Majority of stimulus stays in US and does not go to China

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When we stimulate the economy, the majority of the money does not go to China or other countries. Keep in mind that companies move to these places because the labor is ridiculously cheap.

Offshore companies can pay a seamstress $0.25 per hour to sew shirts in someplace like Bangladesh. If she makes 10 shirts an hour, the total cost of that shirt is 2.5 cents. Yes, it must be shipped to the US. But, it goes in a massive container with thousands of other shirts on a boat which takes 6 weeks of travel time. Even that is super cheap. The majority of the $20 you pay for a shirt remains in the US.

XopherMV
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Jul. 31, 2007 4:01 pm

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I don’t think I’m buying that, XopherMV. That’s not the way it works.…..let’s look at a mythical flag waving, patriotic American job creator called AllAmericanShirts ……..what usually happens is that shirt is manufactured by a foreign sweatshop operator, a local oligarch who’s empowered by some iron booted dictatorial non-democratic government. That shirt is purchased for, say, $3,00 by AllAmericanShirts-Bangladesh.. Then AllAmericanShirts-Bangladesh sells the shirt to AllAmericanShirts-USA, for, say $19.75, in an intercompany transfer. So AllAmericanShirts-Bangladesh makes all the profit - $16.75, while AllAmericanShirts-USA only makes $0.25 from that $20.00 sale in the U.S. Therefore good ol’ AllAmericanShirts keeps 98.5% of the profit offshore, in Bangladesh or wherever – paying the much lower third world tax rate and artificially dodging U.S. taxes. Then they probably send that money to Bermuda or The Caymans or wherever to further launder the money so prevent company executives and shareholders from starving or going on food stamps.

So AllAmericanShirts, the heroic American job creator, crowing “freedom!” not only makes a wild $17.00 total profit on a $20.00 sale, by exploiting desperate slave wages toiling under an authoritarian boot – but keeps $16.75 of that profit offshore, away from that global standard for “freedom!” – the good ol’ U.S.A... even though U.S. consumers provide most of the customer base, the U.S. provides military safety, various legal protections, globally.

Sorry for the aside. But that’s the way it generally works. It’s oversimplified example, and I’m sure there are variations. The profits are all claimed offshore so they can dodge U.S. taxes. When you see statistics about the trillions in cash heroic job creators are sitting on, that’s the money they’re talking about…all held offshore. For the most part, it’s not money earned selling stuff offshore, it’s money earned from selling stuff IN THE U.S.!

But they still wave the American Flag, and enjoy almost unconditional supporf from Washington, of course, because they are the true American patriotic job creating heroes we need to give more tax breaks to. And of course, if we had more of those makers, instead of 47% unemployed, disabled vets, and other assorted welfare takers, we’d all be better off.

That’s why I generally don’t support raw stimulus or printing money. That’s the hole I see in the prescription of the economists at UMKC that Thom pushes. As long as we have little manufacturing, negligible tariffs, huge tax loopholes, bad tax policy, and otherwise incentivize pure financialization and disincentivize real production, the money WILL go offshore. Fix that first! In fact, many foreign export countries delay their own stimulus because they await the U.S. stimulus as they know they’ll get demand – and stimulus - from all the brain dead U.S. consumer demand that comes their way.

After all, they know they’ll eventually get the order for all those true American patriots who want to prove their love of freedom by buying their patriotic shirt, from tax evading, slave wage-enabled, authoritarian government-enabled AllAmericanShirts!

“FWEEDOM!!!!!!!!!!!”

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al3
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Jul. 31, 2007 4:01 pm

I'm trying to fathom the best case scenario presented by the original post - we are supposed to be happy that when we pay $20 for a shirt, $19 goes to the investor/owner who lives in the Hamptons?

chilidog
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Jul. 31, 2007 4:01 pm

You hit the nail on the head al3. Here is something I found on the web when doing a google search for made in USA athletic uniforms. This could be any product or service. The primary principles of economic stimulation are the same.

