The Next Big Crash - Are You Prepared?

[brattzz]

alamak, can anyone do an executive summary of this topic? so many good points brought up and schools of thoughts,
Very rewarding read!

Keep it up guys!

[Clement]

Our differences with regards to entitlements are now primarily related to amounts. I believe, as the US is a democracy, we should let the people decide what is the minimum necessary. I do agree that populism is dangerous which is why democracy requires an educated middle class to function and cannot work in all situations around the world. I just don't think the policies have crossed the line into pure populism yet.

In the end, i think the current race to the bottom style of economics driven by globalization has produced several unintended consequences and the US is struggling as a country to come to terms with it. I am not sure that the traditional shift of a primarily manufacturing economy into a services economy can succeed in an economy of that size.

It is always about the amount and the execution. There are people like to choose certain extreme to prove a point, which is never the point.

In terms of budget deficit, globalization is not necessary the culprit here. If we are talking about current account deficit, yes, it is important. Here, we are talking about budget deficit. Globalization is not removing any revenue from the US government, but adding more through foreign profit tax and dividends to the US corporates/individuals.

I believe that globalization has caused a structural change in the US economy. Cyclical changes in employment are easily rectified but structural ones can pose a lot of problems. The growth in wealth transfers and welfare programmes were just a response to put a band aid so to speak on the problems.

The export of manufacturing jobs is particularly painful to middle america. New York City was able to transform itself to a financial services hub, but other communities collapsed. True, people can be retrained, but we also must remember that the people affected are real human beings and are not just mere statistics.

Have you ever been to the US by the way?

[CityFarmer]

What i observe in the forum are a few very educated n well read people discussing this topic.
Maybe i as an individual investor is too focused on my own portfolio. Maybe i am ignorant.
But i dun see how the outcome of the US debate will lead to a global disaster. Its man made n there are solutions to it.
Can it lead to collapse of super internationalised companies like MCD, Pitzer etc?
Can its shockwaves if any lead to collapse of dbs, ocbc, cdl etc.

No offence to anyone.

The US debate, or rather the discussion on the gov shutdown and the coming debt ceiling issue might lead to a global crisis, due to default of US gov.

May be it is too macro to each individual, but the impact isn't in-significant.

[freedom]

It is always about the amount and the execution. There are people like to choose certain extreme to prove a point, which is never the point.

In terms of budget deficit, globalization is not necessary the culprit here. If we are talking about current account deficit, yes, it is important. Here, we are talking about budget deficit. Globalization is not removing any revenue from the US government, but adding more through foreign profit tax and dividends to the US corporates/individuals.

I believe that globalization has caused a structural change in the US economy. Cyclical changes in employment are easily rectified but structural ones can pose a lot of problems. The growth in wealth transfers and welfare programmes were just a response to put a band aid so to speak on the problems.

The export of manufacturing jobs is particularly painful to middle america. New York City was able to transform itself to a financial services hub, but other communities collapsed. True, people can be retrained, but we also must remember that the people affected are real human beings and are not just mere statistics.

Have you ever been to the US by the way?

No, I have never been to the US. But I have friends working in US and I live in Singapore long enough to witness the structural change of the economy. I have read a lot about the US economy, US fiscal policy, etc.

IMO, you can't simply say that it is a structural change of economy that ruin the life of US. We should find out why it is not economical any more to have manufacturing business in US. A few things I can think of, high tax rate(why? too much government spending?), high wage cost(why? minimum wage? too much entitlement to be funded by the corporate?)

If we think in another way, US can be competitive in manufacturing if the government is willing to reduce the minimum wage and other business cost. Sure, it will reduce the income and benefit. But the deficit can be funded by government spending in aids. In that way, the real income and benefit of the US citizens is not necessarily lowered if managed properly. But what do we get in return? Higher economy output(existing economy + manufacturing economy, which will lead to higher tax revenue for the government to sponsor the higher spending for aids), plus higher employment and fewer people on less entitlement(less government spending, as more people on employment). As a nation, I would say that US is more powerful than before.

[kazukirai]

Actually US's share of manufacturing is still the same as it was in 1990. There is a decline in manufacturing's share of employment but not manufacturing per se. Thought I should point out the distinction.

From Joshua Kennon (full link here):

Tell me what you think of the following statement:
“American manufacturing has been destroyed over the past 20 years? Going back further, it’s nothing like it was in 1960. Everything is made in China now.”

If you agreed with the statement, congratulations! You failed. Miserably.

