Ambrose Evans Pritchard argues in a Telegraph article that China may be in serious economic trouble, citing a widening gap between production and consumption that is creating excess capacity. On the one hand, sales are falling, with exports down 23% from a year ago. On the other hand, output is rising as a result of “an investment blitz in roads, railways, and industry through state-owned companies”. The result is one trend line going up and another trend line going down.
the stimulus is feeding more industrial investment, leading to more excess capacity worldwide. While Chinese GDP continues to grow near 8pc, this is based on output. In the West, GDP growth is based on spending. These two definitions are chalk and cheese. … There is a deeply-rooted belief that the authorities can keep the game going – the “Panda put” … Mr Xie, who wrote his doctoral thesis on Japan’s bubble in the 1980s, said China’s ratio of property prices to incomes is seven times higher than in the US. It costs three months’ salary per square meter of space – arguably the highest in the world – though tower blocks are sitting empty. Prices are being propped up by state enterprises, abetted by local Communist bosses.
The Australian echoes many of Pritchard’s fears. Michael Sainsbury, its China correspondent, warns a property crash may be in the offing, as the central government its stimulus package, “a rubbery number generally quoted at 4 trillion yuan ($702bn) but believed to be much more” pushes things up with no visible means of support. The Australian Treasury Secretary, Ken Henry, warned of a “second shockwave”, but believed it would not be as bad as the first. Sainsbury writes:
The property bubble in the Western world, an overvaluation of assets driven by cheap money and dodgy financial engineering models, was at the very heart of the nasty global recession that appears to be edging away from the abyss. The big question on everyone’s lips is whether China is heading down the same path and if it is, like the property crash in the US, its effects will not be limited to China.
But not everyone thinks doom is just around the corner. The Fed suggested that while the economy may remain weak for a time, the worst of the recession is over. “While US unemployment rose again last month, the 247,000 job cuts were far fewer than analysts had expected.” A Wall Street Journal poll reported that economists surveyed believed it had indeed run its course. “The Journal reports that the experts are overwhelmingly in favor of President Obama asking Bernanke to stay on for another four-year term when his current term ends Jan. 31.”
Japan recorded its first quarter of growth for more than a year, leading to hopes that the recession is ending across the globe. “The figures appear to bear out prime minister Taro Aso’s assurance that Japan would be among the first major economies to emerge from the global recession … experts warned, however, that the recovery could quickly fizzle out without improvements in demand at home, where families have been spooked out of spending by falling wages and job fears.” Is recovery around the corner? Open thread.
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“Is recovery right around the corner?”
W, I don’t think so. I see too many technical arguments that say the U.S. consumer is deep in debt, underwater on what is usually his biggest asset, his home, is losing jobs at a pace only seen in the Great Depression, and has no confidence in either the economy or the Administration.
Maybe all these technical arguments are wrong. However, the same people who are telling me that recovery is right around the corner are the ones that were telling me about “lightworkers” and “hope and change.”
I didn’t believe them then, and I was right. I don’t believe them now, either. We’ll see.
It won’t recover with capital on strike, and capital is on strike until it’s clear the government won’t confiscate all returns on investment.
The stimulus ought to have been zeroing out capital gains taxes and business taxes.
Which means no recovery until the Repubs win some power, and the Repubs are even nothing to want these days.
Many years ago my undone thesis foundered on my disinclination to cobble together a story based on numbers reported by the Chinese government. How big a threat will China become? The counsel of our fears tells us to expect the worst. There could be blue water fleets with red flags sweeping South and East in a replay of the Japanese effort of almost seventy years ago. Faced with the hollow shell of Russia to the North and the resource pools weakly controlled by barbarians to the South-West the Chinese could send forth million man armies in vast columns to grab in a replay of the Mongol conquests of almost a thousand years ago. But a small voice made me hesitate to tell a story based on numbers that are unreliable.
