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Handmade vs mass-produced


#1
    while you seek to draw the distinction between mass produced
goods and one-of-a-kind, handcrafted works, the schlock sellers
will be hard at work seeking to blur that distinction. 

Hello Lee and others; I agree with you . . .vigorously. . . if that’s
possible. Every time Madison Avenue sends out their little spies to
find out what products people are responding to, they find another
thing that someone innovative has come up with that they can co-opt,
albeit a cheaper version. That is the nature of capitalism. But the
marketplace works to our advantage in another way. What is deemed
most expensive by manufacturers, and the thing most easily
controlled, since it is believed to be in abundant supply, is the
cost of labor. That goes for manufacturing, but even more so in the
case of local retailing. Granted, you can find someone in another
socio-economic system, not always and only overseas, that you can
exploit to make the stuff. But finally, it has to be sold by someone
who speaks the mother-tongue. In short, you can’t pay a high-school
dropout with homemade tattoos minimum wage to sell quality products
at a cheaply appointed venue any more than you can convince someone
in a tuxedo to ride on a bale of hay in the back of a pickup truck to
a night at the opera. I even find that most chain jewelry stores,
and they are the ones who will have the buying power to distribute
these pseudo-high end products, are staffed by people who are
stunningly ignorant about the product. Eventually, and actually
pretty soon, it becomes apparent to anyone but the most banal
consumer, that this is all shuck-and-jive. Crap being marketed to
suckers by people with no commitment to the product. The discerning
customers are the one’s we want anyway. Granted, these new ads, with
the scent of DeBeers all over them, selling Keepsake diamond jewelry
at Wal-Mart, are pretty slick. But it’s Wal-Mart! I know, I’m a
hypocrite, I shop there, but for Tupperware, not for jewelry. We know
what income demographic is going to buy that stuff, and by the way,
they are never going to buy quality hand made jewelry. These people
think that Red Lobster is a high class restaurant. Now what about
the really high priced junk? Let’s say, for instance, Rolex. The
cognoscenti know that it’s a watch for a Beverly Hills Dentist, much
along the lines of Mercedes (conspicuous, that is), and that anyone
with any real class will get a Patek Phillipe and not give a hoot if
the new-money middle-brows recognize it. So there you have it. Look
for people with real taste, and to finally agree with you once more,
if you can’t find em, makeem. Educate! I mean, are any of you
going to look at a Rolex the same after reading this? Not convinced?
Ask a watchmaker, and I don’t mean a retro-fitter, I mean someone
who can make a watch (if you can find such a creature any more).

David L. Huffman, gettin real snobby too, Scooby-Doo.


#2
Granted, these new ads, with the scent of DeBeers all over them,
selling Keepsake diamond jewelry at Wal-Mart, are pretty slick. 

I LOVE this kind of discussion, I always look at who printed what
ever book I am looking at and find that almost any book on diamonds I
look at is somehow DeBeers . How does this tie in with the low end
jewelry discussion? Well, I have seen Walmart touted as the largest
seller of jewelry in the nation or maybe even the world. I have also
read recently that Walmart only keeps 4 cents of every dollar they
sell. So , while I envy Walmarts advertising budget, I look at the
bottom line and just wonder. I think a heavy dose of skepticism is
necessary in any situation, especially business. How do WE market to
the huge market available in the US? I have ideas like separate
yourself from the pack, market to your strengths, try to be realistic
about your market. How do we make the larger public appreciate what
we do? We can’t do it on our own, I sure don’t have the money.
Museum curators, artists, trades people must work together somehow to
show the US public the value of our passion. But, wait, when we do
sell them our prices will have to go up because we can’t produce in
those quantities. Oh, the contradictions make my head spin. Back to
GIA and DeBeers, if I had a market like they do I would exploit it
like they do and embrace the largest part of that market, the low
end. After all most of the diamonds out of the ground are low end.
Sam Patania, Tucson


#3

Actually one of my friends is a watchmaker, but he works for
Cartier, in their repair division. (Every body wants to be his friend
around Xmas time!) I have heard the name “Patek” but have not actually
encountered any of their products. I must be too low-brow still. Till
next time, Betsy


#4

I have some pretty strong feelings about some of this stuff. First
of all, we (and yes this includes many of the Orchid members–or at
least the American ones) are the ones to blame for the move so many
companies have made to produce their products overseas. Americans
are obsessed with finding bargains and paying less for their
product. I can’t say that many corporations aren’t to blame for this
attitude, but the reality is that we have created a culture that is
obsessed with price. Until we are all ready to walk into a store
and pay a fair price, based on American wages, the jobs will continue
to fly away. When you are all willing to pay $1000 for your TV set
instead of $300 and $2500 for your computer instead of $500 then jobs
will begin to flow back into the states. You can blame the big
corporations all you want but they are more often than not driven
not just by profit margins but also by what the consumer is demanding
from them. This is the reason that places like Wal Mart are so
successful. The consumer (yes that means you and me) demands lower
prices. If we weren’t, places like this wouldn’t exist.

We have had a customer in lately who exemplifies this attitude
perfectly. He and his fianc�e have been in looking at one of the
simplest bands we do (I have to make stuff like this to satisfy those
with no imagination and pay the bills to produce the stuff for the
people who do). It has a small Lazare Diamond in it, although we
could put a somewhat bigger one in.

