Sunday, January 31, 2010

The Emma Maersk Sails!

 

This is the Emma Maersk. It's how Wal-Mart gets its stuff from China to the U.S. This ship is 207' wide and carries 15,000 containers at 31 knots. Because it's so wide, it doesn't fit in the Panama Canal, so it's strictly a trans-Pacific ship.



These 15,000 containers get shipped back to China EMPTY! Ponder that.
Here's something else to consider. The dollar is ultimately redeemable only in the U.S.A., so the Chinese can only redeem their dollars by buying something in America. If you were Chinese and holding a big bunch of Federal Reserve Notes, what would you buy?

11 comments:

  1. Oil.

    Seriously. Oil. That is the biggest thing the Chinese buy, and the main reason why China's dollar reserves are actually less than that of Japan. China sells a lot of crap by bulk to the USA, but not all that much as a dollar amount -- Chinese imports account for less than 15% of U.S. imports by dollar amount. Then they send the dollars to Iran for oil. or to Russia for fighter jets and submarines, or to Europe or Taiwan to buy computers that the U.S. refuses to sell them (nevermind that they officially have no relations with Taiwan, all that means is that it gets bought by Hong Kong, which both Taiwan and China pretend is not 100% controlled by China, then transhipped from there to China). The U.S. won't sell China most of what they'd like to buy from here -- mostly, advanced weaponry and computer systems -- so they buy it elsewhere.

    So if you want to know what I'd buy if I were Chinese and holding a buncha dollars, now you know: Oil. Seriously.

    - Badtux the Monetary Penguin

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  2. Hi BadTux,
    That sounds reasonable. Little things like trade deficits bother me in the still watches of the night. Especially so when it's hard to find anything "made in U.S.A." I wonder how a "service economy" can support itself.
    Thanks for that.

    Dave

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  3. There's an entire universe of dollars out there which does not ever touch the United States after it leaves here. Basically what has been happening is that the U.S. currency has slowly supplanted local currencies. What this has allowed the U.S. to do is basically derive income from printing dollars that never come back to the USA and thus don't cause inflation at home.

    Of course, this process cannot go on forever. For one thing, we're basically exporting our inflation -- as we export more dollars, prices overseas in the places where the dollar has supplanted local currencies inflates accordingly. In turn, this raises the prices of goods they export back to the USA, or else causes local living standards to decline as income declines in real standards (if they don't raise prices to deal with the local dollar inflation). The net result, assuming they raise prices instead of accepting a decline in living standards, will be that they export their inflation right back to the USA in the form of higher prices for goods.

    Will it end up in hyperinflation? Probably not. The world is a big place, and it takes a *lot* of dollars to cause an incremental increase in prices worldwide. Not to mention that the world-wide economic crisis just wiped out $12 *TRILLION* in dollar-denominated assets, which means that the U.S. now has the headroom to print a *lot* of money without causing inflation. But clearly, just as oil will eventually run out, the U.S. ability to create national income by printing money will eventually run out too. What then? I have no idea, but I don't think it'll be good.

    - Badtux the Monetary Penguin

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  4. The world's currencies must be in rough shape if our worthless scrip looks like a stable value.
    I'm fully prepared for hyperinflation--I've got two big wheelbarrows.

    Dave

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  5. It's all a matter of scale. The dollar is basically the world currency now, virtually every major asset sold on this planet is dollar-denominated, so turning the dollar from inflation to deflation is like turning that big boat above -- it takes a lot of time and effort, and does not happen quickly. It *will* happen, eventually, if we keep printing money -- but it will take a *lot* of printing to make it happen.

    In short, there will be no sudden hyperinflation event. Once the boat turns away from deflation towards inflation, it will slooooowly start creeping up... but it's going to take a long time and many years of printing to get any significant inflation, because the world's economy is so gigantic and takes so many dollars to nudge towards inflation.

    Of course, once the boat gets up some speed in the inflation direction, stopping it is going to be a beach. Probably almost literally, as far as the world economy is concerned. Scale, baby, scale. This is a *big* ship we're blowing on with the Fed's printing presses...

    - Badtux the Scale Penguin

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  6. Hi BadTux,
    I'm not at all sure what kind of money system would work best, but I know for sure what doesn't work--paper. Myself, I prefer gold and silver coins. You might prefer something else, so I wouldn't ever presume to force you to accept one kind over another. Money should be whatever people decide it should be, free of government coercion. Giving a private bank a monopoly on counterfeiting is a bad idea that allows our government to wage constant war and bankrupt us. Adjusting the scrip spigot just delays the inevitable collapse.

