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Friday, April 11, 2008

Greenspan's Conundrum Turns Into An Ass-biting Adder

We are importing inflation at a very fast rate! Calculated Risk post. Import/Export report. BLS pricing data.

I think CPI is going somewhere close to 5%. I hope I'm wrong, but darn it all, when you have food costs soaring like this, everyone has to raise prices. The effect of price increases for the necessities cannot be isolated, and it has more impact on economies in which workers traditionally spend far more of their income on those necessities.

If the governments subsidize the costs, they have to get it back somehow, and that could be from export tariffs.

What's different this year from last year can be found here. Last March was expensive too - overall imports were up 1.6% vs this year's 2.8%. But last year March fuel imports were up 8.5% and all other import prices only rose 0.3%. This year's March fuel imports were up 9.1%, and all other imports were up 1.1%.

So let's look at the annual difference for March 2006-March 2007 vs March 2007-March 2008:
06-07: Fuel 3.1%, Other 2.8%, Overall 2.8%
07-08: Fuel 60%, Other 5.4%, Overall 14.8%
Ya think it will make a difference? This is why I believe the Fed will try to stall its rate cuts as long as possible. The Mann hockey stick graph showing climate warning has been thoroughly discredited, but here's a very real hockey stick on import prices:

From 2005, an article in the Asia Times on Greenspan's conundrum.

I believe that the article was quite wrong on one point. I think the US will reindustrialize out of necessity. I think it will suck in a lot of foreign capital. The US is good at consuming, and companies will be forced to chase consumers down where they live. The problem for many of these Asian economies is that they haven't succeeded in generating the consumption power within their own economies by distributing profits.



Comments:
MoM,

We're already seeing this. I had a very pleasant German company rep in our plant this afternoon.

Tunnel boring company and all of their equipment is German. The rep is the domestic US manager and she was looking for alternatives because the currency issues are killing her as are replacement part issue (EU design, time, price and shipping).

As an oilfield manufacturer with huge volume our prices are low in this market. In 2-3 weeks we're going to displace $4-5 million of European manufacturing with our own. And given our worldwide distribution network for support, parts and service, we will slowly start to dominate an industrial market outside our main customer base in a very short time. And given the response of this particular German future client, it's going to happen now.

MC
 
Glad to hear this, Mark.

Some level of reindustrialization is needed, I believe, if the US is to avoid permanent decline (at least relative) in living standards and international position/power.

You are on the frontlines...
 
MC - makes total sense economically. Worldwide mfrg is very price-competitive. And it's not just you. I would think tons of Euro mfrs would be looking to source some components from the US.

I think, though, that we have actually lost some fields of mfrg altogether. Do we have a domestic optics mfr? I don't think so.

Also the gains in high-tech should be excellent. Robotics and all that sort of thing.

Congrats. The purpose of letting currencies fluctuate is that they rebalance. The US really hasn't been producing that much, but the tide is certainly turning.
 
MoM,I can think of countries outside of Asia that have not been real good about distributing profits the last few years...
 
We'll see. We'll see how long this lasts.

Have been watching the de-industrialization since early 1980s when few cared or could see long term
effects on the country.

If don't get back to emphasis on productive sectors & export chain and genuine investment, U.S. will go down further and not bounce back up again.

American public needs to wring out excesses, quit littering up environment, and simplify to basic living needs.


independent
 
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