They came in repeatedly, looked
around at other stores and still came back. In talking about prices
we separated out the price of the band from the price of the diamond
so that the customer would understand that if we put a bigger diamond
in what the cost would be. However, we have a two tiered pricing
system (clearly explained on one of our handouts) for when a
customer buys a stone from us and when they bring us a stone to work
with. The logic behind this is that we can’t afford to offer the
guarantees we do on some of our bands if we don’t also sell the
customer a stone.

Well as often happens, the customer only heard what he wanted to,
which was the price of the band with one of our stones in it. Then
he went price shopping. Sure enough he was able to find someone who
was willing to sell him a Lazare Diamond for less then we would and
he came back in to see if we would match the price. Not only did we
refuse but we then reminded him that the band would double in price
(it’s embarrassing how little the band is priced for when we put our
own stone in), thereby wiping out about half the savings he thought
he was making.

I spent half an hour on the phone with him, listening (politely I
might add) to him whine about how he had a budget he set up and had
to stay within and how this was going to put him over the budget. I
politely explained to him that I had expenses (including American
labor) to pay and that I couldn’t price my goods based on what other
jewelers might be able to charge (especially since the one he was
talking about was up in New Hampshire where everything is cheaper
than in the urban area we are in), nor could I base it on his
budget. He continued to whine and ask for discounts on the ring for
half an hour.

I finally agreed to bring the price of the ring down by $150 but only
with the understanding that we would no longer offer our usual
guarantees on it. He still hasn’t been able to make up his mind. I
bring this experience up because this is a typical example of the
American way of thinking when it comes to pricing.

The issue isn’t whether the product is well made, or where it’s made
or who it’s made by—it’s simply how much money do I have to spend
and if you won’t sell it to me for the price I want to pay I won’t
buy it.

Sam P, I usually agree with what you say but I have a few comments on
your latest post.

How do we make the larger public appreciate what we do? We can't do
it on our own, I sure don't have the money. 

We absolutely can do it on our own, one customer at a time. Create
a product that differentiates you. Talk to every customer who comes
in your store about what makes your product different (i.e. better).
Advertise to the best of your ability and to the markets you know
will appreciate your work. Market yourself!!!

Back to

    GIA and DeBeers, if I had a market like they do I would
exploit it like they do and embrace the largest part of that
market, the low end. 

Actually if you’ve been following the trade mags you would know that
DeBeers is moving up in the marketplace, not down. They have clearly
made a decision to market to the upscale market in their latest move
to force their buyers to brand their products. This has been a major
shift in their marketing plan and it will have an impact on everyone
for years to come. As an aside here, I don’t know how GIA fits into
any of this as they do not control the diamond marketplace nor do
they have anything to do with pricing so let’s separate them out of
the discussion. Also I know that many of you look at DeBeers as some
big, horrible, corporation but I would like to remind all Orchidians
that if you have ever sold a diamond and made even $1.00 off of it
then you have benefited from their existence.

Sorry this is so long, and as usual the caveat is attached that it
is all my humble opinion. Well actually I’m rarely humble but that’s
why I’ve gotten to where I am today.

Daniel R. Spirer, GG
Spirer Somes Jewelers
1794 Massachusetts Ave
Cambridge, MA 02140
617-491-6000
@spirersomes
www.spirersomes.com


#5

OK, Richard-

Blurring the line between mass-produced and handcrafted; some
examples-

My wife and I attended an in-home tupperware type showing of
mass-produced junk jewelry (at a siblings request, she was hosting
the show.) The person selling the stuff is showing a stamped,
silver-plated faux tennis bracelet with swarovski crystal "stones."
She says “all of these stones are set by hand. This is an incredible
price for handcrafted jewelry.” I resisted the urge to commit
aggravated jerkocide, but it was brutally hard…

I go to a local art show, to size it up and determine whether I
should seek entry (it is a weekly show.) The show supposedly is
limited to artists selling their own work. There are five vendors
selling jewelry. Four are selling strung beads, the beads being
purchased stone beads with Bali style mass-produced silver spacers.
OK, so they selected the beads and did the stringing, presumably.
One of them has a sign saying "all jewelry handmade by the artist."
Hand-assembled would probably be a more accurate term. The fifth
vendor has a table full of silver jewelry, all conspicuously mass
manufactured, all conspicuously Balinese in style. Nothing there
conceivably made by the vendor. I ask innocently if they are the
metalsmiths- they say no, they have a factory in Bali and they are
the “designers.” Of course they are the designers; it would take a
couple of Americans to come up with Bali-style designs for Balinese
silversmiths to produce…

These are not unusual incidents. To the contrary, I rarely go to an
art show where jewelry is offered, without running into at least one
vendor who is selling jewelry which they did not make,
misrepresenting themselves as the “artist.” As long as there is a
percieved value in jewelry being handmade or one-of-a-kind, there
will be some misrepresenting it as such.

I agree that one-of-a-kind, handcrafted work creates a market. In
fact, I’m betting on it. And for that reason, I don’t like to see
people cashing in on that market by misrepresenting their wares.

And for what it’s worth, all of the stones I use are cut either by
myself or another US lapidary. While I don’t have a problem with
lapidaries from other countries, per se, I am acutely aware that
stones cut in other countries are frequently much cheaper due to
factors such as child labor, sweatshop labor, slavery, non-existent
safety environmental regulations, etc. The way that we spend our
money changes the world. I refuse to consider price points in an
ethical vacuum. I believe that exploitation-free jewelry can also
create a market.

