This is part of a larger issue. Last week Kerry apparently flipped on abortion but there was silence from the left. It appears that while the GOP will jump all over Bush over every little straying from the GOP line the Dems will ignore all transgressions by Kerry (and now Edwards) to ensure they get back the White House. We'll see if it works.

OJ
Well what's the point of electing a Republican, if he won't support Republican positions. It might be clearer to you if Bush were to "temporarily" shelve those positions you hold dear and gained no credit for his bipartisanship. Bush is even now saying he will sign the Assault Weapons Ban extension if it passes Congress. He didn't say that when he ran in 2000. (don't forget he only won by 250 votes, and if he had said that he would of lost)

Loyalty is a two-way street. I'm still voting for him, but don't pretend that because he has Republican stamped on his forehead that he has free rein to ignore promises to those interest groups that have supported him in the past.

Democrats were thrown out in 1994, when that particular law was passed (in many districts it was an important determinate of the results) and now a mere 10 years later Bush says he will be willing to sign it. (of course secretly he thinks it won't pass).

He didn't think the campaign finance law would be declared constitutional either so he signed that to ingratiate himself with McCain. So much for free speech.

The Left will ignore such statements, and the press won't report them (or will stuff them on page 15). Conversely, any Republican who criticizes Bush will wind up on page 1 in bold letters.

After hearing that Judy Woodruff actually called McCain's office to see if he authorized the latest campaign ad for Bush (which ran after Kerry's announcement for Edwards), I wondered if I should call CNN to see if Judy thinks her audience has even half a brain.

h:

There's no point. You should stay home and wait until politics becomes as pure as you are.

H-man - most conservatives jumped up and down over Bush's statement on the assault ban. Then they figured out the ban would never pass Congress so it was an empty statement by Bush. I don't like it when he pulls a Clinton manuever like this but I'm not going to get worked over over a very low probability event.

Since when is this reckless abomination known as "free trade" a Republican position? I would bet that most Republicans, including myself, are against de-industrializing our country and allowing the Chi-coms to treat us like chumps. "Free trade" as we know it today is a libertarian hobby horse born in the seventies. Read your history; this country was built on tariffs.

What I find more interesting is how Kerry now blames his speechwriters for all his anti-free trade rhetoric delivered in the primaries. I guess the big checks must have started to come in. The RNC must be thankful to have such weak and feckless adversaries.

Ideally, this election would be between the Constitution Party and the Republicans. But I digress...

The question really is what would the Democratic presidential and/or vice presidential nominees have to do/say to anger the Bush-haters in the party enough to actually say something? (My guess is if one of them stands on a podium with Michael Moore while he delivered one of his anti-Israel diatribes, that might do the trick, but only because of the fear of potential lost campaign donations, not on any moral grounds).

Worrf:

Chumps? They assemble stuff cheap that we design for decent pay then buy our debt. Who's the chump?

oj,

You may be right about lo-tech items like firecrackers and plastic toys.

Nevertheless, you mustn't forget the 2 more sinister components of this "free trade":
1. the part where the Chinese government succeeds in "asking" US corporations like GE and Microsoft to set up R&D Centers on mainland China.
2. the lack of enforcement of thier very modest intellectual property laws.

I could also mention merchandise dumping and currency devaluation...

Trust me, I wish you were right, but as I see it, it ain't that pretty. We may be profiting in the short term, but the cost we'll pay in the long term will be dear. I wouldn't play footsie with a shark and hope that everything turns out OK.

Mr. Judd;

Uh, why smash on libertarians when the article is about Democratic Party members being stupid?

"There's no point. You should stay home and wait until politics becomes as pure as you are."

Hey, I said I was voting for him, but sell-outs have a cumulative effect and on many of these issues Bush (or whoever, it could be anybody) is not gaining support from those he is hoping to gain support from. (In this case, those people who favor gun control are going to vote for Kerry anyway) By the way, those people who favored Campaign Finance legislation are going to probably vote for Kerry also.

Worff, you are correct, there are Republicans who oppose free trade and therefore it shouldn't be referred to as a Party Position. Same with gun control.

Oops, as Nixon would say, I want to be perfectly clear, I support free trade and especially with China.