Today, The United States of America manufacturers approximately 1/5th of everything made in the world, which is virtually the same percentage it was 21 years ago in 1990.

[Clement]

It is always about the amount and the execution. There are people like to choose certain extreme to prove a point, which is never the point.

In terms of budget deficit, globalization is not necessary the culprit here. If we are talking about current account deficit, yes, it is important. Here, we are talking about budget deficit. Globalization is not removing any revenue from the US government, but adding more through foreign profit tax and dividends to the US corporates/individuals.

I believe that globalization has caused a structural change in the US economy. Cyclical changes in employment are easily rectified but structural ones can pose a lot of problems. The growth in wealth transfers and welfare programmes were just a response to put a band aid so to speak on the problems.

The export of manufacturing jobs is particularly painful to middle america. New York City was able to transform itself to a financial services hub, but other communities collapsed. True, people can be retrained, but we also must remember that the people affected are real human beings and are not just mere statistics.

Have you ever been to the US by the way?

No, I have never been to the US. But I have friends working in US and I live in Singapore long enough to witness the structural change of the economy. I have read a lot about the US economy, US fiscal policy, etc.

IMO, you can't simply say that it is a structural change of economy that ruin the life of US. We should find out why it is not economical any more to have manufacturing business in US. A few things I can think of, high tax rate(why? too much government spending?), high wage cost(why? minimum wage? too much entitlement to be funded by the corporate?)

If we think in another way, US can be competitive in manufacturing if the government is willing to reduce the minimum wage and other business cost. Sure, it will reduce the income and benefit. But the deficit can be funded by government spending in aids. In that way, the real income and benefit of the US citizens is not necessarily lowered if managed properly. But what do we get in return? Higher economy output(existing economy + manufacturing economy, which will lead to higher tax revenue for the government to sponsor the higher spending for aids), plus higher employment and fewer people on less entitlement(less government spending, as more people on employment). As a nation, I would say that US is more powerful than before.

That is the purely economic view, and all governments give special tax packages to encourage investments in their country anyways. That is indeed one of the biggest problems with pure capitalism combined with globalization. This game has a situation where by every participant, in following his best interest, creates collective misery. For 2 countries for example A and B, the payoff kind of looks like this for HT for high taxes and LT for low taxes.

A\B HT LT
HT 1,1 0,2
LT 2,0 0,0

Naturally, businessmen and economists are thrilled with the situation but citizens and governments not so.

[freedom]

I can't imagine a scenario where higher economy growth met with lower income and benefit. I thought a high tide raises all boats?

Anyway, where is pure capitalism? There ain't any in this planet.

[specuvestor]

Actually US's share of manufacturing is still the same as it was in 1990. There is a decline in manufacturing's share of employment but not manufacturing per se. Thought I should point out the distinction.

From Joshua Kennon (full link here):

Tell me what you think of the following statement:
“American manufacturing has been destroyed over the past 20 years? Going back further, it’s nothing like it was in 1960. Everything is made in China now.”

If you agreed with the statement, congratulations! You failed. Miserably.

Today, The United States of America manufacturers approximately 1/5th of everything made in the world, which is virtually the same percentage it was 21 years ago in 1990.

Great point. The productivity increased that less labour needed is fueling that perception. And as China wages and worker demand rises, on a productivity adjusted basis, manufacturing jobs in US can finally be competitive, especially if it is near to the end market.

http://www.washingtonpost.com/blogs/wonk...-all-hype/

The global adjustment is doing its work. 10 years ago nobody would imagine China to be a global consumer of goods and services. The work for the government is to assist on the transitions rather than misguided hope for the invisble hand that adds collective misery, as Clement has rightly pointed out.

[Clement]

I can't imagine a scenario where higher economy growth met with lower income and benefit. I thought a high tide raises all boats?

Anyway, where is pure capitalism? There ain't any in this planet.

The countries would benefit in terms of employment, but the situation taken to the equilibrium can involve involve government subsidies. Maybe i should have said Countries pursuing purely capitalistic goals. This is just a crude example of a complex set of factors made more complicated by lobbying.

[freedom]

I can't imagine a scenario where higher economy growth met with lower income and benefit. I thought a high tide raises all boats?

Anyway, where is pure capitalism? There ain't any in this planet.

The countries would benefit in terms of employment, but the situation taken to the equilibrium can involve involve government subsidies. Maybe i should have said Countries pursuing purely capitalistic goals. This is just a crude example of a complex set of factors made more complicated by lobbying.

Please elaborate with a real example. Talking fiction for pure argument purpose is not productive.