Monday, December 06, 2004

Meet Mr. Bond Market

Still worshipping the Almighty Dollar? The end of an era is at hand...

"It is generally accepted these days that the continued debasement of the U.S. dollar is a positive. It is also generally accepted to expect that as the buck declines, the U.S. trade deficit will correct itself, like a self-cleaning oven, we have been led to suppose. But upon pondering this 2004 rule of thumb, a question came to mind. Perhaps you can answer it. Here goes:

"At what dollar/yuan (or dollar/won or dollar/anything) level will overseas manufacturers lose the cost-competitive edge to where, say, a Wal-Mart Stores (WMT, news, msgs) (or any other U.S. entity that's contributing to our gaping trade imbalance) will eschew Asia and opt for domestically produced goods? Simply put, how low do we have to push the buck before a 42" TV is cheaper from Sheboygan than from Shenzhen?

"Right off the bat, I'd have to surmise that we won't ever experience that phenomenon, because long before it came anywhere even close to that, the inflation would have eaten us all alive. . . . You still wanna argue about the benefits of a weaker dollar because this will lower our imports and raise our exports with a view to meaningfully closing the trade gap? This of course would encompass the glitch of how to market a U.S.-made $2,200 Maytag Neptune washer/dryer combo to that guy in Nanjing who is pullin' down a cool 76 cents per hour. . . .

"But before we wrap up this diatribe, how about this eye-opener: There is apparently a leading manufacturer of large kitchen appliances I read about somewhere (which was not named, though I continue to dig) that has stopped using conveyor belts in its Chinese factories. Is that right? Yep. So what have they determined is a cheaper option? They hired Chinese laborers to manually lug the stuff around."

Meet Mr. Bond Market

We don't export enough to solve our trade deficit. What we need to do is stop consuming beyond our means and start saving, which is what will be forced upon us eventually. We're slowly moving toward the point in the process where the rate-making decisions will be taken away from Easy Al and the boys, and given to Mr. Bond Market himself.

Haven't heard of Mr. Bond Market? An interesting fellow. Fluent in Mandarin, Korean, Japanese, etc. He will soon be calling the tune in the mortgage market, and -- oh, by the way -- he will therefore have more than a little to say about the price of houses going forward.

Dollar's plunge is a blight, not a benefit

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