American Melt Down?

Discussion in 'Business & Economics' started by Michael, Sep 15, 2008.

  1. quantum_wave Contemplating the "as yet" unknown Valued Senior Member

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    6,677
    Yes, interesting. We are far from being out of the woods. Gold and silver have been and remain wise investments. Be ready.

    http://www.upi.com/Top_News/Analysi...-Europes-drab-new-leaders/UPI-55231258725938/
    This article refers to a report produced by Societe Generale, France's second-largest bank. I selected a few interesting paragraphs from the article:

    The irony is that their appointment comes as one of Europe's top banks warns that the global economy looks like heading for another crash, with a collapse of the U.S. dollar, another plunge in share and property prices, and a Japan-style "lost decade" of low growth and massive unemployment “Nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse," said the 68-page report produced by Societe Generale, France's second-largest bank.

    "High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt," it said.

    It saw the debt levels of all Group of Seven governments soon exceeding 100 percent of gross domestic product, with Japan's heading for 300 percent. The overall debts of the world's leading developed economies were now higher than they were in the aftermath of World War II, with the health and pension demands of aging populations adding to future debt pressures.

    The Soc-Gen report saw the massive rise in government debt triggering a new crisis with the gold price soaring and the oil price tumbling back to $50 a barrel because of low demand. The bank advised its clients how to survive "an extreme worst-case scenario" by selling the dollar, buying government bonds and defensive companies like telecoms and utilities.
     
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  3. kmguru Staff Member

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    See the graphs and tell me if we are melting?

    Please Register or Log in to view the hidden image!

     
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  5. kmguru Staff Member

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    The reason we are in such a pickle is that, either the Government decided to drop the tax rate drastically or our real Industrial output and employment fell drastically that caused for government to take in less money each year since 2001. The cumulative loss compared to normal growth is staggering. No amount of tax hike will compensate the past loss due to collapse of our Industries.

    Is there a HTML command resize the picture?

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  7. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    I tested the "size cmd." I.e. tried "

    Please Register or Log in to view the hidden image!

    " and that cmd does not reduce the image. (Note in my test there was no space after the "1" in , but I inserted one in this illustration so it would fail as a cmd and print here.) I have had the same problem. I hope someone will tell us how to solve it. Sometimes, at the source, a very small graph can be enlarged by clicking on it and then the expanded image can be posted, but when source image is already too large, I know of no "fix."

    Do you know why in about 2002 the red line slope dramatically changes -even turns negative and crosses the blue line?
     
    Last edited by a moderator: Nov 21, 2009
  8. iceaura Valued Senior Member

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    30,994
    Kinda makes you wonder what happened say about 1981, '82, don't it?
     
  9. nietzschefan Thread Killer Valued Senior Member

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    7,721
    and 1996.
     
  10. nirakar ( i ^ i ) Registered Senior Member

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    3,383
    Maybe the end of capital gains revenue from the tech bubble coupled with Bush's tax cuts for the wealthy.
     
  11. kmguru Staff Member

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    11,757
    The blue line is an extrapolated trend line from the total data set. Because the data is skewed from normal growth curve, the trend line is biased slightly to the right.

    I think nirakar is correct that perhaps IRS got some extra money that way

    Correct values are
    1999....2000....2001....2002....2003....2004
    1,904 ..2,097...2,129...2,017...1,953....2,019
     
  12. nietzschefan Thread Killer Valued Senior Member

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    7,721
    I am truly amazed you guys don't know(or don't say)the primary reason for your trade deficit was first "free trade" with Canada in the 80s and Nafta in the 90s.
     
  13. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    23,198
    It is not so much that we do not recognize that "free trade" can (and did) have an adverse effect on a nearly closed society, IF that society has much higher consumption level (living standard) than others it might trade with.