Lee Einer
Dos Manos Jewelry
http://www.dosmanosjewelry.com


#6

P.S. to yesterdays post. I “mass produce” cast rings, earrings,
pendants, here in Denver, competing with overseas, and I have
customers because my quality is better, and delivery time is better.

People here in Denver will buy from me because I have designs and
quality that Blakes does not have. It is a small part of my business,
and it allows me to get my own designs and silver findings cast and
finished for free, silver and labor, and still make a small profit. I
have two full time employees and two part time that work between
manufacturing, repair, assembly, designing, and retail sales.

I cast assembly parts for several jewelers that do shows, and it is
always inspiring to me to see what they create, and what they can
sell.

My style is so different, there is not much of a chance of my
competing with them.

I have one wholesaler who travels around and takes orders on very
commercial “new age” stuff, I have a three to four week turn around.
I sell my own designs through my brick and mortar retail store. If
someone came along and wanted 10,000 pieces, I seriously consider
sending it overseas.

I don’t see it as unethical or immoral. It would be faster and less
expensive and might simply make sense for me to fulfill a request
like that. More profit is not evil.

I respect other artists for how they determine how to be profitable
in their business and get their needs met.

There are a lot of sides to this issue. It depends on what your goal
is. Some people like to travel, and have goods made overseas to
support being able to travel frequently.

There are people around the world who are not fortunate enough to
have the time for a discussion like this. They have to work for a
living. Making schlock.

Richard Hart


#7
    I have heard the name "Patek" but have not actually encountered
any of their products. I must be too low-brow still. Till next
time, Betsy 

I never meant to imply that someone needed to know all about fine
watches to disqualify them from “low-brow”. And the word I used was
"middle-brow". What I meant was that anyone who thought Rolex was a
quality watch was getting their opinion either from other
conspicuous consumers who value that image (firsthand or
through popular notion), or that the opinion came, directly or
indirectly, from someone marketing Rolex, such as a retailer or
Rolex’s marketing division. Anyone who set about acquiring a Rolex
to impress people that they had good taste in watches would,
therefore, be naive. Anyone who set about to impress people that
they have money because they wear a Rolex is, in my opinion, heading
post haste towards that “low-brow” distinction, skipping right over
middle-brow, with no style or originality whatsoever. Might as well
rent the Lexus for the date, and buy a fake Rolex, then having made
your bed, lie in it. These are the people who will buy a 5 carat, I3,
L-M colored diamond that glows blue with fluorescence in daylight.
Bigger is better so live in a MacMansion subdivision overlooking a
golf course and drive a Lincoln Navigator. Crass. Some rappers and
drug dealers have better taste. Before I’d spend thousands on a
watch, I want to know what the experts think, not the people with a
vested interest in selling you their product.

David L. Huffman


#8
    Until we are all ready to walk into a store and pay a fair
price, based on American wages, the jobs will continue to fly away.
<snip> 

The problem of inexpensive imports occurred when import taxes,
duties and tariffs were lowered. Until they are raised again, we will
continue to send our dollars and jobs overseas. It’s that simple, and
highly unlikely to be resolved.

On the other hand, economic health (American and world) is a
carefully thought out and intense subject, with some of the best
minds in the world constantly working toward improvement. Problems
arise when corporate heads do not listen to those who know, thus
making decisions dangerous both to their companies and the economy in
general.

Jeffrey Everett


#9

I’ve been thinking quite a bit about this question, because it is a
line that I need to handle with my clients.

At shows, the vast majority of my pieces are hand-crafted. Some are
hand-made (per the distinction discussed here in the past).
However, I do carry some mass-produced complementary pieces designed
and selected specifically as “add-ons” to hand-crafted pieces. For
example, I have a line of silver mesh jewelry, where I hand-make
little bowties out of silver mesh and sheet, then use them as the
basis for designs. A lovely complement to a set of hand-crafted
silver mesh pieces are silver mesh bangle bracelet and ring, which
are mass produced. I am careful to tell customers who are looking
at them that they are mass-produced and that I carry them
specifically to complement the work I’ve made myself.

At some shows (like our Guild show), I leave the mass-produced
bangle and ring at home, because all of the work shown needs to be my
own hand-crafted work. I don’t mind telling people who are
interested in the silver mesh pieces that they are available and even
have nice photos to show them – but the pieces aren’t at the show.

So this is the type of case where I don’t feel it’s inappropriate
for me to mix hand-crafted/hand-made and mass-produced work on the
same display. The hand work is the prominent piece and the display
is focused on that.

Now on my website, I include both hand-made/-crafted and
mass-produced pieces from a variety of reputable wholesalers. This
is addressing a different target market (bridal and some specialty)
and I have struggled to make it clear on the site which pieces are
hand work and which aren’t. Hopefully, I’ve succeeded at that,
because I haven’t had any customers express surprise in either
direction during subsequent conversations. But, again, I think the
customers coming to my website have different expectations than those
going to a artisan show.