How big is the chinese economy? The truth is that no one knows. Mao constructed a system in which everyone had a powerful incentive to lie about how many eggs the chickens were laying. On a previous thread it was noted that Solzhenitsyn in One Day in the Life of Ivan Denisovich showed how communism made it more rational to lie then to tell the truth to authority. We have problems with our Generally Accepted Accounting Principles based business model in America but on a basic level we can believe that real numbers are available for judging the state of a firm or of the economy. In the case of China the picture is much murkier. We can get information on resources consumed as a rough guide to what is going on in there. The authorities themselves are probably facing the same problem. What, they must ask themselves, if they are in the same fix that Saddam was in? They could end up giving orders to move nonexistent divisions and fire inoperable missiles that their own agents had fooled both the Americans and them into believing in.
With the current levels of deficit spending it will be all but impossible to avoid inflation and increasing interest rates that will surpass the Carter era. It will get much, much worse before it gets better.
The good news is that under Obama’s leadership the American economy will become as corrupt and opaque as the Chinese. We can hope that the resulting uncertainty about conditions here will cause foreign adversaries to hesitate before challenging us. The American, Russian and Chinese governments will have to devote CIA sized resources to teasing out what will really be happening in the new socialist America. What a brilliant stroke on Obama’s part. That should keep us safe for years.
I think the biggest problem is figuring out what is the best way to do a John Galt.
Socialists view Capitalism as cow to be milked. Communists view Capitalism as a cow to be slaughtered. The Socialists are worse because the cow goes right on working, but after the Communists get their way their downfall is inevitable, especially when they run out of cows to slaughter who don’t slaughter back.
As I have mentioned before, last year I theoretically made $85K in income from mutual funds and paid taxes on those gains, all of which disappeared by a factor of 3 or 4 times over in matter of months. This was not the first time of such an occurance, just the worst. I am sure something similar will happen next year and every other year unless I do something about it.
Canada Bill Jones motto is that it is morally wrong to allow suckers to keep their money. I have decided it is morally wrong to keep being milked. But what to do about it?
I have little doubt that property is overvalued in China. But China has a lot of real wealth-producing assets too, namely hard-working people who place high value on education and a wide industrial base. If there’s a crash in China they’ll come out of it the way the USA came out of WWII – with a surge.
That’s of course assuming the government lets asset prices clear.
Lifeofthemind,
I agree with your hesitation to believe anything that the Chinese government tells you about the size of their economy, but we don’t need to trust them. They import huge quantities of energy and raw materials and export similarly vast quantities of finished products. This easily measurable by the sellers and buyers. Less easily measurable is the real estate boom, but it’s existence is clearly visible to any visitor to Chinese cities. It’s no ephemeral “paper wealth” created by some accountant, but real steel and concrete.
We can safely assume that the Chinese economy is “really frickin’ big.” We can also directly observe the quality of their computers, cars, rockets and nuclear power plants and safely assume their technology is “improving mighty fast.” Those are not nice quantitative numbers, but they do tell a story.
In a world economic system based on trust there will be no recovery until the suckers consumers begin to trust the system again. The bad part about this latest milking is that the producers were more badly beat up by the pimps than the consumers. Producers are supposed to be the smart whores and when they get beat up they remember. This vicious cycle will repeat until the pimp gets his just desert.
You know why Capitalism can’t win? For the same reason that nice guys don’t get the girl. Capitalism plays fair for all. Everything else is just a rigged game.
For what it’s worth.
I bartend in a locals/working class bar in Massachusetts in a ‘all right’ town.
A lot of customers are collecting unemployment, and liking it, as it almost approaches the post tax take home pay, without the workey hassle thing.
I expect a serious crunch when these unemployment extensions stop. That’s when you’ll see the spending hit the fan. Around Christmas, I’d say.
People are spending/cashing in 401K’s and the like.
No one talks of buying a new car. Many said they’d wouldn’t minded having a ‘clunker’.
Near everyone seems to hate both parties.
Town and government workers are imperial and just don’t get what’s going on. I know a lumber company that laid off half of it’s near hundred employees. Not a peep in the paper, however there was a story about the hundred member police dept laying off a couple of dispatchers. The towns are still borrowing and building ten/forty million dollar buildings to house paper shufflers, bureaucrats, code enforcers, committees and who knows what. None of them mow a lawn, cook a breakfast, empty a bed pan, turn a wrench but they do snow down ever deeper forms, rules, regulations, ordinances. Everything is illegal unless expressly permitted after a multi year review ‘process’ with uncertain outcome.