    The US was not reduced to ashes during WWII, - quite the contrary - its industrial capacity and production efficiency was greatly expanded. Thus as long as the US was more productive (not mainly just rebuilding to recover from the destruction) it was able to sustain a high standard of living / strong economy which attracted capital for further improvements in production efficiency.

    Also very important was fact my generation of students were willing to study hard - made great advances in "human capital" within the USA. The "beatniks" came later with their "tune in (to drugs) and drop out (from productive work ethic)" Then the US had the most advanced universities etc.

    These great centers of higher learning attracted large number of foreigners; especially Asians who unlike the hippies / beatniks were also willing to study hard greatly increase their "human capital." For a decade or two many of these well trained foreigners graduated and took jobs in the USA and filled the "human capital" deficits caused by the Hippie/ Beatnik lazy bum’s POV not replacing to the human capital of the older generation dying away.

    By approximately three decades after WWII, the destroyed regions of the world had recovered and in some case (especially steel factories) they had more modern production, more efficient factories. I.e. the US was no longer to sole "land of opportunity" So some of the US educated Ph.D.s in the hard sciences begun to return to their native lands, especially India and China. This influx of human capital was at least as important as the financial influx of financial capital. - that initially came to take advantage of the much lower wage levels, but now is flowing into China and India to take advantage of the huge markets in countries where the purchasing power of the population is rapidly expanding, especially if compared to the US populations.

    Now the US finds itself with less than the most modern factories, a student population that on average is less willing to study hard - I.e. not replacing the human capital that is dying off - and an unsustainable salary and debt structure. If understood in these terms, the future is relatively obvious. The US standard of living will drastically drop as those in nations which have been adding to their human capital rapidly rise.

    The US is no long the sole "land of opportunity" - in fact it is hardly even in the top five. Now free trade is part of the mechanism which will lower the US standard of living down. I.e. cheaper than US can produce imported goods will ease the pain for a while - so long as the producers of those goods can be persuade to part with them for green pieces of paper - but that will soon end, IMHO. I.e. there will be a run on the dollar as all try to get something of real value for it instead of watch its purchasing power decrease further.

    Normally this would stabilize with US exports becoming more competitive, but the US deficit in human capital and modern factories will not be reversed quickly. I.e. the US salaries must drop LOWER than those of it commercial competitors to compensate for the less well educated workers (especially in math and hard sciences), the less efficient transport systems (private cars, driving to suburban infrastructure, etc.) and the on average older, less efficient, factories. Not all this is yet true - I am comparing the US to China, India etc. in about 2020, not today.

    Summary: The Hippies will win: I.e. the US will tune in (to reality altering drugs, including alcohol) and drop out (from world leadership). Yes “free trade” will accelerate this process, but is not the fundamental cause. That is more related to decreasing human capital, aging (or closed) factories, and decades of accumulating debt which US productivity cannot repay. I.e. the US lived beyond it means for too long as foreigners were willing to send goods and services for green paper.
     
  14. kmguru Staff Member

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    11,757
    BillyT explained it perfectly. Personally as a world class manufacturing and automation engineer, I can concur with him. Since late seventies, American students went on to study anything but Engineering which reduced the technology human capital. We also put too much emphasis on Sales and Marketing such that these people went up the Corporate ladder and made both technical and business decisions.

    Even recently people like Carly Fiorina with a degree in philosophy and medieval history ran the HP and almost destroyed it. She is now running for Congress and taking up Economy as the primary campaign topic. She probably does not know the deference between a blade server and a food server.

    The members of the "Politburo Standing Committee of the Communist Party of China" are all engineers (except one). I do not think we have any engineers in the leadership role in the U.S. Congress or Cabinet level secretaries. You can not run a highly industrial society with no knowledge in Technology. We do not even have a "Industrial Policy", but China does.

    As to productivity numbers, we used smoke and mirrors. According to BLS, Productivity = Output/Input. Our Output was calculated using the import numbers that falsely increases the numerator while we did not count the human capital used from Contract + Outsourcing components. That reduces the denominator thus showing the Productivity much higher than it really is.