The custom soccer and basketball uniforms by Team Sports Distributors are made in the USA. As the owner of Team Sports Distributors I am very aware of the importance of products produced in our country by our U.S. citizens because this type of economic activity helps our country and its people the most. For example, whenever we produce athletic uniforms and sell them a number of U.S. people benefit and share in this money generating and circulating activity. Some of these are U.S. mills that produce fabric, trim, thread and garment labels. Along with their suppliers of fiber, yarn, and manufacturing machinery. The pattern person that does the pattern and sizing work. The cutter of the fabric. The seamstresses who sew the uniforms. The companies that make and service the cutting, sewing and pattern equipment. The software developers throughout the entire manufacturing process. The people who screen print the uniforms. The graphic artist who designs the graphics. The companies that make the ink, other screen printing supplies and machinery used in the screen printing process. The trucking or shipping companies who deliver the fabric, trim, ink and other goods used in the manufacturing process along with the final end product shipped to the customer. Any sales person, business or store involved in the sale of these uniforms. Team Sports Distributors over the last 30 years has produced its custom athletic uniforms with the use of U.S. citizens and this type of economic activity is beneficial to the U.S. economy. Economically speaking, this results in an increase in the U.S. gross domestic product without increasing our U.S. trade deficit.

Now compare this favorable and positive U.S. economic activity with uniforms or products that are imported from other countries for sale in the U.S. The only U.S. people that economically benefit are the multi-national companies that import the goods and the sales people, businesses or stores who sell the goods to the end users. And sometimes these multi-national companies even set up offices on foreign shores to avoid U.S. income and other taxes. U.S. ports who receive the imported products on U.S. shores may benefit, but even this can be sold for management and company profit purposes to foreign companies. U.S. shipping and trucking companies might possibly benefit, but the ocean line shipping company is likely foreign and now with the latest development with NAFTA a foreign trucking company and driver may soon be able to bring the finished products all the way to the door of the United States address of the multi-national company.

I have nothing against commerce with foreign countries under normal circumstances. Those favorable circumstances being a balance of trade between participating nations. And when the economic vehicles of participating countries can be complimentary to one another this can be economically fruitful. For example, when two countries trade goods or services and both are good at and have the economic vehicles to produce one type of product, but are not as good at producing another type of product, those two countries can trade with one another the type of product that they are good at producing for the type of product that they are not as good at producing. In this way, trade between these two nations can be mutually beneficial and complimentary.

The problem with our United States foreign trade now however, is that we are outsourcing the production of just about everything under the sun. We have given up many of our nation’s niche markets that we were formerly good at and economical at producing. And unlike just about every other nation on earth our national government policy has currently very little if any tariff or tax incentive protection against outsourcing our jobs, products and services to the labor of foreign nations. This has resulted in a ballooning U.S. trade deficit of currently as of 2007, about 800 billion dollars a year. To counter act this great loss of money every year our government representatives, especially at the federal and also at the state level, have been borrowing money at an ever increasing and alarming rate. This borrowing of money via the vehicle of government bonds sold to foreign and domestic private investors and even foreign governments acts to soften and hide the effect that the loss of such a great amount of money has to our U.S. economy. This hides the effects, but does not address the root of the problem that being the loss of money in our economy through foreign trade to cheaper labor nations who protect their own key industries while our nation does not. Under this scenario our middle class loses jobs all over the nation and our government and our consumers become indebted to our creditors and vulnerable to them.

This scenario is due to a spirit of greed that has swept and blinded our nation and economically injured the majority of its people and middle class. And again it is only because of ever increasing government and consumer debt that this is not experienced now more harshly. Rather than buy American made products with the money used for these purchases distributed throughout our entire national economy we have succumbed to the greed of multi-national companies who distribute goods made with cheap foreign labor just so they can increase their corporate profits while the end price to consumers has stayed about the same or increased slightly with inflation. We can not continue on this path of debt indefinitely. Buying made in the U.S.A. products helps break this cycle of debt while keeping the flow of money, goods and services in our U.S. economy.

As one familiar with economics and business I recommend that all U.S. citizens buy made in the U.S.A. products from reputable and skilled U.S. manufacturers like our company Team Sports Distributors. For information on other products distributed by Team Sports Distributors that are made in the U.S.A. or an analysis of the manufacturing process for items that we distribute please e-mail me. At Team Sports Distributors under our trade name Dynamo Athletic™, we value made in the U.S.A products and services and will do our part to invigorate our economy and nation.

