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Thread: Recession of 2008 and impact on the DR

  1. #3351
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    Quote Originally Posted by Barnabe View Post
    I found these figures by coincidence in a study from the Superintendencia de Bancos.

    Supposedly the figures source is Rentas Internas. They are about "asalariados" and do not include government salaries (400.000 salaries on government payroll!!)

    Although they are a bit old, I found interesting to post them. See by yourself:

    salary<10k/mo 564218 (70%)
    10-24.2 171069 (21.2%)
    24.2-36.3 37068 (4.6%)
    36.3-50.4 15391
    50.5-78.8 13237
    >78.8 5042

    Looking at the raw figures, where is this famous "middle class"??

    Now these figures appear surprisingly low.

    There may a twist or something?

    Barnabé
    perhaps it is the government salaries that make up the middle class? well..not the police, that is for sure

    but the Congress! wowowow..

    @luismthen: Salario y Beneficios de un Diputado (Dominicano). #VivaRD

    anyone have any links to the executive branch?

  2. #3352
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    Quote Originally Posted by Barnabe View Post

    salary<10k/mo 564218 (70%)
    10-24.2 171069 (21.2%)
    24.2-36.3 37068 (4.6%)
    36.3-50.4 15391
    50.5-78.8 13237
    >78.8 5042

    Looking at the raw figures, where is this famous "middle class?
    This table reflects reality as you see it on the streets of the DR. 70% of the DR earning less than 250 bucks a month is a prime example of this. 20% earning between 250 and 600 bucks a month is what would constitute a middle in the DR and as you can see 20% is small indeed when compared to 70%. Also, the amounts earned can not afford you a true middle class existence.

    It is classified as a middle class because it lies within the middle range of incomes. It is not a truly middle range of incomes because to acquire a truly middle range one would have to absorb into that range the upper end of the lowest levels namely the upper end of the 70% range where the top salaries end at 250 bucks monthly. This would tend to bring down the middle range incomes thus creating an even more destitute middle class.

    It is also reasonable to assume that if the US middle is shrinking, then the DR middle should be shrinking too. Also, if the DR middle is a derivative of the US middle since the DR depends on the US, then the DR middle will be shrinking even faster than the US middle. Just like in calculus, the first derivative is moving at a certain rate but the second rate is moving towards degradation until further derivatives are degrading so quickly they essentially are moving to ZERO to end up in ZERO.

    In the same form, the DR middle which in prior times was more robust is heading towards ZERO. This correlates with a peso currency that itself is moving towards ZERO. As the DR is a derivative of the US, the US middle itself is shrinking as what was once well paid blue collar jobs have diminished and some industries have disappeared.

    The DR middle as evidenced by Barnie's little table has been reduced to a mere < 20% at incomes which are themselves pitifully low. This also corroborates what is economically known as the ways the middle pays the price for currency devaluation. Since 1980 when the peso dollar parity was broken, the middle was sacrificed to save the nation. As a result, macro-economic stability was ensured at the expense of micro-economic classes.

    The DR middle as the US middle has seen its wages decimated by central bank interventions to ensure the respective nations do not collapse as a result of a drop in demand. These CB interventions have collapsed the currency to plug in shortfalls in the natural organic sectors of productivity. Now, wage decimation has not come in the form of less currency per wage but in the form of a drop in purchasing power. You have more currency numerically but its purchasing power is less than in the past.

    In order to plug in the shortfalls the middle has been forced to endure, the DR and US central banks embarked on a path of lax credit standards. So, they create the problem by decimating the middle and simultaneously try to solve a problem of their own making by extending credit. This only produces more problems in the form of future indebtedness.

    The DR being a derivative of the US has a more rudimentary form of the same but it has borrowed, extended and increased credit to create a false sense of prosperity and herein lies the crux of the matter. The DR has more vehicles and TV's, washing machines, radios whatever is comparable when compared to its past say 50 years ago. Going back 100 years, many of these gadgets did not exist nor if some did they were not available in the DR. Anyways, there are more gadgets now and folks like Pick and Nails present this as proof of economic betterment and improvement.

    That is superficially true but the reality of the situation is that extending credit to enable this alleged economic betterment in the last 50 years has produced high levels of indebtedness. This has occurred primarily at the DR governmental level where 50% of the national budget goes to paying interest and some principal. At the level of its citizens, credit has been extended in the form of buy now pay later schemes effectively creating a goods bubble where many of those goods are later taken back by the issuers

    Case in point are the vast number of motorbikes in the DR which are bought on credit with small monthly payments but are usually repossessed by the dealers for non-payments. One may believe that seeing so many motorbikes on the roads is evidence of prosperity but it is all debt driven. Many are taken back by the dealers and are housed at the dealer giving a further false sense of prosperity by sheer numbers alone. This was not the case in prior periods.