    In the meantime, our technically illiterate Lawmakers spend too much time in raising funds for the next election while their novice interns write all the laws helped by lobbyists.

    Take for example, the American auto companies. The upper management never cared for quality. So they kept producing crap while Japanese and later Koreans beat them with quality. I worked for an air-bag manufacturing company where each department was a mini-kingdom. Luckily I was working for the CFO and therefore authority to manage "change". One time, the transportation department was ready to spend $3 million dollars to warehouse good products next to the car companies because the production department was sending bad products - without solving the quality issue. Who knows how many bad air-bags are in cars now. If they can do that in safety systems, imagine, the starter, alternator etc. Last month one of my Chevy van brake started leaking. As I replaced the brake piston, I found the seal was deformed. They call it factory defect.

    We are definitely in a pickle with morons running the country.
     
  15. nietzschefan Thread Killer Valued Senior Member

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    Ahh I see blame it on the newest generations. Well while the silver spoon fat boys are fucking lazy I will admit, there are a LOT of hungry Americans and hard working americans, I really don't put a lot of salt in "well americans are lazy". That's bullshit to me.

    I am Canadian and have worked for and with Americans in American and Canadian companies. They often work too hard in my opinion. They get all stressed out about nonsense that doesn't even affect the bottom line, they are too busy playing cover their own ass to give a shit about the bottom line (unless it helps cover their ass). This shitty modus operandi has spread into Canada over the past 12 or so years. That kind of attitude "politics first", bullshit second and getting the job done somewhere at the end of the list has not one fucking thing to do with a small minority of hippies back in the 60s-70s. What a load of hogwash.

    The whole thing is a goddam pyramid scheme, it's real simple why Canada and Mexico(not sure about mexico actually) have trade surpluses and the U.S doesn't. It's got nothing to do with education and hard work. Canada's resources get raped by huge multi-national corporations, the people are generally not benefiting hardly as much as they should, in Canada. These things are shipped to the states and less and less getting used for finished products to be sold wherever. Now they go to Mexico to get made into finished product. I'm speaking generally not the same for all resources of course. Mexicans are not hard workers not anymore than the average pleb in Canada or the U.S. Their country is so fucked up and corrupt they have to work for pennies(pesos even) on the dollar. So the multinational corporations have managed to get a deal in three counties (like they fucking own them and they DO) where they can rape the resources of one, rape the people of another and Pillage the fucking currency and tax payers of all three.

    Well these locusts are all over the earth now, pull out as many charts as you need to try to explain the very simple math of this pyramid scheme:

    It's running out of suckers to buy in.
     
  16. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    23,198
    I did not say Americans are Lazy. Many work hard, especially the poor, but the problem is that on average their education is poor in math and hard sciences compared to almost all other advanced and many developing countries. Pre college education is much more concerned with Johnny’s "social development" than his "analytical development" (ability to understand problems and formulate solutions) at least in areas that are productive for the economics of the society. Just look at how many of the most gifted college grads become lawyers, stock brokers, salesmen, entertainers, etc. - people concerned with making money, not products (software is a product so "products" need not be tangible) I.e. we have become, by and large, not a nation of producers, but of "mutual back scratchers" - a service industry economy.

    I did not mean to blame the hippies or beatniks - I agree they were too few in numbers to be very important. However, they and the rest of the "WOODSTOCK generation" did make a fundamental change in American attitudes, which greatly contributed to the decline in the US. Unlike their parents generation who saved first and then bought their first car they are the "I want it now" generation which buys until the plastic cards are maxed out. Etc. Both the government (which they elect) and they themselves seem to think that there is no limit to debt and credit. Enjoy the things you want now. This includes the courses they tend to take in college - avoid those that give tough home work - take those that reward well written BS on the exams (and perhaps some regurgitated facts that require no understanding or computational ability). The reference to hippies was merely trying to compactly refer to this destructive change in typical attitudes which replaced the "work and save" attitude of their parents with "buy on credit and enjoy" attitude.