People here are looking at Trulia and Zillow at house prices in Florida and Texas, so I expect those states will have their houses bought up. People want out of high tax, bureaucratic, overstaffed Massachusetts.
I’m starting to hear Detroit like stories of parents just giving their houses to the kids as they can’t sell them anyways in certain parts of Massachusetts. Kind of like spreading inkspots of declining jobs/incomes/housing prices.
You want a boat, sailboat, jet ski, Harley, RV, gun, anything? People are dumping their toys. A good, rich friend just bought a 45′ sportfish for 150K cash, that would of gone for half a mill, easy a few years ago.
A lot of people have had, for no to little reason, either their credit cards canceled or limits set to what they owe. People have had their rate go from 14 percent to high 20′s all the time reading about Citibank, AIG, and others getting Federal money that will be paid by their kids.
So, savings wiped out, homes either underwater or appreciation gone, incomes declining or stagnate. More taxes and higher fines, fees, permits coming. More rules regulations, ordinances. Huge un funded pensions and a shakey dollar.
Mr. American consumer is on financial injured reserve for the next season or two and it’s uncertain if he’ll ever return to the pro spending league.
What makes the crystal ball even cloudier is that we have no idea what new shocks to the system are in store.
A few months ago on John Robb’s Global Guerillas blog someone (it may have been Robb himself, or one of his commentators) argued that a few well-placed Mumbai-style attacks on shopping malls across the country, particularly in the days just before or just after Thanksgiving, would be catastrophic for the economy given its present state, as even those consumers who are otherwise ready and willing to start spending again stay away from stores, this time out of fear for their physical safety. This is just one example of a “black swan” that could still cripple the economy in the near term.
Every time I try to sell China short, they always pull another economic rabbit out of the hat. The Chinese leadership has done a remarkable job of leading their country to a strong economic footing in such a remarkably short time.
Not that this is without tremendous costs of personal rights and particularly on water quality. I’m not sure that they are going to be able to repair the damage that they have done to their water resources.
rhhardin, you are spot on. this will be a slow, grinding recovery here in the US until capitalists feel some level of comfort that the Federales will be leaving the rules of capitalism in place. Until then, capital is on strike and you can’t have a recovery until capital leads.
Poor Little China…
I’ve mentioned several times that China’s been offering the harvested internal organs for transplant, and more recently the collagens-for-cosmetics processed from the SKINS of freshly executed condemned citiz… um, subjects.
World economy being so interconnected and all, and considering the success of the eight decades of subversion of the West by Comintern agents, I gotta ask:
How long can all those Chinese organs stay fresh, when nobody can afford to buy’em?
Bamagamacare ain’t gonna free up any dollars for such extravagances, I spect.
In the power sector, Obama removed the previous chairman of the Nuclear Regulatory Commission Dale Klein, as his right, and replaced him with a guy named Jaczko who had been on Harry Reid’s staff.
Jaczko had been a commissioner before his elevation to chairman and was infamous for being on the losing side of a number of 4-1 votes.
Now tell me how that is going to encourage investors in nuclear power?
If the RE market in China goes bust, what are the effects? Are the Chinese capital markets like ours? What will the effects be on their huge investment in US Govt paper? I can see that the loss of significant value of PRC real estate could cause a dumping of paper to raise capital and a substantial involuntary devaluation of the dollar. Like what happened in Jimma’s turn when the ability of the dollar to buy oil went to (relative) zip.
A friend and I lunched on the economy at a famous Atlanta joint the other day. We concluded as is stated above that the recession will last until the Rules are clear. I can only hope that Nov’10 brings clarity. Otherwise it may be a while.
13 Whitehall:
Forget that because of the environmental hell that nuclear will inevitably cause. If we went Nuke, tree huggers would lose a huge set of complaints. Besides its so scary, dealing with radiation and other things you cant see.
Any “recovery” that may be going on will be a weak one that can be likened to the eye of a hurricane: a temporary repite from the trailing arm of the storm. The “recovery” likely won’t last long enough to bring unemployment levels down to what modern America had gotten used to. The reckless, unconscionable spending coupled with an inistence on further economic and financial policies that are too much like the ones that brought on the present ruin are going to virtually insure at least economic stagnation for the long term, and very possibly a deeper recession a couple years down the road.
