was good and China didn't use that trillion $; and now demand is down and they won't use that trillion $. Correct?
Then the theory of returning $$ as purchases has failed.
"You are probably right about drilling and automobile production supporting production in the near term. Refinery Production will also be key. Nondurable goods production (such as food, clothing, etc) will likely keep things up. In terms of durable goods, it would depend on the industry."
Jon, you and I forgot strong commercial airplane manufacturing.
Buddy
"So Jon, demand was good and China didn't use that trillion $; and now demand is down and they won't use that trillion $. Correct?
Then the theory of returning $$ as purchases has failed."
And if they NEVER return those dollars, $1 trillion in imports were free. Yippee!
"And if they NEVER return those dollars, $1 trillion in imports were free. Yippee!"
No, not as long as the dollar is the world's currency. Eg: Dollars are driving China's purchase of of oil resources on the world market.
Free, no. Foisted failed theory, yes.
Buddy:
"No, not as long as the dollar is the world's currency. Eg: Dollars are driving China's purchase of of oil resources on the world market.
Free, no. Foisted failed theory, yes."
I'm not sure what your complaint is. As near as I can tell all the dollars that China holds were acquired from US consumers and companies through voluntary exchanges for imported goods including machines and production goods.
US consumers and companies now own the imports and China now owns the dollars. What's the problem?
Why shouldn't Chinese interests use their rightful property for whatever they wish? I don't see how anyone else has any say-so in the matter.
Unless and until those dollars are presented by someone to be exchanged for US goods and services, or assets which might include US Treasuries, those imported goods haven't been paid for.
Ron H,
I will put aside intellectual property theft, forced joint ventures, random and revolving product certification schemes, no government procurement and all the other Chinese barriers to free trade with other countries.
It is argued my many that all this does not matter because the dollars spent on Chinese goods will return to the U.S. as purchases of U.S. goods and services. Is this going to happen, with what is probably now close to $3 trillion dollars?
The evidence of that theory being true looks to have failed.
buddy-
"
It is argued my many that all this does not matter because the dollars spent on Chinese goods will return to the U.S. as purchases of U.S. goods and services. Is this going to happen, with what is probably now close to $3 trillion dollars?
The evidence of that theory being true looks to have failed."
and just what evidence is that?
this money has ALREADY been returned. it's called a capital inflow.
they buy us stocks and bonds. it's not like the money is sitting around in a big pile like scrooge mcduck's vault and the chinese leadership slashes around in it.
they invest in the US. if they buy a us bond, that finances us government spending. so the money has already been spent here.
you seem to have a really odd view of how trade and capital flows work.
the chinese are selling us good that we want. they are then lending us money at rates way below inflation. which of those upsets you?
the whole concept of a "trade deficit" is absurd.
there is no such thing in any meaningful sense. it's an accounting fiction left over from the days of convertible currency.
the best thing they could possibly do is take the money we give them, and burn it. we can print more money. it's easy.
if i sell you a pizza, why would you possibly care what i did with the money afterward?
you will have a trade deficit with the grocery store and the gas station your whole life. so what? is that impoverishing you in some way?
trade is only a small part of the us economy. a trade deficit will not cause any long term harm.
imagine you are a farmer. you grow more than you can eat. you give me an apple ever week. you have a long term deficit, but you will not starve.
you are trying to think of the world in terms so simple that you are missing the picture here.
morgan states:
"
you seem to have a really odd view of how trade and capital flows work."
And vice versa, I'm sure. :>)
morgan, do you deny that a big selling point by many unilateral free traders is that there is no need to worry about the lack of selling opportunities in China -- because the money will roll back to the U.S. as purchases of goods, services and assets?
Yep, assets and bonds are being bought, but goods and services sales have been a stupendous failure. The "picture" is clear. So, let's revise the selling point for unilateral free trade and argue that China will buy assets and not products.
buddy-
you seem to be assuming your conclusions here.
there is no "failure".
let's imagine you run buddy's farm.
i buy your goods.
you give me a bushel of corn, i give you $10.
we are both made better off by this (or else why would we do it?)
are you with me so far?
now let's look at 2 possible states of the world.
1. i live in your town.