HOWEVER, I have been at shows where people were representing pieces
as hand-made and hand-crafted that I know for a fact weren’t. They
were pieces sold as finished good from reputable vendors like Rio and
Stuller that were simply being “re-sold” as the “artist’s” work. I
occasionally (just for fun) drop by those vendors’ booths and
casually mention how odd it is that someone with their obvious
talents for fabrication (hehe) would choose to copy so exactly the
pieces available in the supplier catalogs to the trade, even down to
the choice of stones. There is usually some reddening and stammering
involved in their reply, if they choose to reply at all.

Karen Goeller
@Karen_Goeller
Hand-Crafted Artisan Jewelry
Fine Designer Jewelry


#10
  Problems arise when corporate heads do not listen to those who
know, thus making decisions dangerous both to their companies and
the economy in general. 

I don’t quarrel with this statement, but the question always is, who
knows what’s going on with the economy? And the answer appears to be,
nobody. If weather forecasters had no better track record than
economists, nobody would bother to watch. I became convinced of this
a few years ago, listening to NPR. They had three of the US’s most
respected economists on, discussing Reagan’s economic policies,
successes and failures. A few years after the fact, even these three
guys could not agree on whether people were helped or harmed, even
when they narrowed it to one group or another. In other words, in an
era of total documentation and availability of the
ostensible experts could not reach a consensus on what had already
happened
. Why would anyone put faith in their notions of what will
happen? This seems a cynical view, but that was a real eye-opener for
me. Apparently, my guess or your guess is as good and as worthless as
Alan Greenspan’s, except that he gets to manipulate the money supply.
I think the danger arises from thinking anybody understands
real-world economics. It is just too complex a system for us, so far.
Just my personal rant, of course.

–No�l


#11

I think flying of the job is the mere one of the symptoms.

We should look at the CAUSE.

The reason the jobs are going away is that our currency is very
strong( each oneof us is aware about it). What happens the amount of
the dollars are paid for just one day output here is paid for the
month of out put overseas (little exagg.). We can, with help of our
currency, take away a whole years produce of the other country by
just paying cost of produce of one month domestically.

So the fact is ourgovernment some how manages to keep the currency
(i do not know) at a higher level than other currencies.


#12

I’m sort of down with you on your post Noel, but if you look
historically at what happens economically it’s pretty clear that
regardless of what anyone does, sooner or later the markets go up and
sooner or later they go back down. I’m always amused at how the
American people always blame the current presidents (whoever that may
be at the time) for whatever the current economic situation is when
in reality the damn things going to go up and down no matter who’s in
power. There are, however, plenty of other things we can blame the
current administration for.

Daniel R. Spirer, GG
Spirer Somes Jewelers
1794 Massachusetts Ave
Cambridge, MA 02140
617-491-6000
@spirersomes
www.spirersomes.com


#13
    I think flying of the job is the mere one of the symptoms. We
should look at the CAUSE. The reason the jobs are going away is
that our currency is very strong( each oneof us is aware about it).
What happens the amount of the dollars are paid for just one day
output here is paid for the month of out put overseas (little
exagg.). 

Excuse me for saying, but this doesn’t make any sense. The US $ is
not strong, actually it is rather weak - and, fluctuations
notwithstanding, this will be the long term trend, given the
skyrocketing enormous American debt. What you are pointing at has
nothing to see with the strength of a currency per se, it suffices to
look at the cost of labor. The cost of labor is lower than in the USA
in some parts of the world and there is absolutely no way whatsoever
to change this in the short term - least of all protectionism will
help. The only ways to compete are education, innovation, improving
quality and - why not? - solidarity (raising wages and standards of
living over there), improving international cooperation, negotiating
social and ecological criteria to be implemented worldwide.
Everything else is doomed to fail. We better learn this, because it is
the truth. Best, Will


#14
 I think the danger arises from thinking anybody understands
real-world economics. It is just too complex a system for us, so
far. 

Dear Noel, I think that most people have unrealistic views of
science and economics in general. Science seems to understand this
and only accepts ideas which can be repeated and still mistakes are
made on historic proportions.

Economics is fascinating but falls down because it cannot predict
what the public will do. Stock markets rise and fall on the emotions
or feelings of investors, and history is really no different than
science in the truth in reporting department. Have you ever had a
news paper article written about you? It is amazing how the writer
can hear what you thought you had made so clear.

The differentiation between handmade and mass produced is
increasingly unclear. I for instance have mass produced hand made
items, really, made by hand but in large quantities. I also started
casting from being a fabricator ( always thought casting was cheating
somehow) because I realized 99.99% of my clients didn’t care how a
piece was made. Is my use of pancake dies with a hydraulic press to
cut sheet metal mean that an item is not hand made? I gave up along
time ago but, still do handmade if someone wants it, but, they really
have to want it, it costs more. Sam Patania, Tucson


#15
So the fact is our government some how manages to keep the
currency (i do not know) at a higher level than other currencies. 

Governments attempt to influence the strength of their currencies
relative to that of their trading partners, but they do not have
anything like what one would call “control” over it. There are a
whole host of factors that come into play over which each respective
government has no direct control, such as balance of trade,
political stability, currency trading markets, natural resources.
Sometimes they are successful in exerting their influence, but this
normally only occurs when agreements are reached with their trading
partners. Governments generally do not want to have a currency that
is too strong because then their exports and hence their whole
economy suffers. Neither do they want a currency that is too weak
because then goods purchased from other countries become too
expensive and, again, their whole economy suffers. Then there is
the question of weak or strong in relation to whom? A very delicate
balancing act indeed, especially when you only have control over a
very small number of influencing factors anyway.