Roderick Reilly,
Surely you mean a temporary respite from the leading edge of the storm? The trailing edge is what hits you after you get to enjoy the eye.
Unless that is instead of being chased by the storm you are actually sneaking up on it from behind. Just let me take a moment and go through these papers, there must be a chart that explains all this.
*Sounds of Spectacular Crash*
No, there won’t be a real recovery until (and unless) this administration can cease its hostilities against any business on so many fronts.
But we will have multiple ‘reinforcements’ on economic experts and polls for the pink rosy lie to last a while.
Hope consumers wise up on that.
I was just looking at the latest Daily Presidential Tracking Poll from Rasmussen Reports. http://tinyurl.com/5tnd2b
It looks to me like there is a story in those lines that someone who uses technical analysis on the stock market could get into. Personally I think that much of that is Voodoo because the Easter Bunny told me so. If I had the money to invest I would try one of two radical decision making systems instead. One is rarely used but has been known to work, it is called doing your homework. The other with a distinguished pedigree is called darts.
Now getting back to the fortunes of BHO. Currently the spread, called the “Approval Index” is at minus 7 and it has varied between minus 3 and minus 11 over the last month. It appears that over the last 6 months about 10% of the electorate has withdrawn their previously highly favorable opinion of the current occupant of the White House. During the same period twice as many voters, fully an additional 20%, have shifted to expressing a strongly negative view of Obama. While there are constant perturbations in the daily polls these shifts appear to be permanent. That means that the moderate middle is shrinking and turning against the present administration. Excuse the use of allusions but I do not want to say President, the word under present circumstances sticks in my craw. Another possibly interesting point is that while the general trend of the rise in the strong negatives is fairly constant the pattern over time of the decline in his strong favorable rating is more complex. The line appears to descend in a series of sudden breaks of 3 to 5 points, followed by a partial recovery and then by another drop. This step function quality shows that response is being effected by the White House’s efforts to fight back and spin the story after each shock but that those efforts are ultimately unavailing.
To me it looks like each downward step represents another segment of the cobbled together Democratic coalition of 2008 that has peeled off. The more linear path of the rise of the strong negatives to me shows that the forces moving against the administration are broad based and are not the result of astroturfing or the controlled manipulation of discreet constituencies. If these trends continue then it looks like that by November to January another 5 points will have peeled of of his high favorables and another 7 to 10 points will have shifted into the strong negative camp.
All of this is happening before the second wave of economic contraction that I fear will be triggered by the bad debt run up by the deficits. As our genial host has pointed out here, we can not count on China to fund Obama’s binge.
The China enthusiasm here seems a little forced. China needs to sell us stuff and we’re not buying.
Also people love to say the Chinese are hard-working. Really? To what end? I have a friend who does some business there, and he loves to say this. He also loves to complain about the constant chicanery and bullheadedness.
Anyone ever here of a book called “Poorly Made in China”? In 2006 I bought a Toshiba Satellite laptop made in China, and this year I decided I would get a nicer computer, so I got a Lenovo notebook, a significantly more expensive computer also made in China. The Lenovo is poorer quality.
I think one of the ways China is going to deal with the stress is shaving quality and it’s not going to encourage people to buy their stuff.
Modern macroeconomics is worthless. The predictions based on the rational expectations are worthless. Plus the government statistics are cooked.
The enormous misallocation of resources in this country and many others due to the financial bubbles has caused a significant decrease in the wealth of most citizens. Do not believe the hype.
As far as China is concerned, their higher education system is even inferior to ours. The only firms that make real money in China are firms that export raw materials to China or machines. The remimbi is not convertible.
I know of one mining machinery company thata sold one of their drilling machines to a Chinese firm and then was asked by the Chinese firm to send a field engineer to show them why their copy of the US machine was not working. Stealing IP is a way of life in China but they do not innovate very well.
The Party is very corrupt. Even Chicago is not as corrupt as Chinese politics and business.
Joshua has a good point. The biggest black swan, of course, inhabits the White House. I think the economy has turned a corner; recovery would be a good bet if the administration were just to avoid doing anything to harm it. But the chances of that seem slim. If cap-and-trade and the health care takeover fail, they’ll propose something else out of the leftist playbook.
