Factory Orders Jump!

Posted by Ray on July 2, 2009 under Main, Markets | Be the First to Comment

New orders for U.S. manufactured goods jumped 1.2 percent in May, their largest increase in nearly a year, the Commerce Department reported on Thursday, beating analysts’ expectations.

This is a non-event and supports nothing. If we actually were a producing nation this would mean something, but we long ago exported that to China. I know, the Chinese economy is on fire and showing a rebound, but we are uncoupled from that. In fact the decoupling of the US and Chinese economy has been happening for a longtime.

We have to remember that out of 6 billion people world wide the US has only 360 million. That means China can grow dramatically while the US is still fighting for its economic life. The Chinese will simply sell to other countries where demand is stronger. I mean look at how we conduct our economic business.

We borrow from China to buy Chinese goods, how is that going to work long-term? Its like telling the Chinese, buy our debt so we can give it to Americans, in turn Americans will buy your products and have their jobs. Eventually the Chinese, who are no dummies, will say why don’t we just give this money back to our people so they can buy our goods and keep their jobs? We have no answer for that, really they do not need us, sure we are a huge market, but at the end of the day they could sell to themselves and still have a robust economy.

This brings us to the dollar, which is strong today given weak employment numbers and causes equities to fall along with the bad news. anyhow will the Chinese continue to buy the dollar? They have to is the general consensus from economists, but no they do not. We will be issuing $3 trillion in debt a year and the Chinese owns 1 trillion of our debt right now, essentially US dollars, why would they buy more of our debt? Because they would take a loss on the trillion they hold now?

Let’s get real, do you think they are worried about a loss on a trillion or do you think they would be more concern over losses on 3 or 4 trillion? they are worried now so we say don’t worry, keep buying, but why would they risk more to support the US? They are moving into the shorter term US treasuries now, which is a red flag, and frankly if they wanted their money we could not give it to them because we depend on them to buy our debt to pay off older bonds! See the problem?

They do not need to keep dollars and they will not continually risk more money when we can’t, and they know it, pay back our debt. Therefore, they could sell everything now and still be in better shape than we think, but the US would be in trouble. This is why we need solid economic policies and we need the free market capitalists to get us out of this mess.

We WANT things to get better, contrary to what Dennis thinks, but the ridiculous policies and practices of our government has screwed us.