Thursday, October 15, 2009

Put on your thinking caps...

.... because my husband John is today's Guest Blogger, The Financial Thinker With A Political Mind Guru Guest Blogger! Comments especially welcome, to be answered by the man himself, The FTWaPMGGB.


38 years ago, when the United States unilaterally withdrew from the Bretton Woods Agreements, the gold standard was abandoned and the American Dollar became the world’s effective foreign exchange reserve currency.

This engendered a system of policies whereby those countries that could effectively compete with the dollar became increasingly self-sufficient, whereas those whose currencies that were weak had strong incentives to become net-selling trading partners with the United States, in order to grow their economy with dollars.

The trade imbalance between the US and China is a direct result of this system of incentives. The Chinese hold over $1.3(T) in US paper and unlike gold, the US government can create dollars out of thin air.

The US doesn’t make much of anything anymore. Anecdotally, the places I’ve lived in my 28 years have shared in common the trait of having manufacturing facilities closing down in favor of moving those services outside of the US. This outsourcing occurs when the places that manufacture US domestic goods and services share two traits: their local country lacks the protections afforded American workers and therefore have a natural competitive advantage in terms of labor cost (which is, in general, the number one expense contributing to the cost of goods sold), and they have an incentive to be paid in dollars.

Historically, the US government does not like high unemployment and will take steps to put downward pressure on this figure. But manufacturing, as a proportion of the whole economy, has shrunk from 28% to 12% in the past 56 years. The jobs shed in this sector are similar in that they typically were stable, full time, and career-oriented jobs with benefits that had minimum educational requirements to be filled and also had some manual labor component.

Is this what the US government means when it uses terms like “jobless recovery”? Are they finally saying “arrivederci!” to that type of labor in the US? Did the 250,000 manufacturing jobs lost from 11/2008-12/2008 alone, did they simply evaporate?

If there’s one thing the housing bubble achieved, it was a whole heck of a lot of construction - a significant amount of renovation, but a vast amount of new construction. But now we’ve found that construction boom to largely be the result of a lot unregulated lending practices coupled with good old-fashioned greed and a culture that promotes entitlement.

I wonder what a long term 10-12% unemployment looks like in the US.

I wonder if there’s much sense in continuing to invest in US dollars. Auditing the Federal Reserve should be demanded not just by the likes of Ron Paul. The Independent recently claimed that oil producing countries and their largest customers, such as China and Brazil, have agreed to abandon the practice of trading oil in US dollars in favor of a basket of currencies including the Yuan and Euro by 2018. And the Fed keeps printing.

In a way, it will be great when the US dollar is no longer the standard. Perhaps our national priorities will finally move us to self-sufficiency when we can compete individually with all other countries instead of having everyone simply compete against the US. Perhaps we’ll become more enlightened members of the global community.

For now, I’d invest in gold (I am not an investment advisor). It is negatively correlated with the value of the dollar, which looks a lot like the Titanic must’ve to some of those guys in the band.

Hand me a wig and a cane, because I will beat down the old dude that steps in my way of those lifeboats!

écrasez l'infâme!


  1. Oh this is perfect, because I just came into a bunch of money from!

  2. Interesting! I also just read an article that touches on the same issues you mentioned regarding unemployment. They agree that the jobs we lost are not going to be coming back (mostly the manufacturing jobs) and that they expect the national unemployment rate to be around 10% for the next decade! Unbelievable times! Nice blog John!

  3. Well, very insightful, not sure I get it all, but get the jist of it.
    Retirement looms. thanks Guru Guest Blogger...the times, they are a changin' .

  4. So then why do I feel I have a safe job in the manufacturing sector? Ah yes that's right, self delusion my old friend.

  5. Great question Arthur! I certainly think that about 5-8% of the GDP-Pie Manufacturing sector is quasi permanent. If this part goes, then the "shipping" part of the "domestic transportation and shipping" portion of the economy will vanish as well.

    We can outsource the label creation to a cheaper place, but if you print it from there, then you incur exponential shipping costs when the target market doesn't move with it. There is an economy in having your end user geographically close to your production facilities when these users are regionally specific.

  6. Gotcha. That makes sense. Labels are particularly expensive to ship because they're always wanted at the last instant, rush shipping, they're custom orders so they go out a palette at a time so it's all just UPS and FedEx...and because labels themselves aren't worth very much so the shipping can be a pretty sizeable percentage of the total cost.