The Chinese are hurting because the American consumer is not consuming enough of their goods. In addition, the Chinese know that Obama can try to inflate away the deficits, if they, the Chinese, will not, or cannot, continue to buy our debt. That would further hurt their bottom line.
If the Chinese economy tanks severely, you can bet they will attempt to retaliate against us somehow. Things could get very ugly with the Chinese if American consumer confidence doesn’t improve soon.
But rhardin’s point is correct. Too many of the producers and consumers do not trust this administration, which will delay recovery. Unless Obama and his socialist cronies are unequivocally hamstrung by Bluedogs and Repubs, we are in for a rough ride. And so is the rest of the global economy that is dependent on the American consumer.
Joshua: I have often wondered why Al Qaeda has not done this type of thing before. It would be relatively easy to do, wouldn’t even have to be a suicide mission — just do the job and then give up — and would be phenomenally effective at crippling what is left of the retail economy.
I keep reading about what geniuses Al Qaeda’s leaders are, how many eager recruits and ‘sleepers’ they have, so why hasn’t this happened? Even easier would be a repeat of the anthrax attacks, and you wouldn’t even have to use anthrax everywhere. As Lenin said, “The purpose of terror is to terrorize”.
I don’t have any answers but I would like to ask a question. Is it really possible that the economy has “turned the corner” heading up?
I’m no economist but I see the things “Pauloffbench at 9” says about high taxes and upwards unemployment and read the same things “kaba at 4” says about the deficits with inevitable inflation, and cannot understand why the market has gone up and “the general consensus of economists is that we’ve turned the corner”.
Admittedly I live in California so crisis is just around the corner here but it seems to be nearly as bad in many other places. How can the market start going up long-term and profits start to reappear? Is it really possible?
Now a trivial question for the linguist here. When did “can not” become “cannot”? Admittedly, I went to school a loooong time ago, but can not recall this change taking place.
What’s intersting in the vaunted US “recovery” is that unemployment is much much higher than advertised. see the study at http://cis.org/Announcement/UnemploymentNumbers2009
Unemployment at 16.3% including those guys Paul (9) talked about who are enjoying their “pennies” as the old guys used to call unemployment and those on reduced hours that dont appear in the common stats.
Market rallies can call a false dawn.
Gallup reports that America claims 40/20 conservative over liberal, self defined. the remainder sez “moderate” whatever that is. Things stay bad, 2010 will not yield a good democrat harvest. Particularly if China goes south and takes our credit with them.
Personal debt coupled with fear of losing one’s job will hurt consumer confidence. Combined with the death of the homestead-as-cash-cow American dream, and tighter credit, people realize that they can no longer live large on VISA indefinitely. And peterpauling* will not work if Peter is also broke. A prolonged period of low consumer confidence would have a dampening effect on the recovery.
A lot of deeply in-debt people are wondering “where’s my bailout?” Obama made promises to people, and he will have to answer to them. His plan to “spread the wealth around” will fail, if revenues continue to drop. Like his crazy uncle Rev. Wright proclaimed, the chickens may soon be coming home to roost.
*robbing/borrowing from Peter to pay Paul
It will get worse as we have not yet flushed the bad debt out of the system. Housing prices are still too high in many areas of the country. Banks are sitting on foreclosed homes and won’t sell them or mark them to market as it would reveal that they are insolvent. There has been a desperate attempt by the Fed and both the Obama and Bush administrations to paper over these facts with trillions of dollars. This will be of no avail. We cannot have true recovery by pushing pieces of paper around that pretend banks, businesses and individuals are solvent when they are truly bankrupt.
We also need to price in the fact that the past 8 years ‘recovery’ was based on a credit bubble. It was pulled forward demand. People need to pay for all the stuff they have already bought before they can buy new stuff. In fact, for many people, their standard of living will need to contract back to reality. They never made the income to support their lifestyles, and so they will need to adjust their lifestyle to match their now contracting incomes.
Demographics also plays a role. Baby boomers in their 50′s and 60′s will naturally spend less than they did when they were in their 30′s and 40′s. This is a natural progression and is going to happen no matter what happens with the economy. Older people are simply not spenders.
All told, we are in for a long period of economic contraction with the very real possibility of collapse due to the ridiculous amounts of government, business and consumer debt. The fundamentals of this economy are not strong.
