The explosion of Japanese property and equity markets in the 80s, which were then export to the US, was a result of a combination of Japanese fiscal spending on public works/real estate projects, which provided collateral for Japanese corporate borrowing and further allowing a process of reciprocal sharing holding, which artificially drove up the demand for equities. It was basically the result of Japanese losing competitiveness due to the Plaza Accord and aggressively using financial income to derive corporate earnings. Can't blame that on Greenspan necessarily.
That's not necessarily getting the whole picture. You get high real estate prices because of natural supply and demand. Japan has way too much money and way too little land. So the result is to be expected. Same with other parts of Asia.
Schiff is right on the money a lot of times, and he's right in this case. In the long term, there is no doubt that the incoming inflationary pressures, which I had even said in this thread was going to crash the value of Treasuries, is going to scare away a lot of Asian investors. Private investors like the Japanese boomers may be the first to go, since they had to redeem their funds anyway to fund their retirement. Small central banks in Asia may go at the sign of trouble. So in the next two years, it is very likely that the drastic expansion in high-powered money will fuel inflation and will produce a hard landing for the dollar. Not right now though. Coordinated de-leveraging has already led to the liquidation of dollar assets held by hedge funds and private equities overseas, and private investors are pulling back as fast as they were in the Asian financial crisis. Brad Setser estimated that $63 billion of american equity investments overseas has been pulled back, again a demonstration of where wealth and capital is. The result? Massive debt problems and currency debasement problems for countries that don't have the Fed swap lines, such as Russia and Brazil. At this point it's become a positive feedback mechanism, where as it gets worse in Russia and Brazil, the money is fleeing those countries to the Treasuries. David Goldman is absolutely right in this regard, and facts and data support his argument.
There is a short burst in Treasuries but not in the long term. The problems remains in investing in dollar denominated assets which is expected to rapidly lose value in the coming years once the US Treasury starts printing out lots of money to make up for the massive deficit shortfalls due to the bail outs. In order for the US Treasuries to remain attractive, they have to raise interest rates to encourage savings and more foreign investment. The next wave of economic crisis will center on this.
Lots of money is being poured into China faster. Since the time of the crisis broke, China went from under $2 trillion to over it. Americans pulling money out of Russia and Brazil isn't necessarily putting the money back into the US, it may just as mean they're putting the money into another country.
Credit is no longer cheap because the banks are slowly recapitalizing through purchases of cheap assets liquidated by Hedge funds and funding those purchases at 1% at the discount window. It's going to be a slow process, and during this process the Fed itself has aggregated so much capital that it may very well directly intervene in the mortgage and consumer credit markets to ease lending.
Credit is no longer cheap because the supply has run out while the demand keeps getting bigger. The Fed doesn't have that much capital either in relation to the demand for credit and the deficits that are occurring. Just remember which country has the biggest public account deficits in the world and exactly how much that is.
Wages were artificially driven up by the Unions, which bleed corporate retained income and doomed the Big Three for failures during rough times.
The average UAW worker gets around 26 to 28 dollars an hour. Its just a few dollars more than his Japanese counterpart. But he gets around $40 dollars an hour worth of entitlements after he retires. Why? Because, unlike his Japanese counterpart, the US worker lacks a universal national health care safety net.
But wages are ultimately determined by demand in the goods and labor markets, more so the goods market. Wages are derived by labor which are then stored as claims on someone else's labor in the form of fiat money. This way, you wouldn't have to go through the trouble of directly locating someone who needed your labor at the same time when you needed his. The value of your labor measured by wages is then the demand that other people have for your service. By giving providing you a five dollar bill at a hot dog shop, for example, a counter-party has in fact just given up a portion of his claims on labor for the good and service that you offer. So the value of your wage is determined primarily through the goods market. When the corporation pays a CEO 8 million or whatever, its in fact trading the claims of services that it has earned for the CEO's productivity, and in the process forgoing alternative claims on the productivity of other people or assets. So don't just think the salaries are mindlessly determined; there is always great opportunity costs involved. The fact of the matter is, no one is trading their claims on labor for overpriced domestic manufacturers because people around the world can make the same product at a lower price, which is a saving in terms of opportunity cost for people in this country. People used to clamor back in Britain around the time of the industrial revolution that freeing up labor in agriculture for manufacturing was a big mistake, and that Britain would ultimately be worse because it would have to rely on others for agricultural commodities. Today's battle cry for manufacturing carries the same tune.
Wages are not completely determined by market forces. There are the unions negotiating and governments mandating. Not everything are "wages" or labor that goes directly to the value of the product as opposed to benefits and entitlements being tacked on to the cost of the product. These additional costs do not increase the value and performance of the product.
When the Big Three under, don't expect anyone to fill the vacuum, not with our current entitlement environment.
On the issue of productivity, having entitlement and benefits added to the total wage does not make a person "greater productivity". It only means you got a higher social cost, which is in fact inefficient. Costs of social welfare, which is the benefits and entitlements, are uncompetitive factors being added to the cost of each product.
When a CEO gets paid 8 million dollars worth of salaries and entitlements then bring his company to the brink, I don't think he is productive at all. For that matter, why are Japanese CEOs being paid much less when their companies are far more competitive?
"The contract negotiated with the UAW in 2007 set the average auto worker's wage at $28. The $73 number was arrived at by taking all the costs of retirement and healthcare programs and dividing by the total number of hours worked by all employees. But those total numbers include the costs for the hundreds of thousands of retirees. US auto companies have been in business for nearly a hundred years, and there are still a lot of retirees who are alive and collecting their pensions. The actual value of benefits received by employees is around $10/hour.
Foreign auto companies have two big advantages here: First, the workers who build cars in foreign countries are mostly covered by government pension and healthcare systems, so the manufacturers are not burdened with those costs. Secondly, their local factories here in this country have not been in business long enough to accumulate a large army of retirees. For the local factories, this will even out over time, but in the interim, the Big Three are operating at a cost disadvantage. "
