Mumbo Jumbo Economics

Someone over at the MSE savings board posted this:

and said

This rather long item was recently e-mailed to me. It makes thoughtful reading

I tried to respond but the item was taken down, presumably as it was considered spam, before I could post my riposte. So here it is:

I’m worried about your view that this article “makes thoughtful reading” since I found it mind numbing drivel! Some counterpoints:

That iPods and Xboxes are assembled in China, thanks to decent infrastructure and low labour costs, is irrelevant. All the meaningful technology is US owned and created (well, there is some Scottish stuff in the iPod).

The US fiscal deficit is lower as a % of GDP than many first world economies including the UK and Japan. Demographic changes are a problem for everyone – especially the Chinese with their (now abandoned) one child per family laws. The US will have problems with social security but it’ll be worse in Europe, simply because there are more socialist policies!

Trade deficits: if traders in other countries are going to give US companies and consumers more goods and services for less money why should America be bothered? Its amazing how this mindset is so entrenched. Click here for a good read about this mindset.

US Treasuries: if China wants to lend to the US government at a low single digit rate how is this a bad thing for America? Given the ridiculously low yields in the secondary market its obvious that US treasuries are in great demand at the moment. This demand has been spurred by problems with Asset Backed Securities and Collateralised Debt Obligations. These financial products were concocted in the first place because of the need for “safe” income streams. You could argue governments are to blame for the credit crunch because they didn’t supply enough debt to placate financial institution demand!

If the conspiracy theorists were right and China wanted to sell their US debt who are they going to sell it too? Why would China want to lose money by unleashing this supply onto the market all of a sudden?The $30 trillion pension fund industry would love China to dump their $1.4tn of stock so they could get a slightly higher yield!

Solar power and wind power arguments, well, the Japanese and Germans are pretty good at engineering and manufacturing, big whoopee.

This article is very much in-tune with the protectionist vibe engulfing America at the moment. Its the biggest worry on Wall Street – that politicians will put up trade barriers to “protect” American jobs once the presidency changes. The China scare is no different to the worries over Japan in the late ’80s.


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