    From 1920-1970, that 50 year span saw a reduction of debt to the point of the national debt being paid off by the Trujillo regime in full by one check. Gov't acted prudently within the constraints of a balanced budget. In the 50 year time period prior to 1920, namely 1870-1920 the DR indebted itself to the point that the US took over operations at customs to ensure payments of money owed. Since 1970 and more so since 1980 when dollar-peso parity was broken, the DR once again has embarked on a debt driven economy.

    If the past is any guide, the next 50 years starting from 1970 or 1980 for the DR specifically and the world generally will probably see a peak in debt spending and pump priming resulting in a culmination of debt driven economics. As a result of the ensuing crash which may synchronize with a worldwide credit crash, as occurred in 1929 the world will revert to sound money principles, living within your means as a social ideology and balanced budgets. Growth will be non-existent initially and extremely slow and steady later on. DR wages will reflect equilibrium with pricing and a renewed middle class will emerge. At that point the monetary, economic and social levels will move in tandem.

  3. #3353
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    Interesting how some people assume the typical household has one income earner or even declares all their income...

    But this has been explained multiple times on DR1, some people just don't want to get it.

    Its not a problem. While those that make money from the DR do get it, those that don't continue to play their role as doubting thomases.

    Moderator Polls Forum

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    Quote Originally Posted by Onions/Carrots View Post
    It is also reasonable to assume that if the US middle is shrinking, then the DR middle should be shrinking too.
    Why should it necessarily be so?

    In the same form, the DR middle which in prior times was more robust is heading towards ZERO. This correlates with a peso currency that itself is moving towards ZERO. As the DR is a derivative of the US, the US middle itself is shrinking as what was once well paid blue collar jobs have diminished and some industries have disappeared.
    .../...
    Since 1980 when the peso dollar parity was broken, the middle was sacrificed to save the nation. As a result, macro-economic stability was ensured at the expense of micro-economic classes.
    The problem is that, for whatever reasons, your sayings don't match the reality in the streets, (at least my perception of it over the last 20 years) and I'm not talking of the Piantini or Anacaona towers.

    Barnabé

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    Quote Originally Posted by Barnabe View Post
    Why should it necessarily be so?
    The social class most affected by currency changes is the middle class. Members of this class can lose their middle status and be added to the working poor if the currency deviates too much. Since the value of the Dominican Peso is quantified in US Dollars, then the peso is dependent on the dollar. If the peso is dependent on the dollar, then the DR middle is dependent on the US middle. So, if the US middle shrinks, then the DR middle will shrink as a result.

    To understand this point better, let's look at a time when the dollar and peso were equal. From 1980-1985, they were. Since we are in 2012, let's pick 1982 and see what has happened during that 30 year period. If a dollar in 1982 was 200 an ounce and a peso was equal to a dollar, then a peso was also valued at 200 an ounce. What happened during the next 30 years proves the peso's dependency on the dollar and the dollar's significance on the middle classes of both nations

    So, during the next 30 years, the value of the dollar went from 200 an ounce of gold to the current price of 1600 an ounce. At 200 to 1, one dollar would get you .005 parts of an ounce of gold. To get some perspective on what this means is that in percentage terms, it is 1/2 of 1% and that's how worthless the dollar was 30 years ago!!! Currently, it is 1600 to 1 meaning a .000625 value per ounce of gold. In percentage terms, it's .06%. So, as far as gold is concerned, the dollar has lost 99.94% of its value and what we are debating is the final .06% or about 1/20 of 1%. The dollar is moving towards its demise.

    Yet as far as the peso is concerned, the dollar is fixed, unmoving, rigid and as stable as gold. WHY? The peso's value is determined by its relationship to the dollar. National dollar reserves help fix the value of the peso. The DR central bank bolsters its dollar reserves to defend the peso and vice versa. Imports must be paid in dollars. So, the dollar is the main control point for determining the value of the peso and its treated as fixed and stable as gold. Yet, as the previous paragraph showed it is anything but stable having become worthless itself.