The cost of labor is lower than in the USA in some parts of the
world and there is absolutely no way whatsoever to change this in
the short term - least of all protectionism will help. 

Absolutely correct. Since everyone is not jumping into the
industrial age at the same level, there is no way to achieve a level
playing field in the short term. Lower standards of living due to a
shorter and/or different history of economic development for
whatever reasons translates into lower labor costs than in the USA.
All of the solutions Will mentions are good and admirable but will
take generations to achieve. But there is a difference between
protectionism and a fair and balanced and wise approach to creating
a level playing field. Simply throwing open the doors and declaring
a trading free-for-all would have disastrous consequences, initially
for the more economically developed countries such as the USA. Even
if it were desirable and the USA did eliminate all trade
restrictions, tariffs, etc., the rest of the world simply will not
do the same. This has to be achieved as part of a long-term
(another 100 years?) strategy to gradually make it happen through
the means that Will suggests. In the meantime, such trade
regulations need to be carefully measured and applied. As has been
previously noted, American consumers will spend their money
prudently (read buy cheap) but without a lot of regard for the
country of origin of the products they buy even when from a US
manufacturer. But it is hard to blame them/us, when so many of the
products in our marketplace now originate somewhere else. Indeed, I
would be hard-pressed to find US manufacturers for many of the
products I use. US corporations do not have the vision to see that
if they all move their manufacturing facilities abroad they will end
up with no one in the US who can afford to buy anything but the
cheapest products because our standard of living will decline due to
a lack of jobs. That is why only the US and other industrialized
governments are in a position to manage such a global
transformation. The question is, will they do so wisely, or will
they bow to near-sighted special interests?

Best Regards,
Dale

PS - I am not an economist, nor do I play one on TV. The views
expressed herein are solely my own and do not necessarily represent
the views of my government nor the corporation I was downsized from.


#16

Dale,

I enjoyed reading your post and I will add to it if I may. The only
thing I will dispute, is the comment made by Dr. Denayer in a
previous post about the weakness of the dollar, which in reality and
with respect, is incorrect.

Here is the reason why.

Because of a relatively strong Dollar, foreigners have been willing
to lend massive amounts of money to Americans because of its currency
strength, the high financial returns, and by an almost touching faith
in the strength of America in itself. It is for this reason, that
foreign governments such as Japan and China have been willing to hold
our debt in order to make the dollar stronger so they can build their
home industries with exports to America. Because American living
standards and U.S. economic performance today depends heavily on the
willingness of foreign investors to loan the U.S. economy money and
the willingness of investors to keep their money here, is the key as
to why the dollar’s current strength is a clear sign that lenders
still consider the United States creditworthy, and the primary reason
why the dollar is so strong.

A weak dollar, or a dollar decline, would end the consumption
bubble. If the dollar took a dive today, we would be paying more for
foreign goods, and we would no longer be able to pay for about
one-third of these debts with paper IOUs as we do now. We will have
to buy fewer or lower-quality goods. Therefore, as of today, the
dollar is strong. A strong dollar could also be viewed as weakness,
and the reasoning behind that comment, is that the strong dollar is
making American exports too expensive in foreign markets, and foreign
goods too cheap in U.S. markets. As a result, U.S. exports have been
nose-diving in recent years, leading companies to lay off workers
and hold back wage increases. And these individuals were once
potential customers of ours.

The broadest measure of foreign trade is by monitoring the “Current
Account”. This is the means that quantify what our export debt
deficit is at any given moment. The current account is the difference
between what we earn overseas (primarily sales of goods, sales of
services, and earnings on our overseas investments) minus what
foreigners earn here (primarily imports of goods, imports of
services, and foreigners’ earnings on their investments in the U.S.).
If the current account is negative, we cover the deficit with
debt. Therefore the dollar is strong, because more confidence is
generated by the US than any other market on earth, therefore
concluding to the fact that there is more financial holdings and debt
held in the US by foreigners than the other way around as far as
Imports and Exports are concerned, which is why it is in the interest
of foreign governments to maintain a high dollar. They don’t want
product for the most part, they want to own interest bearing notes
such as home mortgages, Treasury notes and bonds etc.

Granted the cost of labour is a factor as is the exchange rate, but
there are other criteria’s to consider also.

The United States repeatedly signs trade agreements that lower U.S.
barriers to foreign goods but do nothing to open foreign markets
(like the Andean and Caribbean Basin countries). It repeatedly signs
trade agreements with countries manifestly too poor to be major
markets for American products, but more than capable of becoming
major exporters to the United States (like Mexico and China). It
looks the other way when other countries artificially depress the
values of their currencies to gain trade advantages (practically any
East Asian country you can think of). And with only a few
exceptions, it ignores foreign dumping, which means, that the sale of
goods in a foreign country is set at a price below that charged in
the home market, or below production costs, in order to boost export
subsidizes directly or indirectly by many of America’s trade
partners. It harms the rival producers in the target country, which
usually cannot afford to participate in loss-making ventures. Dumping
is frequently the result of overcapacity in the industry in question.
Further industry subsidies have adverse affects meaning that payments
are made and aimed at encouraging increases in various types of
behavior. Producer subsidies encourage producers to produce more;
consumer subsidies encourage consumers to consume more; research
subsidies encourage companies and individuals to perform more
research.