To back up Mr. Worff's position on intellectual property, China is going to bust Pfizer's patent on Viagra...

http://www.forbes.com/home_asia/feeds/ap/2004/07/07/ap1445155.html

At a minimum we should have required that China float its currency as a prerequisite for Most Favored Nation status. Our trade imbalance with them will remain as long as their currency is tied to the US$.

OJ thinks being a net debtor is a good thing. I don't know how he squares that with conservative values like self-sufficiency and independence, but he has displayed more glaring contradictions on this blog.

AOG:

They were the ones doing all the whining about steel.

Robert:

Are your education and your house paid for?

H:

What the true believer terms a sell-out the well-adjusted citizen calls a compromise and the net effect is a government.

Worff:

Yes, all the things we heard about Japan. There's always a next country waiting to assemble parts into finished products cheaper....

Mature nations shouldn't manufacture.

Robert: Does your household buy more things or sell more things? And does your self-sufficiency turn on your answer?

Darn't it OJ, I wish I was as calm and mature as you are. So when Bush, decides abortion is not that bad after all, and comes out in favor of same-sex marriage, and supports more cosmopolitan attitude towards pedophiles and says that liberal judges aren't so bad, and consults with Leahy to get pre-approval of his appointments and says these terriorist have a point after all, maybe we should just all get along and ETC.., AFTER THE ELECTION, I guess when I visit your site, you'll still be the same old well-adjusted OJ.

Education paid for, house not. However, my debt is not growing faster than my income.

David, as long as I can manage all of my debt obligations and provide for all of my current needs out of my current income, then I am independent and self-sufficient. If I didn't have enough money left over from paying my debts to provide for myself, and had to borrow even more to meet current needs, then I am on the road to bankruptcy and will soon need to depend on the kindness of others to keep me afloat.

That is where the country is right now.

Is your total debt less than 70% of one year's income?

H:

We have both abortion on demand and same sex marriage already in America. You gonna tear the whole place down or work to fix it one step at a time?

Robert: You seem to be conflating three different issues.

First, the "trade deficit" is an attempt to measure the difference between the value of things we inport and the value of things we export. So, if we import one car, and export nothing, the trade deficit is the value of the car. But this has nothing to do with how the car is paid for and, although the press refers to us as a debtor nation because we have a "trade deficit", this is not debt in the usual way. In fact, because the dollar is the world reserve currency, we get to use our own currency to pay for imports. In other words, foreigners send us things, and we send them little pieces of paper we print up in the back room. Further, because in the end the only place you can spend a dollar is here, all that money is going to come back eventually.

Second, there is rising consumer debt. Because we're a young country, because of productivity gains and because of rising asset values, I don't see this as a problem.

Third, there is the deficit and the national debt. Once again, not a problem and, to a large extent, a rational way to finance government projects, but this feeds into a bigger post I'm thinking about (on whether fiscal conservatism is conservative), so I'm going to hold my fire for now.

There's not even rising consumer debt once you subtract the equity consumers hold.

"tear the whole place down or work to fix it one step at a time?"

Work to fix it one step at a time, which becomes harder when politicians don't hang around with the ones who brung em to the dance.

Robert
How is your budget (or the entire nation for that matter) helped by paying more for products domestically produced rather than from China? Are not the savings then available for other investments?

David
During the seventies, the US intentionally inflated the currency as a way "not" to pay their debts, that is always a legitimate concern, especially for Americans since they own the bulk of those dollars and have a considerable risk exposure in the depreciating asset. Fiscal conservatism means that one can be assured that that asset will not be depreciated as the government tries to pay the interest on "excessive" debt. What is excessive debt, I don't know, but first you would have to look at tax revenues and whether they are increasing at a rate sufficient to cover the debt. You seem to be saying that what happened 25 years ago, can't happen now. You're wrong on that. Although I'm not like Robert in predicting hyper inflation.

Robert --

The problem for the "strangers" -- whether it's China today or Japan 15 years ago -- is that while technically they could call in their debt and send the U.S. economy into a tailspin, it would be more of a "murder/suicide" effort, since exports to the U.S. are what drives their economic engines. Shut down America's ability to buy your goods and services, and without a viable alternative market out there, you shut down your own industries as well.