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Mark the Shark
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Nov. 18, 2011 4:02 pm

The cement for repairing and repaving the roads and bridges is usually USA, the steel is hit or miss with China half the time doing the iron work and casting. The rebar installations, pours, and finishing are USA. The heavy equipment concrete trucks, earth movers and graders might be American, but the operators usually are. Mack is actually Scandia the Saab truck division. GM bought Saab auto, but trucks are high margin and not included..Caterpillar is also French or French Canadian because of the country's healthcare. Volvo makes some amazing heavy rigs, too. Ford used to, they might still.Virginia passed an infrastructure bill, I would like to see the projects in motion and see the stimulus effect. The roads were wretched, dangerous and overcrowded..

The city and county fleets really ought to be American, but Honda of Marysville, OH, and Toyota of KY hire more Americans than Chrysler in Mexico and Canada. Healthcare for the Mexican employees is less than half the American cost, and Canada is free. Hearse funeral and ambulance are still American, I think.

Puerto Rico might go for statehood, their 96 year protectorate anniversary is soon.

Virginia’s Infrastructure Gets a D+

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The Virginia Section of ASCE this week released its 2009 Report Card for Virginia’s Infrastructure. The Old Dominion’s infrastructure rated a D+ overall. The section’s first Report Card graded 13 infrastructure categories: aviation facilities, bridges, dams, drinking water systems, energy, parks and recreation, ports and navigable waterways, rail and transit, roads, schools, solid waste [...]

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at least they didn't fail. With a little work they can get to a C-, like W's grades. The + is probably from IAD improvements. Dulles had a lot of work early in the decade.

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douglaslee
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Jul. 31, 2007 4:01 pm

Well, there is another scam.

The transnational sets up a foreign subsidiary. It produces a shirt for 25 cents and sells it to the U.S. Home Office for $19.50 It's sold in the U.S. for $20. The U.S. profit is 50 cents. Now deduct business costs, shipping, distribution, and show a U.S. loss.

The non-taxable huge profit of $19.25 per shirt in the off-shore subsidiary is sent to the Cayman Islands. $19.25 return for every 25 cents spent and no taxes. Not bad.

Americans fork over $20 for a shirt with an inherent value of a quarter...and think it's a bargain.

Retired Monk - "Ideology is a disease"

polycarp2
Joined:
Jul. 31, 2007 4:01 pm
Quote polycarp2:

Well, there is another scam.

The transnational sets up a foreign subsidiary. It produces a shirt for 25 cents and sells it to the U.S. Home Office for $19.50 It's sold in the U.S. for $20. The U.S. profit is 50 cents. Now deduct business costs, shipping, distribution, and show a U.S. loss.

The non-taxable huge profit of $19.25 per shirt in the off-shore subsidiary is sent to the Cayman Islands. $19.25 return for every 25 cents spent and no taxes. Not bad.

polycarp, you have hit on a very common practice that is not well known. It is a scam. If we really wanted to disincentivize this practice that shirt should be valued at $19.50 when it hits the port in the U.S. and immediately slapped with a substantial duty whether or not the company importing the shirt is a U.S. company or not. I'd start at 15% and could be talked into going higher.

Americans fork over $20 for a shirt with an inherent value of a quarter...and think it's a bargain.

Retired Monk - "Ideology is a disease"

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Combad57
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May. 29, 2012 12:50 pm

During the debate over the stimulus that congress passed during the first Obama administration there were proposals to require spending the money on US made products. As far as I know these proposals were defeated, and much of the spending went overseas. Other countries were able to require more domestic spending in their stimulus bills than we did.

A dollar spent in today's economy does recirculate as much as it used to, generating more economic activity ... it ends up going outside the country to pay for imported goods before it goes through as many cycles as it did back in the days I was taking economics courses back in college.

In addition to dollars being sent overseas to buy imported goods, foreign nationals working in the US send much of their earnings to the family back home. Those dollars do not get recirculated, which decreases demand for products sold here.