    You comments about Canada were interesting. This new "buy on credit and enjoy" attitude will probably spread and in a few generations even infect India and China too.
     
  17. nietzschefan Thread Killer Valued Senior Member

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    The buy on credit thing started with their generation, but hippies were all about communal ownership, material objects are meaningless etc etc and now they often own lexus and 3000 sqfoot houses.

    Very educated and "usefully" educated people, I have found, are often completely mercenary. It doesn't matter if their 300K/yr job is in the U.S or Japan, they just go. Doesn't matter where they got educated. Some really good universities in the U.S, there are a few in Canada too. The Governments and RRB(really rich bastards), keep them going as they have a vested interest (like I said the multinational corporate interest - again they own most governments). They don't really care who enrolls. People and disciplines who seek knowledge for knowledge sake are pretty rare these days and the wealthy and intelligent that pursue them are considered "eccentric" by the unimaginative numbers counters and their slaves.

    I am personally hoping this shift into forced "living in your means" will be a good thing. You are 100% correct about the buy on credit generations(mine was the worst until Gen Y came along and put everyone to shame). They are going to make ME into a hippie, because there is no use saving for a devalued future.
     
  18. nirakar ( i ^ i ) Registered Senior Member

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    Engineering educations should have been free, paid for by the government while liberal arts, (psychology, art history, archaeology and any other education that produces products consumers don't want to pay for) should have received absolutely no government aid and Law and MBA programs which arguably produce people who will actually harm the economy should perhaps be taxed.

    Thinking that America could educate itself of of this problem is a false idea that interfered with the Clinton administration and Democrats in general's ability to face the problems of Americans trying to compete with cheaper labor. As we saw programing jobs leave to India we should have been able to understand that the same dynamics apply for highly skilled jobs in growing fields as apply for low skilled manufacturing jobs. If a corporation can make more money by simply placing it's brand on a product made by foreign subcontractors using cheaper labor than the corporation can make by paying American workers then the corporation will use the foreign subcontractors or will go ou of business when it's competitors use the foreign subcontractors.

    It is a false idea to think that less developed nations will not compete for high tech jobs just because they have not traditionally produced the highly educated employees needed for these jobs. Less developed nations are rapidly increasing their production of domestically educated engineering students.

    Even if lazy pothead Americans reformed themselves and became hard working engineering students this would only stall off the movement of engineering jobs out of the USA. Engineering jobs are still in the USA for the same reason that manufacturing jobs were still in the USA in 1969. The foreign infrastructure for taking those jobs is still developing. By 1969 the shoe industry had left the USA and Japan had taken over the low end consumer electronics market. The deindustrialization of America could have been predicted in 1969 based on what had happened in shoes and cheap consumer electronics and now this is 1969 for the engineering jobs.

    Unless the dollar crashes (as it would if the currency markets were rational and unmanipulated) or unless the policy of predominately free trade is abandoned then market forces will over time move the engineering jobs out of the USA regardless of how many engineers the USA produces. Until American engineers are willing to work for the same wages as Indian, Filipino and Chinese engineers it would be preferable to utilize the lower paid foreign engineers. As the emerging markets exponentially increase their supply of Engineering graduates the global shortage of engineers will eventually come to an end. The lower skill level of "Emerging Market" nations engineers will not persist as the developing nations high tech industries and universities mature.

    Why did America screw itself? These phrase "Emerging Markets" is a clue. Wall Street salivates over getting a piece of he action. Mature economies grow more slowly. GATT from a Wall street perspective was a deal in which the USA gives up the right close off it's consumer market to protect it's workers in exchange for the right for Wall Street to invest in the higher growth emerging markets. Also Philip Morris wanted to try selling branded cigarettes in China.