That doesn't mean some irrational leader in some future fit of pique might not try to do that anyway, but unless Western Europe managed to turn itself around and Russia and India develop much larger consumer economies, China can't call in billions of U.S. debt without being faced with the prospect of billions of Chinese widgets or whatever their factories are making sitting unused on the loading dock.

h:

No, it becomes harder when petulant dates storm off with someone else just because their beau danced with someone else one time.

John:

If someone cashed in our debt as a form of warfare why would we pay it?

OJ
One take on Robert's dilemna is that you look at the currency, (dollars) as the debt. Excessive volume of that currency will cause a depreciation of its' value. Chinese may start to demand more and more dollars for their products. That depreciation will effect our own citizens more than the Chinese, since we have a greater percentage of our assets in Dollars.

Actually the same effect occurs whether or not we are talking about bonds or the actual currency.

Basically OJ they don't need to demand a dang thing. They could simply accept only a stronger currency than the dollar. Regardless forget the Chinese, the issues involved would apply to any and all nations.

Obiviously you have never been dumped by a girl at a dance, or you would feel my pain.

H:

If the Chinese had that sort of power, they would use it. However, right now they're too busy worrying about their manufacturing jobs going overseas to countries with lower cost labor.

Party Unity, Party Solidarity, Party Ideology, Party Loyalty, the Party, the Party, the Party.

Remind you of any political cult from, oh, 1917 to 1991?

"For the Rule of the Party is forever."
-- George Orwell, 1984

Ken:

No. But one is reminded that the fascists and Bolshevioks came to power because their opponents were inflexible and rejected the basic compromises that would have stopped them.

David:

Shhhhhhhhhh....you''ll have all these nuts shrieking about the rising Burmese dragon...

You are correct David. I don't write clearly apparently.

Robert started this off by suggesting that

"OJ thinks being a net debtor is a good thing."

Later OJ in addressing John said

"If someone cashed in our debt as a form of warfare why would we pay it?"

The trade deficit is not a "debt" as originally stated by Robert, but I am assuming that he is thinking that the Chinese are buying our government debt in order to lift up the price of the Dollar in terms of their currency.

I was simply saying that failure to purchase anymore US government debt by the Chinese would have the effect of depreciating the dollar, hence the Chinese would hurt the US citizen just as much as our not repaying the debt would hurt the Chinese.

I repeat, I am for increasing trade with China, but there are no tricks whereby we screw them because they own our debt instruments. To the contrary we would be hurt more. Again Robert's argument regarding the trade deficit is not valid.

h:

They own ours. We don't own theirs. They're vulnerable unless you know of a collection agency that can force America to pay up.

H:

You come so close to saying it that you must realize that the same facts that cause you and Robert (and a host of others) to worry about the great leverage China has over us is also the nightmare trap that keeps your Chinese counterparts awake at night.

David,
Dollars can be spent elsewhere, they just have to be exchanged for the currency of the nation they would trade with. The Japanese have not done so because they wish to keep the dollar strong and their own currencies artificially weak. The Chinese keep their currency pegged to the dollar, but they are willing to keep their dollar reserves for now, although I wouldn't be surprised if they are exchanging some of it for gold.

As long as their are investments in the US that will provide an acceptable return, they are happy to keep their excess dollars here. But with negative real rates on short term dollar investments, and historically low yields on longer term US bonds, they are making little, and are at risk in a rising interest rate environment to large scale losses.

The rising asset prices you are talking about are artificially high - they are bubbles. Don't count on then continuing to do so. The excess dollars have been going into the equity and asset backed (mortgage) markets. Inflated currencies lead to asset bubbles. Once they start to deflate, the economy will be hit hard.

Debts have to be paid, and the more debt that the government and consumers take on now, the lower our standard of living will be in the future. Our current pace of borrowing and cosumption is not sustainable.

Conservatism used to mean deferring present wants in order to build future wealth. Today we are encouraged to consume as fast as we can, and to even borrow money to do so.

Robert:

What are you talking about? We're the least indebted society of modern times.