A few weeks ago I heard someone quote either Simpson or Bowles, who said that the US has an agreement to defend Taiwan if they are attacked. So, as the quote goes, if China declares war on Taiwan, the US is obligated to declare war on China. And we would probably have to borrow money to do so ... from China!

miksilvr
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Jul. 7, 2011 12:13 pm

The United States had a 785 billion dollar trade deficit in 2011. China, in contrast has had large yearly trade surpluses. Amoung all nations the two highest trade surpluses in the world are for China with their large productive capacity and Saudi Arabia with their oil revenue. Our debt now with China is very large. Through the purchase of U.S. treasury bonds over 1 trillion dollars. The United States now as a government dealing with world trade shows NO economic business sense whatsoever. With so much outsourcing to foreign nations politicians from both parties either show no foundational economic business sense or are the equivalent of bribed politicians. Here is the foundation of a nation economically from a university textbook.

From the Book: Essentials of Investments by Zvi Bodie, Alex Kane and Alan J. Marcus; copyright 2004; This is a University Textbook. (The first section of the first chapter directly below.) This book goes into detail on the investment of stocks, bonds and securities.

1.1 REAL ASSETS VERSUS FINANCIAL ASSETS

The material wealth of a society is ultimately determined by the productive capacity of its economy, that is, the goods and services its members can create. This capacity is a function of the real assets of the economy: the land, buildings, machines, and knowledge that can be used to produce goods and services.

In contrast to such real assets are financial assets, such as stocks and bonds. Such securities are no more than sheets of paper or, more likely, computer entries and do not contribute directly to the productive capacity of the economy. Instead, these assets are the means by which individuals in well-developed economies hold their claims on real assets. Financial assets are claims to the income generated by real assets (or claims on income from the government). If we cannot own our own auto plant (a real asset), we can still buy shares in General Motors or Toyota (financial assets) and, thereby, share in the income derived from the production of automobiles.

While real assets generate net income to the economy, financial assets simply define the allocation of income or wealth among investors. Individuals can choose between consuming their wealth today or investing for the future. If they choose to invest, they may place wealth in financial assets by purchasing various securities. When investors buy these securities from companies, the firms use the money so raised to pay for real assets, such as plant equipment, technology, or inventory. So investors' returns on securities ultimately come from the income produced by the real assets that were financed by the issuance of those securities.

The distinction between real and financial assets is apparent when we compare the balance sheet of U.S. households, shown in Table 1.1, with the composition of national wealth in the United States, shown in Table 1.2. Household wealth includes financial assets such as bank accounts, corporate stock, or bonds. However, these securities, which are financial assets of households, are liabilities of the issuers of the securities. For example, a bond that you treat as an asset because it gives you a claim on interest income and repayment of principal from General Motors is a liability of General Motors, which is obligated to make these payments to you. Your asset is GM's liability. Therefore, when we aggregate over all balance sheets, these claims cancel out, leaving only real assets as the net wealth of the economy. National wealth consists of structures, equipment, inventories of goods, and land.

We will focus almost exclusively on financial assets. But you shouldn't lose sight of the fact that the successes or failures of the financial assets we choose to purchase ultimately depend on the performance of the underlying real assets.

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Mark the Shark
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Nov. 18, 2011 4:02 pm

Money official designated as "stimulus" is puppy shit compared to the $16 trillion "bail out" and the rolling "QE" dole bernanke has made available. And don't be fooled about this money's employment. Try applying the drill down reasoning of "if it were not but for...." to any portion of Bail out and QE that wasn't wired by Washington directly overseas in the first place. Then consider the final disposition of the "Afgan aid$$".

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telliottmbamsc
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May. 20, 2010 4:06 am

What's more, when it comes to the Mortgage Crisis, Bailout, QE, etc….when it is all said and done the proof may be in the pudding.

The end result of the financialized gyrations since 2008 has left the Wall St banks relatively divested of American stuff – facilitated by our own Government - and newly aggressively invested in stuff overseas.

If I said it once, I'll say it a thousand times Bernanke's motto of the Federal Reserve should be "Today's Federal Reserve! Proudly financing the abandonment of the American Economy, one misrepresented transaction at a time." Sure fits with Obama's obvious emphasis on Western Financial Imperialism of the world.

Kind of makes you wonder. Is that what Geithner meant when he referred to the “end game”?

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telliottmbamsc
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When Eric Holder eventually steps down as Attorney General, he will leave behind a complicated legacy, some of it tragic, like his decision not to prosecute Wall Street after the financial crisis, and his all-out war on whistleblowers like Edward Snowden.

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