2. i live in china.
in case 1, there is no trade deficit reported. it's just us trade. we do not track trade deficits between individuals or towns or states because we know they are meaningless. it's just 2 people each becoming better off. nothing to worry about.
in case 2, suddenly, the exact same behavior is called a "trade deficit" and deemed a problem. how can that possibly make sense?
it's an arbitrary notion and an arbitrary difference.
it never mattered to individuals or to economies. it only mattered to governments worries about piles of metal in vaults under convertible currencies. this concern has long since gone away. the idea of a trade deficit is now a meaningless anachronism.
alternately, if it does matter, should we not also be balancing trade between new york and iowa or between new york city and albany or manhattan and brooklyn or even you and me?
i doubt you support those things. so why does this relationship suddenly change at a national border?
and why cannot capital flows be the offset?
going back to the buddy's farm example, you have given me corn, and i give you $10. why would that "trade deficit" matter to me?
and why would i not be thrilled if you took that $10 and invested it in morgancorp, by business? how is that any less spending the money than buying $10 worth of textiles from me?
you seem to be starting from the idea that not having a good offset every traded good is a problem, but from what would such a problem arise? you are assuming your conclusion, but never demonstrate why it is actually a problem, hence my comment that you seem to have some strange ideas.
why is a transaction that we all agree is a good and healthy economic activity when carried out inside our borders suddenly bad if it crosses them?
"morgan, do you deny that a big selling point by many unilateral free traders is that there is no need to worry about the lack of selling opportunities in China -- because the money will roll back to the U.S. as purchases of goods, services and assets?"
yes, i do deny it. you do not seem to understand the argument.
the argument is that all tariffs cause a deadweight loss. this is a provable fact.
http://mjperry.blogspot.com/2011/03/econ-101-protectionism-for-dummies.html
thus, all tariffs harm the imposer.
the argument for free trade is that the argument for retaliatory tariffs is the literal equivalent of threatening to punch yourself in the face until someone stops doing something you dislike.
the argument for trade is that voluntary trade enriches both participants. this fact is in no way predicated on what they do next.
your depiction of the free trade argument is a pure straw man based on misconceptions.
the case for free trade is the case for maximizing consumer benefit and sovereignty and avoiding deadweight losses. it says nothing at all about capital flows.
would you favor a policy that gas stations had to buy somehting back from you? if they didn't, would you threaten to impose a tax and pay more for your gas until they bought from you? under what logic does that even make sense?
"would you favor a policy that gas stations had to buy somehting back from you? if they didn't, would you threaten to impose a tax and pay more for your gas until they bought from you? under what logic does that even make sense?"
But the station DID buy something from me. It bought an hour of my labor for 10 gallons of gas.
I didn't work directly for the station owner, but gave him a little green certificate proving I had worked for an hour. I think he plans to exchange it for food or something.
I think he's silly to prefer green paper to something valuable like gas, but he seemed happy, so we are both happier.
He mumbled something about not being able to eat gas, and I know I couldn't move my car very far with an hour's labor, so it seems we are both better off.
ron-
"But the station DID buy something from me. It bought an hour of my labor for 10 gallons of gas. "
well, no, not exactly.
unless you work at the gas station, someone else bought that labor. they gave you green paper and you traded that for gas.
oddly, it's the money part that seems so objectionable to those insisting there is such a thing as a trade deficit.
if you traded what you built with your labor for a sofa, then it's no deficit. but if you trade what you built for money then money for a sofa, suddenly, it's BAD, but oddly, only if you do so across a national border.
the fact that anyone ever cared about this non existent difference at all seems absurd until you realize why this bugbear was invented,.
currency used to be convertible. governments never feared that it would be taken abroad and held there. they feared foreigners would bring it back and trade it for gold and that the us government would have to sell it to them at a fixed price. keeping out foreign goods was about keeping the shiny rocks at fort knox. it was never about the economy.
this trade deficit hobgoblin persists as a pernicious myth like halloween witches because government told a lie too well and because manufacturers are happy to impoverish us all by making us all pay more for tires if it enriches them by making us pay more for THEIR tires.
"well, no, not exactly."
You are right as usual, darn it. I should have known I couldn't slip that part past you. :)
"currency used to be convertible. governments never feared that it would be taken abroad and held there. they feared foreigners would bring it back and trade it for gold and that the us government would have to sell it to them at a fixed price. keeping out foreign goods was about keeping the shiny rocks at fort knox. it was never about the economy."
Absolutely, but what never seems to get discussed in that context is that a smaller money supply due to outflow of gold would lower prices and make exports relatively cheaper, while raising prices in the country to which gold flowed, making imports more attractive, thus slowing or reversing the outflow of gold.
It seems to me that absent government interference the problem would be pretty much self correcting. Am I missing something?
Of course leaving things alone isn't something those in government can do without revealing that they and their jobs are superfluous.
ron-
"
Absolutely, but what never seems to get discussed in that context is that a smaller money supply due to outflow of gold would lower prices and make exports relatively cheaper, while raising prices in the country to which gold flowed, making imports more attractive, thus slowing or reversing the outflow of gold.