OJ, you've got to tell me where you are getting your 'facts'. Here's a link that says otherwise. http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2004/IO_07_04.htm

Robert - Bill Goss is obviously a better bond market analyst than I am. But his article makes no mention of the assets financed by the debt. $500K of debt offset by $500K of assets looks worse than $100K of debt offset by $100K of assets when you only look at the debt side. The first chart shows the debt as % of GDP spiked during the 1930s (combination of low GDP and less equity market activity) and then trended down and leveled off until 1980 when it took off. One would suspect financial market innovation and tax laws encouraging debt helped this occur. One of the benefits of the Bush tax cut on dividends was to encourage more dividends and less debt issuance.

Robert:

1. You'll have to decide whether dollars are usable anywhere, or whether they are debts of the US government. They can only be one or the other. I agree that you can use them as a medium of exchange in other places, but only because people believe that they can come here and get one dollar's worth of value in return. However, you still haven't explained why, when the Chinese give us a car and we give them some dolars, we are the ones who should be worrying.

2. As I noted before, no one actually lives their lives the way you suggest. My wife and I buy lots of things, but all we sell are services. Why is that ok for me and not ok for the country?

3. The Chinese are trying to invent perpetual motion. They have to keep the Yuan fixed at an artificially low level to sell us things. To keep the Yuan undervalued, they need lots of dollars. To get lots of dollars they have to sell us lots of stuff. To sell us lots of stuff, they need to keep the Yuan articificially low. We are not the vulnerable partner.

4. All assets values are bubbles? Seriously? Then we'd better borrow like there's no tomorrow, because there isn't.

5. As it happens, all of these bets on rising asset prices are being made by financial professionals. That doesn't mean they can't be wrong, but it does mean that they're being paid to take these risks.

6. Of course people have borrowed a lot over the last few years. The banks have been having a money sale. More borrowing was the point. In any event, consumer debt as a percentage of income and household debt as a percentage of household assets are both under 20% and the current account deficit (which I think is completely irrelevant anyway) is about 5% of GDP.

7. We are a young and growing country. Compbine life-cycle savings, that is, we borrow when we're young against our expected wealth when we're old, thereby smoothing out the bumps, with a young and growing population, and you'll always have what looks like ever increasing debt.

8. You come close to denying life-cycle savings when you say that "Conservatism used to mean deferring present wants in order to build future wealth". Other than the fact that lots of people who are not otherwise conservative say that, I have no idea why you believe it.

Robert:

http://news.morningstar.com/news/DJ/M06/D10/200406101315DOWJONESDJONLINE000664.html

As Ben Stein said:

At some point, if you owe the bank enough money, you own the bank.

David:

Great post, but how do you convey this to a public to which you are preaching self-reliance and fiscal prudence without coming across like a European aristocrat who says the rules of fidelity are fine for middle class marriages, but not necessary for his? Most economic thinking is inaccessible to the average joe, who vaguely understands the need for debt in a time of crisis but is instinctively uneasy about it as a way of life. Surely restraint in government borrowing and debt is part and parcel of an ethos of restraint in government generally.

I realize we may be talking apples and oranges just as individual self-reliance isn't a rationale for autarky, but isn't there a conflict between sound economics and healthy politics here?

David
You seem determined to indicate, that I and Robert are worried about the debt of the US govt., the debt of US citizens, the debt of US corporations or something. Robert seems to be worried that the debt. I KNOW OF NO DEBT THAT EXISTS BY ANY OF THE ABOVE MENTIONED ENTITIES THAT DOES NOT HAVE ADEQUATE INCOME STREAM TO COVER INTEREST PAYMENTS OR EVEN REPAY THE DEBT. (obiviously, in the case of individuals, or corporations, there may be some that will go bankrupt, but not the total groupings)

I agree with your last post above this one.

However OJ seems to indicate their is a retaliation against Foreign creditors that will extinguish debts of the US GOVERNMENT, without damaging those individual citizens, US corporations, who also own debt instruments of the US government. Will not happen, because the individuals, and Corporations in the US will suffer the resultant depreciation in the value of the US dollar.

h:

You're kidding right? The whole global economy would collapse and you're worried about the value of the dollar?