As long as this is, It could have been 10 times longer, but I will
save it for another time :-).

Best Regards.
Neil George
954-572-5829


#17

Hi Dave and Neil,

First, I still need to thank Dave for his nice words he had to say
about my post.

Second, I would like to make a comment to Neil George’s post
concerning the US $ - also with respect, I would beg to differ. I said
that the $ nowadays is rather weak and I predict that it is going to
get weaker over time.

For what concerns the first point, I remember that, when the Euro
was introduced, one US $ was equal 1.04 Euro. However, when we were
in Ireland in July, the US $ was equal to 88 Euro cents. At a certain
point - I don’t remember exactly when - the $ had been losing almost
25 % in regards to the Euro. In the meantime, the gap is not as wide
anymore. However, I don’t think that this has anything to do with
American policy whatsoever. I think it is entirely due to the
recession which seems to hit Europe harder than anyone had expected.

Then there is the second - and more serious - point of my prediction
that the US $ will get weaker. Neil George disagrees with me and he
uses good arguments to make his case. Unfortunately, the same
arguments can be made to my make case too.

Only a month ago a joint report of the Committee for Economic
Development, the bipartisan Concord Coalition and the Center on
Budget and Policy Priorities concluded that under current policies,
the American federal debt would rise by $5 trillion over the next
decade. $ 5 trillion … This will coincide with the generation of
baby boomers starting to collect benefits. At that time, debt will
stop to grow and start to explode. Neither business leaders,
industrialists or politicians address this problem - but it will
come and it will hit us (hard). Neil writes about the Japanese and
the Chinese and he is right to do so as these days, strange as it may
sound, in reality the American federal budget and the value of the
dollar depend on massive purchases of Treasury Bills by the
governments of (basically) these two countries. One day - and no one
knows when, the creditors will want their money back and no one
trusts a debtor with a lot of debt … It’s not difficult to see
the direction in which all of this is going: there will be higher
import costs, a cutback in spending on cheap foreign goods (most of
them are Asian), rising inflation, perhaps chaotic financial markets
and, don’t doubt it, a lower standard of living for the American
worker and less money for needy people. You don’t have to take my
word for it. Paul Krugman - an economist and a human being I admire -
explained exactly the same a couple of days ago in ‘The New York
Times’.

Neil refers to the ‘Current Account’, which is the means to quantify
the export debt deficit. Indeed, if the Account is negative, the
deficit is covered with debt. Nevertheless the dollar is actually a
strong currency, so argues Neil, because the confidence that the US
economy generates worlwide and the fact that there are more financial
holdings and debt held in the US by foreigners than the other way
around as far as imports and exports are concerned. This statement is
correct and this is the reason why the argument is wrong. Cannot
everyone see that a situation like this is unstable? It’s basically
like me owing you a lot of money. For the time being, you don’t need
it back, because you can give my friend a proof of my debt and, on
the basis of this, he will do things for you, in other words, I am
creditworthy. However, it is all too obvious that if my debt
continues to grow, the day will come that my friend is going to
refuse to do anything for you unless you pay him (in a good
currency), which is to say that, at that moment, you will want your
money back. Then I will be in big trouble.

Best, Will


#18

Dear Dr. Denayer,

My original post, reflected the current stand point of the US Dollar
today, and had no bearing on its strength in the future. I will make
other points to reflect its strengths, but I will also point out
where your points also have validity.

Second, I would like to make a comment to Neil George's post
concerning the US $ - also with respect, I would beg to differ. I
said that the $ nowadays is rather weak and I predict that it is
going to get weaker over time. 

Actually what you said was :-

Excuse me for saying, but this doesn't make any sense. The US $ is
not strong, actually it is rather weak - and, fluctuations
notwithstanding, this will be the long term trend, given the
skyrocketing enormous American debt. 

For the past six years, America’s great export has been not goods
but debt, therefore you are correct in that the debt is skyrocketing.
Foreigners sell us oil, cars, computer components, and other goods.
In return, we sell them debt and other financial
instruments-government bonds, corporate bonds, and securities backed
by the mortgages of American homeowners-for which foreigners have
seemed to have an almost insatiable appetite. From 1997 to 2002,
imports of goods and services increased by a third, while exports of
goods and services were flat. By further swapping their ever growing
holdings of dollars for our real assets, means that foreign
companies etc are buying U.S. patents, brand names and the rights to
make economic choices. In other words, foreigners are using our $1
billion per day trade deficit to buy up American firms. For the time
being at least, it is in their best interest to keep the dollar
strong.

At one time, we were on the so-called “gold standard.” For about
forty years, from 1933 until 1971, our money was backed by gold
bullion which meant that an ounce of gold bullion could be purchased
by a central bank or foreign government for $35. We went off the gold
standard because the amount of money in circulation was overwhelming.
There was no way we could honor that commitment. Today, the dollar is
essentially the gold standard. As the strongest currency, all other
currencies are measured against it. This used to drive the French
crazy, and Charles DeGaulle once tried unsuccessfully to get everyone
back on the gold standard. Perhaps the most important thing
therefore, is that the dollar today, is the world’s reserve
currency. It is the world’s money and has taken the place of gold in
central bank vaults. In addition, in many countries the dollar is not
only the preferred currency for daily transactions but also the
required one for major purchases. Countless individuals in foreign
lands keep their savings in dollars. Therefore, the conclusion is
that, until there is something to replace the dollar as the
standard, then it has hope to maintain the course with some
stability.