It seems to me that absent government interference the problem would be pretty much self correcting. Am I missing something"
you are assuming floating exchange rates. this does not happen under a gold standard if multiple countries pursue it.
if a dollar is convertible into a gram of gold and a gram of gold can buy 2 swiss francs, then the rate of exchange is fixed. if it moves, from 2:1, you could make money in gold arbitrage.
this keeps the system from self correcting unless the amount of gold for which a given currency may be converted changes.
the endless wrangling around this and attempts to stem and guide the flow of gold were why we once had to care about "trade deficits" because they were really claims on gold that no one wanted to honor.
it's the whale oil lantern of modern trade policy.
morganovich
"you are assuming floating exchange rates. this does not happen under a gold standard if multiple countries pursue it."
Okay, let me think about that some more....
It is argued my many that all this does not matter because the dollars spent on Chinese goods will return to the U.S. as purchases of U.S. goods and services. Is this going to happen, with what is probably now close to $3 trillion dollars?
The evidence of that theory being true looks to have failed.
It is already happening. I see the Chinese using that money to build railways and ports in Africa, buy oil companies in South America and Canada, and secure supplies of gold, wheat, potash, etc., from many nations. Those dollars will come back to the US when their new owners have a need of American products, want to pay off American debts, prop up their banks or simply use them for trade and to facilitate international purchases of assets.
The main problem with the gold standard and the main problem with a fiat standard are the same, and is why they both always fail.
They both get gamed over time. The issue of a stable monetary standard will never be resolved until the "people issues" are at least much more well understood.
the whole concept of a "trade deficit" is absurd.
But it isn't.
I will concede that the concept would be absurd if all of the money came back to be invested in corporate bonds that went to fund new factories or new processes that can be used to deliver cheaper and better goods and services to consumers that demanded them.
But if money comes back to purchase government debt or to fiancee consumer consumption it is easy to see that it is possible for depreciation to exceed capital formation and to see an actual reduction in productive capital. That would mean that the economy will eventually become weaker as output is reduced.
Think of it this way. You have the Federal Reserve injecting billions in new dollars that are created out of thin air into the economy. The foreign producers trade in their earned dollars for domestic currency issued by their own central banks. You now have foreign central banks use their USD to purchase treasury debt that is issued to finance foreign wars, transfer payments, etc.
When the Fed manipulates interest rates lower the supply of new dollars will discourage savings and encourage domestic consumption even as foreign private sector investors pull back from investing in the United States. This means that foreign 'investors' hold much more debt and much less equity in your companies and the physical goods that flow into the United States will be consumer goods instead of capital goods.
That is a very dangerous situation for a country to find itself in particularly when it finds itself in a corner in which the primary options are currency devaluation or outright default on obligations. I expect to see states and cities finally bite the bullet and stop paying full benefits to retired employees as they decide to shed as many workers as quickly as possible. Eventually the federal government will find itself in a very similar position as it finds that it cannot make good on intergovernmental debt obligations and pay back treasury debt with money of the same value.
Absolutely, but what never seems to get discussed in that context is that a smaller money supply due to outflow of gold would lower prices and make exports relatively cheaper, while raising prices in the country to which gold flowed, making imports more attractive, thus slowing or reversing the outflow of gold.
Careful my friend. If a country has a good set of policies and protects property rights you can have massive inflows of gold even as it imports more than it makes. The gold will simply be used to finance the type of capital accumulation that we saw in the US during the 19th century. Running deficits is not a problem as long as funds are being recycled to finance capital goods.
v-
"
But if money comes back to purchase government debt or to fiancee consumer consumption it is easy to see that it is possible for depreciation to exceed capital formation and to see an actual reduction in productive capital. That would mean that the economy will eventually become weaker as output is reduced. "
this seem like one period thinking.
sure, china can park money in us federal debt.
but that has lots of effects.
it lowers us interest rates and keeps our deficit smaller.
it also pushes money back into the economy.
government spending and consumer spending both give money to product and service producers who can then invest it.
you seem to be making the assumption that consumer spending just disappears.
that is not the case at all. consumer spending concentrates money in the hands of those who make the best investments.
and most of your argument is really a criticism of federal deficits, not trade deficits.
if we had a balanced federal budget, then this vast supply of federal bonds would dry up.
you seem to be confusing bad fed and federal fiscal policy with trade deficits.
all the pernicious effects you discussed come from the former, not the latter.
"the argument for trade is that voluntary trade enriches both participants. this fact is in no way predicated on what they do next.
your depiction of the free trade argument is a pure straw man based on misconceptions.
the case for free trade is the case for maximizing consumer benefit and sovereignty and avoiding deadweight losses. it says nothing at all about capital flows.
would you favor a policy that gas stations had to buy somehting back from you? if they didn't, would you threaten to impose a tax and pay more for your gas until they bought from you? under what logic does that even make sense?"
morgan, first, thank you for your thoughtful comments, but of course we have different perspectives.