    Perot warned of the "giant sucking sound of jobs going to Mexico" if NAFTA passed. For a little while that was coming true; then the GATT passed and companies that moved operations to Mexico pulled their operations out of Mexico and moved them to China because Mexican labor was not cheap enough. Mexico got screwed because they allowed subsidized American corn into Mexico in exchange for the jobs that they were supposed to get that ended up going to China instead. Subsidized American corn meant that he option of being a poor but dignified corn farmer in Mexico was being destroyed which depopulated rural Mexico and sent those previously poor farmers into the urban slums and into the USA.

    nietzschefan, if you subtract natural resources out of Canada's trade picture would Canada's balance of trade look any different than the USA's on a per capita basis?

    Canada has a great ratio of natural resources to people. Hard working people and highly educated people will keep on becoming more and more plentiful in the world but global natural resources per capita will continue to fall. There are only a few nations in the world as blessed in natural resources per capita as Canada is. The question for Canada will be how to keep the hordes of Americans out of Canada and how to keep Wall Street's greedy fingers off of Canada's natural resources. Global Warming might even improve Canada's farm land if it does not reduce rain fall.
     
    Last edited: Nov 22, 2009
  19. nietzschefan Thread Killer Valued Senior Member

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    7,721
    You are correct Canada would be in the same spot as the U.S if it had not stripmined all it's resources. The Average Canadian is kinda screwed anyway as they work for American companies, work for companies dependent on exporting to U.S or work for multi-national locust flick and flee(when they are done raping you). These fucking equity conglomerates actually have the frikin gall to bitch about the massive fees entrepreneurial Albertans are charging them to run water and cargo up north to where the goodies that are gobbling are.

    Do you know that the U.S Violated freetrade and NAFTA and tariffed Canada lumber, because WE PLANT TREES AND DO NOT DEPEND ON COMPANIES TO DO THIS. Unbelievable.

    There is no need for a wall to keep Americans out. Simply it's too cold for them, it too hard to live, it's too "commie" or whatever. People in the states often still believe the mantra "Land of the free", "American dream", "Land of opportunity". From what I can tell that's bullshit in the U.S right now, while they proclaim it loudly - Canadians quietly LIVE it...at least for now.

    Furthermore there is no need for Americans(or anyone else) to come north for resources/water/whatever. Just pay off a politicians and take it. We're so nice we traded with China even when they actually were commies gave them all our grain at cost, they couldn't even buy enough and had to pay our farmers to not farm(now that's fucked). We let spain come and take all our fish, we let U.S and U.K oil companies take all our oil. Why the fuck would you want to live in harsher environs when the idiots who live there will do all the work and ship it to you at nearly cost thanks to free-trade agreements?
     
  20. nirakar ( i ^ i ) Registered Senior Member

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    I learned about that when I was looking into buying into BC grown lumber with the idea that China and Japan will use up Indonesia and then will need to clear cut BC for cardboard in which to send their products back to all of the USA's Walmarts.
    I thought that was te plan but will this cozy arrangement last? For the owners of natural resources free trade is good because it gets them the highest price for their products. Taxpayer subsidies for the owners of the natural resources will make them even happier.

    My understanding is that as a not Canadian I amnot allowed to buy shares in Canadian farmland Reits; the nerve of those Canadians. It is one thing to stop disposable Americans like me from exploiting Canada's natural resources but if Canada ever interferes with the USA's fat cats pursuit of greed the USA may be forced to invade Canada or at least ban Canadians from visiting Disneyland.

    I think Canadians should tax the hell out of their natural resource exports to make sure that Canadians get the benefits from their resources. If Canadians could stop the bribes of their politicians, Canadians could and should use their natural resources to remain wealthy while the USA slowly becomes a second world nation in terms of median income. My prediction is that the USA will continue to lose ground on Canada economically and that Canadians will eventually about 15 years from now feel that American illegal immigrants are a serious problem.
     