A datapoint which suggests that nobody is quite sure which way things will turn:
Q: Is a recovery around the corner?
A: It doesn’t matter because when it happens it will be so spartan that you won’t know the difference.
In the US: the next 3-7 years will the the years of famine, not fat. Banks will limp along. Growth, when it happens, will be anemic. What does it matter if the economy is growing or not, if it only grows at 1% or so? Consumers will spend much less, not only because they have been burned so badly in the real estate and equity markets, but also because now twice or three times as many are unemployed as were a year ago, and an enormous demographic bulge is staring retirement right in the face. If the boomer generation is defined as those born from 1946-1964, then 2008 is when the first tranche turned 62. They have woefully undersaved for their golden years and will now start making up the difference. All of these trends are massively deflationary, but will perhaps be offset by monetary policy in the short run and fiscal policy in the intermediate term. Over the long term, someone is going to have to pay down our deficit and that someone will be all of us through one form of taxation or another.
In China: In China now is one of the greatest bubbles ever known to man. Entire cities are being built purely for speculative purposes. The Chinese government has made a massive bet: it has juiced its economy through bank lending, spreading liquidity hither and yon in the hopes that it can tide over its economy until the world recovers and starts buying its products again. Have they got the timing right? It doesn’t matter: see above, re: the US. The American consumer just had a near death experience. No other country can absorb China’s excess capacity. Many think the Chinese can do this themselves, as their own consumers pick up the slack. This is unlikely in anything approaching a fast enough time frame. They save for a variety of reasons: they have no social safety net; they have low returns from banks, leading them to save even more to make up the difference; and they know enough history to know that wealth can evaporate in a moment’s notice in a developing economy.
Why is the Chinese government running these risks? Because it is terrifed of unemployment. If enough workers or college-educated urban youths have little to do, the regime will have serious problems. Its entire legitimacy is based on the premise that it can grow the economy and provide jobs. Nothing else — it has no divine right of kings; no more communist philosophy to justify its existence; no philosophical basis whatsoever.
The best investment opportunity that exists in the world today is to short China. It is the only remaining bubble. The best case there is a market crash and dramatic economic slowdown. The worst is a revolution.
I should add to my #29 above: I own a small number of puts on FXI in the options market. Also, please don’t take my own thoughts as investment advice. Finally, the best place for economic analysis of China is: http://www.mpettis.com.
Warning: GOP Leadership Still Doesn’t Get it
You can give him credit for answering the question directly, I suppose, but that’s about it.
Here’s what I’m talking about:
I just came from a small meeting this afternoon with a very senior member of the GOP Congressional leadership, and I can tell you with certainty something which should dismay the rank-and-file Republican voter:
they do not have a clue why they lost the majority in 2006.
Here’s how it went down:
In response to another attendee’s question about where the GOP would head, this official flatly confirmed rumors I have been hearing for months, that Congressional GOP Leadership believes that the only reason they lost the majority in both houses was due to an unpopular war (Iraq) and an unpopular President (W). The ONLY reason.
—
The understanding in his mind is clear: us silly little fiscal conservatives out here aren’t going anywhere. So, I guess if you expect the NRSC to stop endorsing extreme moderates in GOP primaries or are hoping the House GOP will hear our pleas on spending restraint and abusive earmarks, you are going to be very disappointed.
“Over the long term, someone is going to have to pay down our deficit …”
The least painful way to pay down the debt would be through economic growth. And the US could accomplish that through re-industrialization. Build steel mills to manufacture the pressure vessels needed for nuclear power plants, and feed the new shipyards and rebuilt automobile plants. Build the factories to churn out computers and phones. Make clothes & shoes in the US again.
Of course, that would require putting the attorneys back in their box, shredding mounds of foolish laws & counter-productive regulations, and redeploying an army of bureaucrats back into productive efforts.
The question is — when, if ever, will politicians & lawyers & bureaucrats realize that their first class accommodations on the Titanic may be first class, but they are still on the Titanic? Grow or die. Will they choose in time?
bogie wheel only pawn in game of life.
But bogie wheel refuse to buy washer & dryer this year, perhaps next and next after that, until bogie wheel better assured that present job won’t disappear.