Let us cut out all pretense of the free flow of goods, services and capital across borders in your support of unilateral free trade.
The current trade relationship with China could be summed up as: Buy from them if you want but know that those dollars will not be returned as purchases of goods and services -- as orginally sold to the American people and their government representatives.
You can't use the wheat or gas station transactions, as the equivilent to trading with another country that does not support voluntary transactions between individuals.
Yes, I, and most others, expected $$ to return as purchases. Alas, this pretense is vanishing, becuase it seems it was the dream of capitlists and the chow of a communist trojan horse.
buddy-
you seem to be making the same assumption of your conclusion that you did last time.
you start with the notion of "trade deficit is bad" then say "there is a trade deficit, so it's bad".
you have never explained why.
you are getting caught up in the details here and missing the actual argument. whether it is a gas station or an intel processor is irrelevant.
your whole argument is predicated on a bad assumption that china never buys anyhting back.
they do.
they buy stocks and bonds. even us government bonds are a purchase. they fund spending which flows back to the US.
free trade does not have to go both ways to be benefical.
go back and look at the graph i linked. (protectionism for dummies).
that graph refers to UNILATERAL tariffs.
imposing them makes us worse off no matter what china does.
and i think you really missed the thrust of the argument i was making.
try reading my "buddy's farm" example again.
yo have not answered any of the key questions.
i think doing so will help you understand where your though process becomes inconsistent here.
if you buy from me and we both feel better off as a result, who cares where we live? what difference does it make?
or are you arguing that we should balance trade between states, cities, towns, neighborhoods, and individuals as well?
you seem to think that crossing a national border is some special economic case? why is that?
trade is trade.
you can buy a toy from me. why do you care what i do with the money? if i save it or spend it, how does that impoverish you in any way?
why do you believe it is any kind of problem?
you run chronic trade deficits with most of the vendors in your life. this does not harm you, it makes you better off.
you are trying to simplify this so much that you are missing the system.
if we consume more from abroad than we sell abroad, it does not mean we are getting poorer.
every year we produce $15 trillion in goods and services. we run a trade deficit of around 4% of that.
so what?
it means we are a relatively attractive investment and foreign goods are a relatively attractive purchase.
imagine you make $100k a year.
each year, you buy $4k worth of french wine.
france never buys anyhting back from you.
explain to me how this harms you are makes you bankrupt.
it doesn't. it makes you better off. they can burn the money, stick it in a mattress, or use it to buy us bonds, you are still better off.
this is true of every individual that engages in such behavior.
so why, when we add all their individual behavior up and call it the us economy, would it suddenly make us worse off?
you cannot sum a string of positive numbers and get a negative one.
sure, china can park money in us federal debt.
but that has lots of effects.
it lowers us interest rates and keeps our deficit smaller.
Actually, it does not. By allowing interest payments to look manageable the incentive to be prudent is taken away and you have runaway spending by governments looking to stay in power as long as they can. Instead of adjusting to reality the system hides from it for as long as it can.
it also pushes money back into the economy.
government spending and consumer spending both give money to product and service producers who can then invest it.
No. By funding consumption you are discouraging the savings that are required to fund capital formation. If injecting money into the economy were a good thing Argentina, Brazil, and Zimbabwe would have had sound economies for the last few decades.
you seem to be making the assumption that consumer spending just disappears.
No. I am claiming that consumer goods do not create wealth in a sound economy. They are used up and when they are gone the debt taken to purchase them remains.
that is not the case at all. consumer spending concentrates money in the hands of those who make the best investments.
Perhaps but in this case that mostly includes the foreign manufacturers who make the goods and the components that go into them. The capital formation takes place in countries other than the US.
And let us point out that because such borrowing to consume is not sustainable many of the 'investments' turn out to be malinvestments.
and most of your argument is really a criticism of federal deficits, not trade deficits.
It is both. The one makes the other easier and distorts economic activity.
if we had a balanced federal budget, then this vast supply of federal bonds would dry up.
And if you had a goose that could lay golden eggs you would be a lot richer than you are. In a social democracy all roads lead to deficit spending and money printing.
you seem to be confusing bad fed and federal fiscal policy with trade deficits.
I am not. But it is very clear that you do not really understand the argument because you never got the proper education in economics. I suggest Mises and Rothbard instead of Keynes and Friedman.
all the pernicious effects you discussed come from the former, not the latter.
As I said, you fail to understand the big picture because you are not really looking at it.
Post a Comment
<< Home