Therefore the dollar is not only strong, but at least today it is
still a sign of strength. However, fluctuations in the market is a
given, and further it is driven by supply and demand. For example, if
a bank in France is cashing a lot of American travelers checks, it
will wind up with too many dollars and fewer French francs. If this
actually is, or would be the case, then dollars will drop in franc
value and francs will increase in dollar value based upon this supply
and demand. Overnight, this will be reflected in currency markets.
There is a market for currencies based upon supply and demand that
works just like the market for stocks. Underlying these daily reasons
for fluctuating values will be the power of the country as a
strategic element in sustaining a currency’s value. Today’s
politicians are tempted to act like the princes of the 1500’s by
increasing the public money supply and using inflation to pay off
debts. When this happens, the country’s currency drops in value
relative to that of the rest of the world. Currency traders try to be
one step ahead by anticipating what they think politicians will do,
and prices change accordingly. Therefore, this will demonstrate that
the dollar can weaken or strengthen at any given time, but the key is
balance. Therefore the dollar can be weakened at any given time, but
not necessarily controlled by debt.

Therefore you would be correct in that the dollar could in fact
weaken on any given day, but it could also stay the course or even
get stronger. Many factors can cause a currency to fluctuate, and it
is not necessarily governed by debt. Granted, Debt is one of those
criteria’s, however it is in reality but one part of the whole
puzzle.

For what concerns the first point, I remember that, when the Euro
was introduced, one US $ was equal 1.04 Euro. However, when we
were in Ireland in July, the US $ was equal to 88 Euro cents. At a
certain point - I don't remember exactly when - the $ had been
losing almost 25 % in regards to the Euro. In the meantime, the gap
is not as wide anymore. However, I don't think that this has
anything to do with American policy whatsoever. I think it is
entirely due to the recession which seems to hit Europe harder than
anyone had expected. 

Having defended my thoughts on the fact that today the dollar is
strong, I will also point out where the weakening of the dollar could
come from, using the Euro as an example.

As long as the dollar remains the dominant currency, especially in
oil trade, it is difficult to see how the U.S. can be dislodged from
its position as the world’s dominant economic power. However, a small
crack appeared in 1999 when Iraq, at France’s persuasion, agreed to
accept payment for its oil in euro. At first this seemed unwise as
the euro was selling well below the dollar. But all of a sudden
because of this agreement in part, and the fact that it hit a premium
in value because of the fact, Iraq reaped a huge profit. This made
other oil producers take note of Iraq’s success. Iran started
thinking about switching too; Venezuela, the 4th largest oil
producer, began looking at it and has been cutting out the dollar by
bartering oil with several nations including America’s bete noire,
Cuba. Russia is seeking to ramp up oil production with Europe
(trading in euros) an obvious market." It is probably not accidental
that the U.S. put pressure on Iran by naming it a member of the “axis
of evil,” and tried also to destabilize the democratically elected
Venezuelan government with the help of business interests friendly to
America.

The U.S. seems belatedly to have sensed the potential threat posed
by the euro. The greenback’s grip on oil trading and consequently on
world trade in general, was under serious threat. If America did not
stamp on this immediately, this economic brushfire could rapidly be
fanned into a wildfire capable of consuming the U.S.'s economy and
its dominance of world trade. This probably overstates the case, but
the recent decline in the value of the dollar against the Euro
indicates that the threat is real. A long term weakening of the
dollar due to its slipping hold on the world oil trade can have
serious consequences for American prosperity and also its capacity
to finance its military expenditure through deficit financing. That
is to say, the euro threatens America’s economic power as well as its
military power.

This may help explain why the U.S. abruptly shifted its attention
from the war in Afghanistan to a major war in Iraq. Its goals, are to
safeguard the American economy by returning Iraq to trading oil in
U.S. dollars, so the greenback is once again the exclusive oil
currency. The war in Iraq may be a war for oil, but at a deeper level
it is a war for the defense of the continued control of the world oil
economy through the dollar.

Therefore, it is clear that the issues pointed out by the good
Doctor, certainly have cause for concern, and that the threat is
real. I am open to look at both sides of the argument, and there are
solid grounds for both sides of the argument. In saying that, is the
good Doctor right and I am wrong?, or is it the other way around?. I
say neither, because the reality is that there are way too many
factors to take into consideration, and way too many complex issues
that do not follow the standard rules of engagement in relation to
economics. The reality is that there are deeper issues that try to
manipulate situations that are not readily apparent. This is why, I
mentioned in a previous discussion, that I do not care at the end of
the day what the so called experts have to say on the subject,
because who at the end of day knows the outcome. I certainly cannot
control what happens, therefore I can only do what I can do and
nothing more. The dollar weakness against the Euro is peanuts when
gauged against its strengths against the other currencies that we do
more business with such as Japan and China. Which explains why the
dollar is strong today. The Euro may very well change that, when, I
have no idea. I have opinions but no idea :slight_smile: Therefore you are
correct in that, against the Euro, the dollar is weak, but you left
out the other 90% of the trading partners and their situations in
relation to their weakness in relation to the dollar. Therefore, by
percentage against all currencies world wide, it is strong. I agree
that the real question is how long can this go on for, and personally
I have no idea, but the truth be told is, there are too may issues
and other controlling interest in currency values that take it out of
the realms of clear understanding.