Doing laundry in the laundromat & the sink sucketh … but not nearly as much as not being able to pay the rent.
My little bit of capital is definitely on strike. Not much individually, I realize. But how many bogie wheels are there out there?
In response to another attendee’s question about where the GOP would head, this official flatly confirmed rumors I have been hearing for months, that Congressional GOP Leadership believes that the only reason they lost the majority in both houses was due to an unpopular war (Iraq) and an unpopular President (W). The ONLY reason.
Cripes, they are the town drunk, aren’t they? And convinced that the ONLY reason they keep winding up in the gutter is cuz someone keeps pushing them down there. Couldn’t possibly be the Jim Beam.
Here, here. I believe Josh Manchester is right on the money. The Chinese government’s sole source of remaining legitimacy is its ability to deliver the economic goods. If/when a meltdown occurs, public support of the regime is likely to collapse. And what happens then is anybody’s guess.
China’s entire economy is based on export on a massive scale. And now the rest of the world is unable to buy their goods. The current Chinese government policies (economic stimulus directed towards infrastructure, and encouraging local consumption) are designed to prop up the economy long enough for the rest of the world to start buying again. It’s the equivalent of a starving body burning it’s muscle and stored fat. It works for awhile, but not forever.
By the way, Chester, thanks for the link. I miss the old Adventures of Chester blog. Hope all is well.
Chester: Second to Polybius. I do miss Chester. Aint it great to be famous?
What are the Chinese going to do when the difference between the 60% male and 40% female population gets to fertility?
Who ‘dem boys gonna have fun with? The Politboro?
BW/34; if you’re of the left lean, it’s not the Jim beam either, it’s the gutter. If it weren’t there you couldn’t fall into it. no guuter, no problem.
re china, the raw mtrls purchasing is real, that’s one quantifiable data point without any if ands or buts about it. So the 8% GDP growth is likely real, as economists convert raw mtrl consumption and arrive at about there. the problem beyond there is familiar, they sho do need some end-users for all that stuff. but their GDP is measured differently than ours (production vs consumption, broadly) so relating the numbers isn’t easy.
Our mkts today should fallen much more, on the strength of overnites in an East Asia that must help China help USA finance its spending. probably the falling ObamaCare panic held us up to a mere couple points loss. The emerging fear among the finance mkts is that the commercial real estate rollovers coming up involve two types of financing –one is the first-mortgage holding banks (which refi rollover practice call for re-appraisals of these mortgages’ 2005-2008 appraisals) and the other is the so-called mezzanine financing, 2nd mortgages –junior debt on these same properties –that is held by various private and gov’t retirement pension funds (think, Calpers).
The immediate problem dragging upon the market’s confidence now is that these banks are TARP and mkts are figuring that the admin will force them to ‘extend & pretend’ on the underlying values, on account of any write downs will come a the expence of of the mezzanine. easy to see why the admin is likely to protect the mezzanine, if it can, and because of TARP, it can.
Whether this is good or bad, right or wrong, is of course an ethical question that you can ask later, but at the moment, the question is, will the mkts choose to extend & pretend too? as with everything else, consumers have to buy stuff or else the commercial real estate can’t hold value, and trying to hold it up is what is causing consumer confidence to fall.
so, it’s really a weird kinda situation –and of course weird situations is what happens with gov’t intervention into free markets. Gov’t has no cost of goods, and no need to profit, nor even to break even and mark time. The only thing it needs to succeed at is the aquisition of the next unit of cooperation, which as long as its scrip (and/or failing that its secret police) is any good, it can do.
breaking news, Shanghai “A” share index mid session, down 8%, down 16% since late July. This index started the global sell off first leg, back in October 06.
USA VIX closed at 27-ish today –this very influential indicator of worry is flashing ‘concern but not panic’.
China is at least unencumbered by the self-mutilating delusional obsession with saving the environment that lynched US manufacturing.
In fact, they are ready to tolerate a pretty nasty self-inflicted poisoning, like the Russians were perfectly willing to poison the lands and populations of their Eastern European buffer states. Just as long as it’s out in the hinterlands, not close to the homes of the ruling elites.
