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Sunday, April 10, 2005



China needs to float its currency now so that politicians in developed countries won’t blame their arbitrary exchange rate for our economic ills. Plus, our currency is going to tank eventually and they should cut their losses while they can.

I think the Asia countries can thrive along with countries that can provide them commodities and that they can be weaned from consumers in developed countries. The US is similar to the former Soviet Union, its military and government has outgrown its economy and are now bleeding it dry. The US needs to come to grips with this reality. Unfortunately, I don’t think we can do this any more gracefully than the Soviets.

Mr. Econotarian

Whenever I hear people complain about the US savings rate, I think about what people spend a lot of their money on.

A lot of Americans spend $50,000-$100,000 on a college education. This is a significant investment in themselves, and has a high tangible return above most other investments. Should education really be considered consumption instead of savings?

Put another way, if I save $5,000 and spend $45,000 on a wild night in Vegas, statistics will show I am a better saver than someone who spent $50,000 on a college education...

Meanwhile, a lot of Americans spend $100,000-$600,000 on a house. Ignoring the risk of a housing bubble, the fact is that this is generally the largest investment most Americans make, and has often brought real returns in line with many other investment types. Should a house really be considered consumption instead of savings?

Similarly, Americans generally spend $100-$500 a month on an automobile, which is an investment that makes having a job possible, thus has significant returns. The actual investment in the car is a bad deal, and many people should probably buy less car, but having a way to get to your high-paying job is important.

Of course, I'm not sure these "savings" are going to help the US in terms of currency values should, for example, there be a revolution in China and the government sells all their dollar-denominated reserves on the way out the door to buy safe places to live and avoid the firing squad.

On the other hand, I think Americans are making prudent investment decisions. They are getting good returns by not saving.


After reading his editorial published in the Washington Post today, it looks like Paul Volcker is in the same camp as Stephen Roach. Volcker was Greenspan's predecessor.



The current trade deficit has little to nothing to do with saving rates. Why do people make such STUPID assertions. Why would it have anything to do with teh US situation? Macro economic explanations offer no udnerstanding of the reality that drives companies. Are you saying that GM or Ford is losing to Toyota due to savings rates? IF you are you don't have a clue. Pick an industry that the US once dominated and ask yourself how in the world you can get savings rates into the equation. Macro econ is impotent on this issue. It merely rationalizes flows on the margin.

The US borrows for what reason?

The deficit has more to do with two factors- manufacturing management skill and labor costs.

American have ceased to be manufacturing-oriented. Many executive know NOTHING about how to effectively manage mfging. Just looks at GM and Ford to pick two GIANT failures. The executives who run these corporations are not worth 25 cents on a good day.

In addition labor costs make mfging very expensive. This is partly due to management-labor relations that created health and pension costs that are no longer sustainable.

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