    The peso was at one time at par with the dollar. Since the early 80's, it has lost near 97.5% of its value per the dollar. If you take a 40 to 1 rate, a peso is worth 2.5 cents today. It's a whopping drop from 30 years ago. Now, if the dollar has lost 99% of its value per gold and the peso has lost 97.5% of its value per the dollar, what is the value of the peso per gold? At 40 pesos to 1 dollar and 1600 dollars to 1 oz/gold, you'd need 64,000 pesos to purchase one oz. of gold. In percentage terms, that's .002% which is so far removed from a measly 1% it's not even worth considering.

    So, what does all of this currency talk have to do with the middle class. Well, as stated at the beginning the middle class is the group most affected by currency dislocations. They can easily be added to the working poor by such moves. As proven, since both the peso and the dollar are heading to oblivion the class most affected, the middle, is also heading to oblivion. And since one currency is dissolving faster than another, then as shown one currency is dependent on another.

    If the middle class (the DR one) is dependent on the currency (the peso) of the nation within which it resides and that currency (the peso) is dependent on another nation's currency (the dollar), then that middle class (the DR one) is dependent on the fate of another nation's currency (the US dollar). And if the US middle class is dependent on the dollar and it shrinks because of a declining dollar, then the DR middle will shrink also because it also is dependent on the dollar's value to fix the value of their own currency namely the peso.

    Thus, as the US middle class shrinks, the DR middle will shrink also and at a rate which will always exceed the shrinkage of the US middle. Just as the dollar is decreasing rapidly in value per gold so will the peso decline even faster since it depends on the dollar's value to fix its own value.

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  7. #3356
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    O/C; No doubt that devaluation of the dr peso will hurt peso earning folks, in purchasing power and when coming over the U.S. for vacation and shopping, standard of living will suffer. Even latter with inflation adjustments, may not fully be of benefit to all Dominican citizens.
    The price of gold and connection to dollar, that is something else, since there is less than a ounce of gold per person in the planet...the price is artificially kept low,even if it seems high.

  8. #3357
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    The social class most affected by currency changes is the middle class
    .

    Agreed...whether they are caused by internal or external events.

    Members of this class can lose their middle status and be added to the working poor if the currency deviates too much.
    Agreed, if by referring to the currency you are talking about the peso.

    Since the value of the Dominican Peso is quantified in US Dollars, then the peso is dependent on the dollar.
    Agreed as to the peso, but such is not necessarily the case for all countries, nor is it an exclusive factor.

    If the peso is dependent on the dollar, then the DR middle is dependent on the US middle.
    Agreed to some extent...but again it is not the exclusive factor.

    So, if the US middle shrinks, then the DR middle will shrink as a result.
    Well, by all accounts the US middle class is shrinking, but that does not mean the DR middle class must also shrink. Case in point would be Bermuda. A small island nation whose currency is pegged 1:1 against the Dollar. Given that, it should move in lockstep given your premise...and such is not the case. Bermuda was and still has one of the highest per capita incomes in the world.

    And, a nations currency gaining ground on the dollar does not necessarily mean its middle class will expand. Case in point is Japan. The yen has strenthened against the dollar since mid 2007, yet the Japanese middle class has been in decline for at least the last seven years.

    My point here is that the decline of the peso against the dollar and the shrinking middle class of the US is only one of many factors that can and do affect the DR middle class and the peso.

    Strength of imports/exports, government structure, government borrowing and spending, commodity reserves, manufacturing, and population demographics also need to be put in the mix.


    Respectfully,
    Playacaribe2
    Last edited by playacaribe2; 05-05-2012 at 09:28 AM.

  9. #3358
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    Quote Originally Posted by porkman100 View Post
    O/C; No doubt that devaluation of the dr peso will hurt peso earning folks, in purchasing power and when coming over the U.S. for vacation and shopping, standard of living will suffer. Even latter with inflation adjustments, may not fully be of benefit to all Dominican citizens.
    The price of gold and connection to dollar, that is something else, since there is less than a ounce of gold per person in the planet...the price is artificially kept low,even if it seems high.
    You won't read that in the Listin Diario or other major news outlets in the DR. If a currency has lost 99% of its value versus real depositories of wealth, those currencies are in fact defunct and dead. Their death was caused by central bank movements aimed at preventing recessions and depressions. By increasing the total money supply, they debased or cheapened every dollar or peso already in existence. Over a 30 year time period, this has caused money to lose its value to the point we are at today where you have currencies which are in fact dead being propped by the very institutions that have caused their death.