H:

I think I agree with your last post. My point isn't so much that we can screw China without screwing ourselves (I'm not sure that's OJ's point, either), but that our trade makes China much more vulnerable than we are. It also gives China a strong, direct interest in our stability and financial health. Now, the Chicoms are entirely capable of ignoring that interest (and the extraordinary pain that taking us down would cause their subjects) if they thought that the alternative was Chinese political instability. However, because the People's Army has become an industrial conglomerate and they have a growing middle class, at this point their interest in political stability is coupled with their interest in economic stability and growth.

Peter: It's all our own fault. After WWII and through the 70's, the conservatives really pushed "fiscal responsibility" (i.e., no deficit spending) because we believed in it and hoped that it would rein in the liberals. That second hope backfired and Bob Dole became the tax collector for the welfare state. I think we now need to say that there are two equal and independent conservative goals: cut back on the scope of government, particularly the central government; and keep taxes low. The two should not be in any way dependent on each other.

Seperately, we need to come up with a new way of thinking about the federal budget. The problem is that federal budget accounting is too screwed up to use. We don't correctly account for the money spent or for the money collected. The major problem is social security, but there are others. The result is that we end up talking as if we were capitalizing our expenses ("investing in the future") and expensing our capital investments.

What we need to do is seperate out our current expenses from our capital investments. There is no reason that "the children" shouldn't be expected to pay for that portion of the infrastructure from which they benefit. On the other hand, there is no reason that "they" should pay "us" for those programs from which we get all the benefit of the expenditures. We also need to realize that we are all the "spenders" and the "children" as we pay off the debt of those who came before us and incur debt for the children to pay off.

Then there is the question of whether the absolute level of federal spending, as well as the relative level of federal spending compared to tax receipts is a "conservative" issue. My current answer is, "no" but I'm still thinking about it.

Can I just interupt for a second to say, so far, this is the best thread in weeks. Thanks fellas. (which, unfortunately, is a clear indicator of my propensity for lame posts)

OJ

"You're kidding right? The whole global economy would collapse and you're worried about the value of the dollar?"

Funny
Remember the movie "Butch Cassidy and the Sundance Kid". They were trapped on a canyon wall over-looking a stream 100 feet down. As the posse approached with guns ablazing..

Butch: "There's only won thing to do, Jump"
Sundance: (concerned) "but I can't swim"
Butch: " You f***ing idiot, the fall will kill you"

Kill everyone else, hurt us briefly, as the last Depression.

"1. You'll have to decide whether dollars are usable anywhere, or whether they are debts of the US government. They can only be one or the other. I agree that you can use them as a medium of exchange in other places, but only because people believe that they can come here and get one dollar's worth of value in return. However, you still haven't explained why, when the Chinese give us a car and we give them some dolars, we are the ones who should be worrying."

When the govt issues debt to cover the budget deficits, it is creating money. Debt creation = money creation. When money creation is in line with real wealth creation through products & services (GDP), then the dollar maintains its value. When it grows faster than real wealth, then the value of the currency is diluted, and we have inflation.

We should both be worrying. The Chinese need to worry about any destabilizing of their premier trading partner from an unsustainable consumption binge on our part. It is not so much that we are running a trade deficit with China as the fact that our overall trade deficit with the world is growing. This is because our labor resources are not competitive in the global marketplace, and becoming less so. The dollar will continue to deflate until this imbalance is rectified, at a lower level of real income for the average American worker.

When the currency inflates, getting one dollar's worth of value becomes harder. It is only through currency depreciation that foeign holders of dollars can achieve this. If they can't find a dollar's worth of value in the American market, they will sell their dollar for another currency and buy what they want there. The buyer of the dollar will expect a discount on the dollar so that he can get "a dollar's" worth of value here.

The dollar depreciation is the hidden inflation that we have wrought through overconsumption.

yet prices keep falling

"The trade deficit is not a "debt" as originally stated by Robert, but I am assuming that he is thinking that the Chinese are buying our government debt in order to lift up the price of the Dollar in terms of their currency."

h-man, if our balance of trade is a net negative with our foreign trading partners, then either the amount of dollars in circulation in the US contracts (net of GDP growth), or new debt is being created. It is largely the latter.

