Re: Kiss U.S. Hi-tech goodbye



On Mon, 19 Dec 2005, Old Pif wrote:


Straydog wrote: 

China is also in trade deficit with all of its surrounding business
partners in its surrounding countries. China also needs to understand that
it _needs_ the USA or its economy will collapse.

Since $ billions of USD flow into India, and buy up jobs of 5-10X as many
Indians, and if that flow stops, its going to hurt more Indians than
people in the US. Better think about that.


That is what I am desperately trying to explain to Kamal. The best
under the circumstances India can do is to create its own internal
consumer market and involve most of the population in productive
economy. The worst it can do is to rely on only one or two market
segments like IT. In the later it could  face all banana republics
problems that stem from undiversified economy. If as reported lately
Romanian Gypsies started programming it is only a matter of time when
others bite a pies of pie from Tata, Inforsys and alike.

Old Pif


Well, ... maybe .... yes. I'm still trying to read broadly on economics and banking. Just in today's WSJ an article on how if our consumer economy slumps and there is a fairly big cutback in our buying, it will hit China's exports to the US much harder than our mostly service economy. However, also, if we (the USA) have a lot of layoffs, then all those people (except for COBRA) will lose their company sponsored health plans (also, many companies, in tightening their belts, are already dropping company sponsored health plans). So, what that means is less insurance plan members, thus, less work at offshore sites like India. You can come up with a lot of these qualitative scenarios where all those nice big new impressive Bangalore buildings get emptied out if _our_ economy slumps. And, where will Indian IT workers go looking for jobs?

Kamal is limited by his knowledge of only a part of the worlds flows of money. He bashes our high cost of living (and its associated high standard of living) without realizing that in a society like ours, the prices of EVERYTHING (products, services, and salary) are higher while in his society the prices of EVERYTHING are lower and the only time you can
make a comparison is if you can trasport work from one place to another
place and pay less in India for some small part of our service economy. Otherwise you can't even say costs in India are lower. Indians make less, so they can't buy more, and so prices are lower. They don't notice this uless they look at the exchange rate or what we have and our costs.

They key that makes labor cheaper in India compared to the USA is the exchange rate. The only time costs for a given parcel of work done can be lower is if the work can be shipped to India. Look around the USA, out on the street, and ask how many of those jobs can be shipped to India. Not that many. And why don't the Indians making lots of $USD want to convert
to rupees? Because if they start buying rupees with all the tons of USD,
then rupees go out of circulation thus boosting the price of rupees, thus spoiling the nice exchange rate that makes it easy to get work pushed at them. So, they have almost no choice but to take the excess USD that they have and start buying US assets (treasury bills, collateralized debt obligations, and land/companies/buildings and hire anyone, including US guys or Indian guys in the USA, to work in the USA and pay them USD). Just like China: take the excess USD and start buying up assets in the US (treasury bills, cdos, and land/comapnies/etc).
And that line of thinking is the basis for a large part of the world "debt crisis and debt financing (i.e. USD coming back into
the USA to finance our debt)" Even in a couple of the books I'm reading it says that the USD has become the new "gold standard" (and its been that way since everyone went off the Bretton Woods system). And, nobody has any solution that might bring the new situation back into equilibrium. But, all the while, all these 3rd world countries are experiencing remarkable increases in their own material standard of living, going into debt themselves, etc. Also in today's WSJ an article on how our stupid potatoe chips are selling like mad in China. A couple of days ago it was AIG (with CEO crook Hank Greenberg) selling life insurance in China. Sales going up linearly some 15%+/- per year the last couple of years.




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