Not The News

[Starker]

That's the trouble with monarchies/dictatorships -- once you get a really crazy one, everyone will suffer and nobody can really do anything about it. And even if you assassinate them, the repressive system they established is already in place.

[heywood]

Honestly, any amount of legal framework wouldn't do anything as long as there is corruption and a widespread attitude of everyone scrambling for themselves by any means. It's just so easy to ignore with a bribe or two and everybody's finding any loophole they can to game the system. Life in the Soviet Union used to be somewhat like that -- if something belonged to the state, you'd be an idiot to not steal it, because a) it was the only way to get ahead and b) fuck the state. And a lot of people higher up were on the take anyway.

In China it's really taken to a another level though -- you see everybody cutting corners in hospitals, restaurants, baby formula production... you name it. Which leads to things like people scooping up used oil from trash cans and using it to prepare food for customers and lifts falling down in brand new buildings because the certificate for the building code is fake and everybody ignores the weight limits. And anything you buy, chances are it's fake or replaced at least in part with something much cheaper. Fake alcohol, fake gold filled with tin... even if you buy some mineral water from the store (because you can't drink water from the tap in China), there's a chance the water is not fit to drink anyway and was just put in a thrown away plastic bottle and resealed.

When China first opened up, there was a rush to establish operations there. But companies quickly realized that it was better to subcontract to a Chinese company instead, and let them worry about the politics and bribes and the health & safety of their workers. If it's a well known western company, everybody will have their hand out, and the CCP won't have your back unless you're vital to their development plans. And if you're American, the USG will prosecute you if you play that game. My dad's advice was to use your leverage in the beginning to sign a contract where the subcontractor takes all the risk and you can keep your people there for continuous oversight, because as soon as you're not looking, they will go off script. I have a couple of close friends who worked in quality in Shenzen about 10 years ago, a lot of westerners were doing it. But Chinese manufacturing quality has improved hugely and Chinese companies are the best at making many types of products now.

Safety - yeah, there's still working on appreciating that.

And what is it with the fakes? It seems like the online retail platforms are flooded with them now. I've gone back to Amazon, but even there you have to be careful who you buy from.

[Starker]

It's like a model example of the principal-agent problem, except it's even worse since the whole place is flooded with ever more sophisticated pig butchering scams -- a type of scheme where you of course are the pig, and the butcher will spend weeks or even months fattening you up -- that is building a genuine seeming relationship before they gut you.

And what makes it even worse is that the scammers are often victims themselves, literally human trafficked slaves.

[zoog]

Cheerleaders for a strong dollar don't realize that it kills manufacturing jobs in the US.

Yeah, because big business men and goverment are dumb and you are smart, do i understand correctly?
Of course China does some mind control, but doesn't West? If your answer is no, then tell why, - because our masters are so good and kind or just because they do their job much better and cleaner? Anyways - you haven't heard of muslim community in China raping little children from neighbourhood for 40 years without any penalty.

[Cipheron]

Yeah, because big business men and goverment are dumb and you are smart, do i understand correctly?

Neither "big business men" nor "government" are the ones who really gain from a high dollar. It just seems like a weird assumption for you to make.

A lower US dollar means that "big business men" can pay American workers less and make more profit from exports. They still getting paid in e.g. Euros, but because it wouldn't take as many Euros to get the same amount of dollars, they can pocket a bigger difference when paying workers. Many "big business men" would thus love it if the dollar was much weaker, as it effectively lowers wages for the entire workforce. Keep in mind that rich people don't keep their holdings in cash, but in stocks and real-estate, which GAIN in value when the dollar drops. So Musk might be worth $200 billion, but if the dollar was to collapse in value, stock prices would rise via inflation and he could be worth $1 trillion.

Plus, the US Federal Debt is valued in US dollars, so if the dollar drops in value, the total US debt immediately does too. So, a weaker dollar would mean it's cheaper to service ANY debt that's denominated in dollars, and the single-biggest debt holder is the US government. So no, the "government" as a whole doesn't benefit from a high dollar. There are also large payouts they're doing for Social Security and Medicare which are set amount of dollars. A cheaper dollar means it effectively lowers these repayments too, in real terms.

Then there's the whole trade deficit vs China angle too. If the dollar drops vs the Yuan then the balance of imports/exports to that nation shifts. So it's an effective tool to balance the trade-deficit without having to implement policies such as tariffs or quotas, both of which are prone to backfiring. So, a weaker US dollar would mean more jobs shift from imports to locally-produced goods without many of the detrimental economic effects that you see from quotas & tariffs.

So no, it REALLY IS only uneducated people who cheer for a "higher dollar" out of some sense of national pride. Neither "big business men" or "government" get much out of it, and can in fact be harmed by the dollar being too high. A "high dollar" could be a talking point on Fox News or similar, but the audience is the uneducated yokels who will cheer USA USA for anything without knowing how any of it works.