Then there is the second - and more serious - point of my
prediction that the US $ will get weaker. Neil George disagrees
with me and he uses good arguments to make his case. Unfortunately,
the same arguments can be made to my make case too. 
Only a month ago a joint report of the Committee for Economic
Development, the bipartisan Concord Coalition and the Center on
Budget and Policy Priorities concluded that under current
policies, the American federal debt would rise by $5 trillion over
the next decade. $ 5 trillion ... This will coincide with the
generation of baby boomers starting to collect benefits. At that
time, debt will stop to grow and start to explode. Neither business
leaders, industrialists or politicians address this problem - but
it *will* come and it will hit us (hard). Neil writes about the
Japanese and the Chinese and he is right to do so as these days,
strange as it may sound, in reality the American federal budget and
the value of the dollar depend on massive purchases of Treasury
Bills by the governments of (basically) these two countries. One
day - and no one knows when, the creditors will want their money
back and no one trusts a debtor with a *lot* of debt ... It's not
difficult to see the direction in which all of this is going: there
will be higher import costs, a cutback in spending on cheap foreign
goods (most of them are Asian), rising inflation, perhaps chaotic
financial markets and, don't doubt it, a lower standard of living
for the American worker and less money for needy people. You don't
have to take my word for it. Paul Krugman - an economist and a
human being I admire - explained exactly the same a couple of days
ago in 'The New York Times'. 

The point that I made that contradicted yours, was that as of
today the dollar is strong. Your point was that the dollar was weak
and I disagreed with you on that point. There is no dispute on my
part that the bubble will burst. Just a question of when.

Cannot everyone see that a situation like this is unstable? It's
basically like me owing you a lot of money. For the time being, you
don't need it back, because you can give my friend a proof of my
debt and, on the basis of this, he will do things for you, in other
words, I am creditworthy. However, it is all too obvious that if my
debt continues to grow, the day will come that my friend is going
to refuse to do anything for you unless you pay him (in a good
currency), which is to say that, at that moment, you will want
your money back. Then I will be in big trouble. 

I did not say it was right or wrong but I will add this, which may
collaborate your views on what’s to come.

If the foreign demand for U.S. debt abates, the strength of the
dollar will no longer be determined by money flows as it is today. It
will be determined by trade flows. That means the dollar will decline
until those flows come into something approaching historical balance:
a current account deficit of about 1 percent of GDP or less.
Returning to historical balance is going to be difficult because of
changes in the American overseas investment position. In the 1980s
trade crisis, the US could count on the enormous investment cushion
earned from a century of past trade surpluses. But the money that
previous generations earned has been spent and much more in the past
20 years. Therefore, the current account deficit is going to be
larger than the trade deficit in goods and services, and getting
back into balance will be all that much harder. Conservatively, this
implies the dollar will fall until the trade deficit in goods and
services declines from today’s levels of about 4 percent of GDP to
under 1 percent of GDP. The economic shock would take political
stability with it, as politicians scramble to offset declining
incomes with more income redistribution programs. Third World
countries will add to the political pressures. Politicians will
further squeeze the incomes of those Americans who hold the shrinking
supply of productive jobs, not yet moved offshore.

What is the solution? There might not be one. If crisis arrives, it
is a good bet that Washington will have no clue.

Doctor, as usual, your points are noted and are surely worthy of a
good debate, I believe that the conclusion derived, is that we are
all walking a very thin line and are constrained within restricting
boundaries governed by policies that you or I have no control over.
Does it really matter one way or the other what you or I may think?,
I say not. However it does make for a good discussion. Always a
pleasure.

Very Best Regards.
Neil George
954-572-5829


#19

Dear Neil, I am enjoying reading your informative posts (as well as
Dr. Denayer’s) on this subject. Your understanding of this complex
subject appears to be much more comprehensive than my own. I would
like to make one point regarding one of your comments.

Does it really matter one way or the other what you or I may
think?, I say not. 

On an individual basis, you are probably correct. However on a
collective basis, I believe what we think about these things can
matter. But for it to matter we must all communicate our thoughts to
our government representatives. Only then do we have even a chance
to influence our government’s policies and direction. Even as I
write this I see the absurdity in thinking that even more than few
individuals writing to their congressional representatives can
outweigh the influence of the big special interest groups, but I
still think that that is our only chance.

The issue of jobs being exported to other countries because of a
cheaper labor force is a matter that is near and dear to my heart
(and wallet). I have been out of work for over a year and a half
now, not counting side jobs and short term contract work (mostly
unrelated to my career field). The thought of politicians who can’t
see past the next election being influenced by corporations who
can’t see past the next quarter’s earnings being in charge of
policies that will affect our standard of living for generations to
come scares the devil out of me. Things just look a little bleak to
me right now, but I’m trying to maintain some kind of hope.

Best Regards,
Dale


#20

Pardon my ignorance, what kind of influence say a super rich like
Mr. Warren Buffet or say a company like Wal Mart or say GE or some
giant insurance corp or say the families that control the gold or
the currencies like Mr. Soros could have.Also what effect could the
people controlling media may have? or are these factors not
important or eventually lot of these holdings are eventually
concerntrated by few .