  21. kmguru Staff Member

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    11,757
    I learned two things from the last posts: Make engineering education free. I will help do that in Africa. And that Canada has a lot of potential that need to be used in a responsible way.

    Here is a great Nassim Taleb discussion that explains a lot.

    http://www.youtube.com/watch?v=kcjFJUMmA40&NR=1&feature=fvwp
     
    Last edited: Nov 24, 2009
  22. kmguru Staff Member

    Messages:
    11,757
    Interesting Website and specially about Australia...

    Will the exchange rate kill manufacturing

    http://www.brookesnews.com/index.html

    and America...

    Obama's economic policies are turning into a global disaster

    What does BillyT think?

    Data from America’s Federal Deposit Insurance Corporation highlighted the difficulties that persist in the banking sector. The number of “problem” lenders that the FDIC lists grew to 552 in the third quarter, the highest number in 16 years. And confirming the reluctance of banks to loosen their lending policies, total loan balances held by financial institutions fell by 3%, the fastest pace since 1984.

    Could not collect the graphics that looks exponential from this weeks Economist magazine.
     
    Last edited: Nov 27, 2009
  23. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    I have only read this first of your links. Yes it is interesting (and I think basically correct).

    I was vaguely aware of the existence of an Australian school of economic thought, which many disagree with (including this link's author). It appears to be based in the IPA and claim that floating currencies cannot have an inappropriate value, wrt their impact on trade (and possibly other POVs too - I just know little of them).

    Perhaps it is true, that in the long run (decades) all floating currencies will reach their correct purchasing power values for trade. The US dollar has been overvalued for decades, but does appear to be correcting now. The link author should have explained why a floating currency can be overvalued for decades, in addition to his graphs showing that this is a historical fact. I.e. he should have mentioned that demand for the dollar was large for reasons unrelated to trade (Store of value, especially in times of global economic stress) held the floating dollar overvalued.

    He concludes with:
    "Davidson is a fellow of the Melbourne-based Institute of Public Affairs. This in effect means that from now on only Davidson's views on manufacturing and exchange rates will be aired. No debate will be permitted."
    If true that is indeed sad and shows the IPA has much too much influence in Australia - especially as I too think Davidson (and IPA) are incorrect about floating currency always having the correct value for trade. That is based on too simple a theory which ignores non-trade demand for the currency. Very obviously in the dollar's case the "non-trade" demand has been very important (if not the dominate factor) in keeping the dollar over valued for decades.

    Recently, this "non-trade" demand has essentially collapsed or even turned negative. That is why in the "long run" average (many decades) Davidson & IPA's POV may be correct, but that "long run" is so long that it is not very interesting - As Shaw, quipped: "In the long run, we are all dead."

    In case you think that Davidson is correct in the short run, for all currencies except the dollar - I note that the decision of Russia a few days ago to include the Canadian Loonie in Russia's reserves (a "non-trade" demand) is already helping drive the Loonie towards parity with the dollar. Russia is even thinking of including the Brazilian Real, which is up 30% in value wrt the dollar just in the last 10 months (In 2009). As I have been posting for years, holding US treasury paper is an almost certain way to destroy the purchasing power of your reserves. Even stupid central banks seem to have finally understood this.

    I will get to your other links later, probably today but certainly local industry is hurt by increased demand for your non-industrial exports - I.e. any country that has a surge in demand for its non-industrial exports will see its currency rise in value and its industrial exports decrease (the "Dutch disease" - discovery of North Sea gas destroyed their industrial exports.)

    In Brazil, high labor cost industry like making shoes for export, has been destroyed. (We call this "de-industrialization") Many years ago, I posted forecast that Brazil's ultimate fate was to become an "economic colony" of Asia, especially China. I probably will have more to say on this later as this relates to the "comparative advantages" discussed in your references.
     
    Last edited by a moderator: Nov 27, 2009

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