Robert: I don't really get what you're saying. Issuing Treasury Bills is what the Fed does to tighten the money supply. Money in, T-Bill out reduces the money supply. This link showing the percentage change in the money supply (M3) monthly since 1959. At the moment, it is growing relatively slowly, and was decreasing at the end of last year.

"5. As it happens, all of these bets on rising asset prices are being made by financial professionals. That doesn't mean they can't be wrong, but it does mean that they're being paid to take these risks."

Read "When Genius Failed", the story of the LTCM collapse. Some of the brightest financial professionals in the world were behind that hedge fund, and the rest of the financial establishment lent them hundreds of millions of dollars at extroadinarily favorable terms based on their reputations alone. They had the perfect system that couldn't fail. Guess what? It did.

My faith in the financial profession has taken a huge hit in the last 4 years. You are right that they are paid to do what they do, but they do what they do with other people's money. They are also paid for short term results, not for looking after the long term interests of their clients, their companies or the economy as a whole. They also work for multinational firms, so their allegiance is to their firm, not their nation. If they can make money by shorting the dollar, they will. And also they expect the
Federal Reserve to bail them out if something really nasty happens, so there is little incentive to be overly concerned with risk.

But generally they invest because there are gobs of dollars being shoved into their hands by Chinese and Japanese bankers who received them from Americans buying stuff on credit. They have to put those dollars to work. When the stock market got too pricey, they put the dollars in bonds and mortgage backed securities. So the Chinese bankers re-lend the Americans borrowed money back to them to re-finance their homes, take out equity and buy more stuff from them. Now that all of the financial markets are maxed out, where are they to put their dollars? Elsewhere - that is why the dollar is dropping.

David, it is just the opposite. The government takes the investor's money and pays it out to whoever it owes, so the dollars are still in circulation. At the same time, the bond-holder has an asset that is a money equivalent, he can sell it and get his investment back. Debt issuance expands the money supply, debt retirement contracts it.

Robert: This isn't really a matter of opinion. When the Fed wants to tighten the money supply it sells Treasury Bills, because T-Bills are not part of the money supply. Unless you're suggesting that the Fed is actually expanding the money supply when it thinks it is tightening?

OJ, Robert, David

True story,(not a joke) a friend of mine with a
bad heart, died about four weeks ago. It was sudden and over in about an 18 hour period.

His aorta, ruptured, and he damaged his kidney, and they were about to amputate his leg.

I should say that he had been a futures trader, who drank and smoked heavily. Had a stroke and was forced into retirement, 12 years ago.

In 1970 to 1980 he traded Gold and Silver, He made over 40 million dollars net over that time frame.

His wife visited him and he was in severe pain, which the doctors would not help relieve.

His last three statements to his wife, before he died, was 1)call "so and so" I won't be able to meet her, 2) I'm not afraid, and

3) BUY SILVER ITS GOING THRU THE ROOF.

So what do you think? totally true. He recommended Durban Deep (drooy) to me at .79 about four years ago. It's now in the mid 2.00 I think. (has within that time frame gone as high 5.00.) Do not buy Drooy by the way, which I could explain, but I don't want to, only mentioned it to tell you he has called somethings right.

h:

Never take Simon's wager:

http://www.overpopulation.com/faq/People/julian_simon.html

OJ I am familiar with Simon's view, and am in total agreement. As a matter of fact his view that natural resources are infinite, is an idea I constantly pretend is my own idea.

However not perfectly applicable to monetary metals, such as gold and silver. I am not recommending anything really, as in the above thread I said that hyper-inflation was not likely.

h-man

I bought shares of Wheaton River Minerals (AMEX:WHT) a gold and silver producer, around $1.00, today it is at $2.90. Gold and Silver are in an early bull market phase, for all the reasons that OJ & David are denying.

The problem with Simon's hypothesis with relation to Gold and Silver is that they are rare metals, so new sources are very hard to find. Once they are found, it could take up to 5 years to build a mine and put it into production. And, as you mentioned, they are monetary as well as resource metals, so the demand is influenced by monetary factors. With most of the world's nations trying to debase their currencies in order to keep their economies competitive, gold and silver investment demand will increase.