[zoog]

Neither "big business men" nor "government" are the ones who really gain from a high dollar. It just seems like a weird assumption for you to make.

I was talking about transition to cheap chinese goods/labour.

So no, the "government" as a whole doesn't benefit from a high dollar.

I envy your boldness to think that you know how and for what government works. Or maybe you believe in democracy, i.e. that it's goal is to serve mere people?

[heywood]

Yeah, because big business men and goverment are dumb and you are smart, do i understand correctly?

Because I use common sense. A high dollar means domestic labor is comparatively more expensive while foreign labor is comparatively cheap. It also makes foreign-made goods cheaper to buy in the US, and US-made goods more expensive in foreign countries.

Businesses who import a lot benefit from a high dollar. Businesses who export suffer from it. The government cares more about borrowing costs and the overall balance of payments than the dollar value.

[zoog]

Sorry, i was meaning another thing, let's skip it.

[mxleader]

Oh those wacky Seattle cops never cease to entertain....

[Cipheron]

I was talking about transition to cheap chinese goods/labour.

I envy your boldness to think that you know how and for what government works. Or maybe you believe in democracy, i.e. that it's goal is to serve mere people?

I'm not making stuff up or making any assumptions about what the government SHOULD do, i'm just stating what they do do.

For a start, government and economists always want inflation to be a thing. If the real value of a currency is going up over time, that's called deflation and it's basically the thing they fear the most. So the stability of modern economic systems is based on the value of currencies dropping over time.

The official US stated government goal is ~2% inflation per year. Since you mentioned China, it's not actually any different there. They have a similar inflation target. So if you have $50 it will lose $1 of real value every year. So when people say a "strong dollar" they don't mean the dollar is worth more, or even held it's value. It's always weaker than the year before, on purpose.

It's not really "serving the people" if the dollar goes up in value, and the reason is because then people stop investing OR spending since you can "make money" by basically sticking money in your mattress - it will be worth more later. So people stop spending and stop investing, and it causes big problems.

https://www.economicshelp.org/blog/3...t-to-pay-debt/

Why inflation makes it easier for government to pay debt

...

Higher inflation increases nominal tax revenues (if prices are higher, the government will collect more VAT, workers pay more income tax)

Higher inflation reduces the real value of debt, bondholders on fixed interest rates will see a fall in the real value of their bonds and it becomes easier for the government to pay back these bonds.

Higher inflation can enable the government to freeze income tax thresholds so more workers pay higher tax rates – it becomes a way to increase tax revenues without increasing tax rates.

The USA has a big debt problem. Just the federal government currently owe $33 Trillion dollars. Also, the federal government has total "future liabilities" of almost $200 trillion. Those are payments they're obligated to make at some future point but don't include the regular operating costs/deficit of the government, so that's in addition to the normal debts they generate. You can get up to date figures here:

https://www.usdebtclock.org/

The main ways they can deal with debt are

(1) raise taxes

(2) cut spending

(3) print more money

The first two are always harder than the third one. Now they don't want to print too much money all at once, but as the debt increases the temptation to print more money will increase. For example, if 5 cents is cut off the value of the dollar that's equivalent to the $33 trillion dollar debt dropping by $1.6 trillion. Which would be FAR easier to push through than either $1.6 trillion dollars worth of tax hikes or spending cuts.

https://www.investopedia.com/article...r-currency.asp

3 Reasons Why Countries Devalue Their Currency

1. To Boost Exports

2. To Shrink Trade Deficits

3. To Reduce Sovereign Debt Burdens

The USA's Sovereign Debt is a pretty significant factor of the US economy, in historical terms. So while they don't really want to crash the value of the dollar all at once, the cost/benefit analysis would favor that more and more as the Sovereign Debt increases, and inflation (i.e. the currency dropping in value) is already baked into the system, the only question is how fast.

[heywood]

Just to be clear, the inflation rate and exchange rate are different things, and when I say "a strong dollar" it refers to the exchange rate.

I think the Investopedia article is misleading if not misinformed. Suppose I live in Tafferland and our currency is Taffs and our public debt is mostly valued in USD, because we're a developing country who mostly borrowed from foreign investors. In this case, when our currency drops our debt service burden increases, the opposite of what that article says. On the other hand, suppose Tafferland is a big country and our public debt is valued in Taffs. If our currency drops, our exports become cheap, and our imports become expensive, but our debt service burden remains the same.

Besides, the USD is the most widely used reserve currency worldwide, so the strength of the dollar depends on the condition of many economies and the policies of many central banks. The US Federal Reserve doesn't have a mandate to maintain exchange rates, and they can't just de-value the USD when they want. For example, the Fed opted for maximum monetary stimulus when the pandemic hit, and the dollar only went up.