    This is fact not fiction. October of this year will mark exactly 5 years since the DOW hit its highest point ever just over 14,000. Despite the central banks of the world pumping 7 trillion dollars which they created out of thin air into the global economy, the DOW has just barely maintained a position 1,000 points below its highest ever. That 13,000 level is not due to actual growth coming from its low point in March 2009 around 6500 but its due to the dollar being cheapened therefore increasing the pricing of companies.

    ZERO HEDGE

    Recovery? What Recovery? 4 years after central banks have progressively injected over $7 trillion in liquidity into the global markets (and thus, by Fed logic, the economy), and who knows how many trillion in fiscal aid has been misallocated, to halt the Second Great Depression which officially started in December 2007, the US "recovery" is the weakest in modern US history! How many more trillions will have to be printed (and monetized) before the central planners realize that fighting mean reversion by using debt to defeat recore debt, just doesnt't work? Our guess - lots
    Remove those 7 trillion dollars and where would we be right now? Why would the central banks of the world have to inject 7 trillion dollars into the global economy at all? The answers are quite clear. Without that massive money printing scheme, we would be right now and right here in a major depression worldwide.

    There is no recovery but a cover-up. Spain is on its deathbed followed by Ireland, Portugal and Greece which is already dead. The EURO is on its way out. Great Britain is under severe pressure with most of Europe entering recession once again. And don't think Germany is safe. Germany exports to the broke and busted nations of Europe. When they no longer can afford to pay for German imports, what will happen to Germany. The dollar is hitting new lows and a dollar collapse is certainly on the horizon. So, all of this talk of betterment is just for public consumption, overall nothing is getting better.

    As I stated in prior posts, the monetary level where most of this carnage is taking place has been cordoned off temporarily by the central banks of the world. It is only temporary. Having plugged the cracks at the monetary level somewhat, they have no bullets left to attack the problem at the economic and social levels. That's why I have repeated many times the middle classes of the world have been sacrificed to maintain national unity in each country undergoing these stresses. The middle classes have less money and credit with which to operate.

    The central banks have over time given immediate gratification in the form of cheap credit but have built up debt to levels which at present are costly and are on an irreversible path. The US debt levels are already at 100% of GDP, something also unprecedented in modern history save for WW2. The problem has only been postponed and the worst is yet to come. Best case is we get a 20 year economic malaise in the form of Japan where markets-stock, real estate and others have been on a double decade slide and the worst case is DEPRESSION.

  10. #3359
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    O/c A lot to be said for Central bank's power (DR) the exchange rate is firmly unchanged, and the petro price also. None of this is subject to traditional influence of free market fundamentals. Instead is manipulated by other considerations (like elections)
    The stock market is being played by people (speculators) with a lot of 0% money, so when REAL unemployment rates are with in depression numbers..and the market is fat and happy.
    What is interesting in this depression unlike past ones, every one is talking about a balance budget the deficit, austere measures and all that horse crapola.
    In 1940 the U.S. had an income of just over a billion, in 1942 the imperial Navy of Japan sank 4 super aircraft carriers in 6 moths (Lexington,Hornet,Yorktown,wasp) and many others, exceeding the income to replace them..did any one mention a balance budget then??? Now people loosing home and assets to a troubling degree...and the haves want a balance budget.
    Btw none of that debt has ever been paid.

  11. #3360
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    Quote Originally Posted by porkman100 View Post
    The stock market is being played by people (speculators) with a lot of 0% money, so when REAL unemployment rates are with in depression numbers..and the market is fat and happy.
    There are at least three reasons why the stock market appears to be "up" and eeeevil corporate profits are also "up":

    1. Adjusted for inflation neither are really "up."
    2. The dollar is inflated
    3. There are few alternate investments available to fund managers who have BILLIONS in 401K $$$ coming in every pay period, and that $$$ HAS to be invested somewhere. There are few investments available right now with money markets at 0% and real estate still going down. Therefore there is a relative high demand on stock purchases.However, volumes are a fraction of the same levels as during the "last high" of '07.


    Quote Originally Posted by pork
    What is interesting in this depression unlike past ones, every one is talking about a balance budget the deficit, austere measures and all that horse crapola.
    Opinions vary, but it's hardly "crapola." In past depressions there was available economic "equity" in the form of future growth and a relatively small sovereign debt to income ratio. Debt back then was properly used for infrastructure projects. Now debt is used for Free Cheese, i.e. social entitlements. And the sovereign debt to income ratio is through the roof, and growth isn't even fast enough for population replacement.

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