    Dave

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  7. Gold doesn't work in any system that has fractional reserve banking. Once fractional reserve banking became common in the US during the 19th century, the economy wobbled dramatically between hyperinflation and deflation so severe that most of the economy went back to barter, which is a horrifically inefficient way of doing things. This is a natural effect of the positive feedback loop of normal economic cycles feeding into the money multiplier effect of fractional reserve lending. (Note that positive feedback loops, as benign as they sound to non-engineers, are most definitely *not* benign to us engineers... positive feedback means that the natural cycle is *amplified* by the design, as exemplified by the Tacoma Narrows Bridge collapse).

    The only way to make gold work would be to eliminate fractional reserve banking. Unfortunately what we've found out is that without fractional reserve banking, you do not have a modern capitalist economy. What you have is a slow-moving, inefficient mercantilist economy that gets out-competed by the more nimble capitalist economies, which can leverage current capital (via fractional reserve banking) to create new capital without having to wait for the income created by the new capital, and therefore is more efficient at matching supply with new demands.

    These are facts, easily ascertainable by looking at historical economic statistics for both the United States and a number of other countries. Facts are things that can be verified rather than being matters of faith. You can verify the above facts by consulting appropriate historical statistical abstracts, I suggest the U.S.A. vs. the Ottoman Empire (which banned fractional reserve lending for most of its history as un-Islamic) might be very interesting.

    In short: Gold is a nice shiny metal, and I can see why you'd prefer to have a nice shiny hunk of metal rather than a piece of toilet paper with a picture of a dead dude on it, because it's, well, shiny. It has heft to it. But ultimately it's no magic talisman -- its only value is what you can buy with it, just like with the paper money, and the experience of the 19th century shows that it is subject to even wilder wobbles in value than paper money in the presence of a working central bank is. In the end, you still can't eat gold.

    - Badtux the Economic History Penguin

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  8. Hi BadBux,
    I disagree with you on this one completely, historically and economically. The wildest wobbles in the U.S. economy happened after the Fed. And why did you tell me I can't eat gold? Can you eat Federal Reserve Notes?
    Money represents value. Value is a subjective thing, so money is whatever people use to aid their transactions. When legal tender laws can no longer force people to use a worthless currency, they turn to black-market foreign currencies or barter. Capitalism worked pretty well before the Ponzi-scheme Federal Reserve Bank. When 19th century banks tried to inflate the paper, people carried on just fine using gold and silver coins. Yes, lots of people got tricked out of their gold by those bankers, but the gold didn't disappear. It remained a value. Only the paper notes became worthless.
    I could list the advantages of gold money but it doesn't matter what you and I prefer anyway, because money is whatever people decide it is. And when the Federal Reserve Notes hyper-inflate to worthlessness, perhaps Americans will start using black-market rubles or some other stronger currency.
    Even though I can't eat it, I still like gold.

    Dave

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  9. I'm sorry, you're entitled to your own opinion, but you're not entitled to your own facts. There have been no significant deflationary events since FDR abandoned the gold standard in 1934 (1938 and 1939, when FDR made the mistake of fiscal contraction, had mild deflation but nowhere near as bad as when the U.S. dollar was pegged to gold) and only one period of moderately high inflation (the late 1970's, with the OPEC oil shocks and the costs of Vietnam rippling through the economy) when inflation reached 12%. If you look at actual historical data (see page 17 of that document), you will see that fluctuations in the money supply and inflation/deflation rates in the post-WWII era are *much* smoother than in the gold-standard era.

    Those are facts. Those are not amenable to argument, they are easily verifiable from a variety of sources. We can have different opinions about what those facts mean. Like I said, you are entitled to your opinions. But reality simply *IS*, and doesn't give a shit about our opinion -- it bites our asses if we try to ignore it.

    - Badtux the Reality-based Penguin

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  10. "Tsk, Tsk, Dave. Only the morally-depraved-at-heart could possibly fail to realize....." and "I can't possible lead you out of darkness if you deny reality". The argument-through-intimidation doesn't cut it with me. You're normally quite eloquent and interesting, your grammar is impeccable, and your spelling is perfect. So I cut you a lot of slack. But you are completely wrong on this one and for us to continue would be pointless. Please stop commenting here and go bother someone else.

    Dave

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  11. In short, facts that don't agree with your opinion aren't facts.

    Ooooohkay. So I'm out of here, permanently, since you apparently aren't interested in facts but, rather, want someone to agree with you. Bye.

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All comments are welcome.