It's tempting to think we can devalue our debt by trying to maintain a high rate of growth through monetary stimulus, aka print our way out of it. There's always going to be politicians who want to run the economy hot, inflation be damned. But it doesn't work. When there's an expectation that prices will continue rising, people want to acquire things now because sooner = cheaper. Cash burns a hole in your pocket. You look at things you don't need and think "I'll never be able to buy it at that price again." Product shortages become common, which exacerbates the rush to buy. And if interest rates are kept "upside down" i.e. lower than inflation, it creates an incentive to keep borrowing and buying assets long as your credit lasts. Companies do the same thing: build now, buy now, expand now, taking advantage of cheap loans to expand to meet the rising demand. If the inflationary feedback loop isn't broken by raising interest rates, it will continue until rising private debt eventually slows demand and the asset bubbles break. When they do, the government has to take on another wave of public debt to stimulate the economy out of a recession, because the private sector is over-leveraged and can't invest anymore. Meanwhile, high inflation destroys people on fixed incomes, who become more dependent on government services.

[demagogue]

Looks like we're getting schooled in your Austrian perspective.

The place you should study isn't the Bust.
It's the Boom that should make you feel leery.
That's the thrust of the theory.

[Cipheron]

Just to be clear, the inflation rate and exchange rate are different things, and when I say "a strong dollar" it refers to the exchange rate.

I think the Investopedia article is misleading if not misinformed. Suppose I live in Tafferland and our currency is Taffs and our public debt is mostly valued in USD, because we're a developing country who mostly borrowed from foreign investors. In this case, when our currency drops our debt service burden increases, the opposite of what that article says.

The article is pretty clearly referring to debt issued in the nation's own currency so it's not saying that a non-US nation that has debt in USD can devalue their way out of debt. In fact it says that itself:

Again, this tactic should be used with caution. As most countries around the globe have some debt outstanding in one form or another, a race-to-the-bottom currency war could be initiated. This tactic will also fail if the country in question holds a large number of foreign bonds since it will make those interest payments relatively more costly.

Countries that have their debt denominated in a currency they can print have a clear advantage. It's a big reason behind the problems in Greece: not being able to devalue the currency when they had sovereign debt problems.

Besides, the USD is the most widely used reserve currency worldwide, so the strength of the dollar depends on the condition of many economies and the policies of many central banks. The US Federal Reserve doesn't have a mandate to maintain exchange rates, and they can't just de-value the USD when they want. For example, the Fed opted for maximum monetary stimulus when the pandemic hit, and the dollar only went up.

The dollar went up vs other currencies, yes. But, a massive wave of inflation followed the expansion of the money supply in 2020-2021. In real terms, the dollar is worth less now, and so is any US debt that's valued in dollars. It only maintained relative value because other nations were also money printing to avoid recession. But it lost in real value, so it has actually been devalued.

[heywood]

Inflation just means prices are going up. That's all. It's not a measure of people's incomes, or their debts, or government revenue and spending, or exchange rates.

Here in the US, this latest inflation wave started in March 2021 and peaked in June 2022. But the public debt to GDP ratio has been flat for the last two years, and household debt has increased significantly. The much bigger wave of inflation from 1979-81 didn't reduce the debt burden either. See for yourself:
https://ycharts.com/indicators/us_inflation_rate
https://fred.stlouisfed.org/series/GFDEGDQ188S
https://www.newyorkfed.org/microeconomics/hhdc.html

You can't inflate your way out of debt. You have to grow your way out of debt. Inflation without income growth doesn't help you get out of debt, it just leaves you with a lower standard of living in material terms.

Most of Greece's public debt was and is held by foreign entities. Regardless of what currency Greece uses domestically, the government has to come up with Euros (and USD and perhaps some yen) to repay the loans. If they were still using drachmas and the value of the drachma tanked, it would only make the loan payments harder. Not to mention the domestic inflation it would cause and hesitance of other countries to invest more in the Greek economy. Like what happened to Argentina... again.

Even if most of their debt was domestically held in drachmas, it couldn't just be wiped away without an economic collapse. If the US can't do it, how is a smaller country going to do it?

EDIT: @demagogue - I think high inflation does more damage than a recession because it hurts everyone, not just people who lost their jobs or had their hours cut. It's especially damaging to the poor because most of their spending is non-discretionary and the things they buy tend to have inelastic demand, not to mention they're the first ones to exhaust their savings. During a recession, we have to carry more people on unemployment and other benefits for a while. But that's a lot easier than permanently raising the pay of all low income workers to make up for the ground they lost to inflation, without making inflation even worse. We have a bit of a homelessness crisis brewing here in the northeast and it isn't because people can't get a full time job. Some are talking rent control again. The other reason why I think inflation is worse is that once it's baked into people's planning, it creates unwanted incentives and positive feedbacks that make it hard to get rid of.