I hope I haven’t bored people to tears by mentioning that countries such as Russia and China dramatically proved in the last century that they can take the wartime loss of a major fraction of their population and still triumph over their adversaries. I would venture a guess that this is just as true of peacetime contention… which is just war waged by other means, if you like.
I think a lot of us suffer from an inability to believe our adversaries are ready to go ahead and do the same murderous brutal acts that humans have done to each other since the first sun rose over a massacre. There is a lesson to be taken from the photographs of hundreds of disbelieving European Jews being herded to their mass graves by a handful of bored soldiers with rifles. Let us think on it.)
Think about Americans of December 06 1941, and of September 10, 2001. “It can’t happen” and then it happens.
Here’s a key fact, the Russian elites are spending tremendous amounts of money of civil defense. The miltary and civilian command intends to survive anything and everything, and quite comfortably at that.
i sometimes wonder, sometimes being all the time, how this looks to a far left ideologue in the Obama admin, who might see this current pan-government control as a one-time thing, and that if USA is ever to be economically, ideologicially, culturally, and so forth ‘leveled’ as per the ideology, it’d best be done in the next 3.5 years. and if subversion ain’t doing it, maybe the red buton would.
i’m sorry –’buton’ is a mis-spelling. i meant futon, as in “…and if subversion ain’t doing it, maybe the red Japanese day-bed would.”
Luddy,
Yesterday I watched a video of a large development of large McMansions in SoCal, all empty, many with boarded up windows.
Held off the market by the bank.
…then come the ARM’s
then comes commercial.
Talkin Trillions
We may experience a mini-recovery or flattening (which would seem like recovery at this point) this year and next. But the 2001 tax cuts expire at the end of 2010. 2011 tax increases are already programmed to be the largest in history. We can expect another serious recession from 2011 – 2012. Congress may not let the full effect of those increases come in automatically, but I’ll lay odds for any of my fellow Belmonters that we’ll get most of them.
The effect of these tax increases are felt far beyond the economic realm. My mother-in-law has advanced Alzheimer’s. The current inheritance tax rate for our bracket is effectively zero. It goes to 50% December 31st, 2010. If she lives another 5 years, great. If she dies January 2, 2011, I’m going to wish I’d killed her!
Speculation (of the intellectual variety) on the value of Chinese real estate is a truly delicious irony: a shark’s fin soup of economic rationalization! Their real estate is worth exactly what the Party says it is, silly!
That’s madness, weSwinger –for gov’t policy to put your family in that position. How dare they, seriously.
doug, we have one last chance, and that’s for all of us to act as though we’re not down to one last chance.
Luddy,
I haven’t read all the comments yet, but wasn’t some of the copper buying by the Chi-Coms simply as a store of wealth?
Haven’t been tracking it, but not a bad bet 5 years out versus the once-almighty dollar, I’d think.
(although a global depression means all bets are off, so as you say, we gotta act good!)
doug, chinese entity just recently bought a major miner (major minor? no) a few months ago –you gotta keep up with the dry bulk shippers to know how much of a commod is being ‘locked up’ in the ground vs how much is being delivered raw, and also how much of THAT is being warehoused. Start with google finance site –it’s very linked up –and look at say freeport mcmoran and/or rio tinto for starters –you’ll find a list of competitors there, go to each and look at their latest deals. Takes an hour but you can know more about china and copper than just the cw that ‘china is buying copper’–which is true but not the whole story. And yes, they are trying to hedge the dollar –but not so much that they start (restart) a commod run and thereby lower the dollar (dollar is ‘coupled’ inversely lately to the ‘commod basket’ –which is itself in a week to week couple/decouple with the oil spot).
Also, a big new copper discovery and/or mine in Afghanistan –China bought it –just a few weeks ago the news carried it –
Always love your country – but never trust your government.
–Robert Novak (RIP)
(remembrance, h/t maggie’s farm)
Short run, who knows? Long run, China goes into eclipse. Demographics.
http://online.wsj.com/article/SB124761913912742517.html
“China’s War for Ore” –Holman Jenkins, Jr.
Joshua @ 10:
I would say the Mall Assault hasn’t been tried with alacrity because, for the most part, Al Queda sympathizer or plain thug attempting to shoot up a mall (or any public venue) knows he is more likely to be stopped by a citizen with a CW permit. When we are disarmed, as we are in states with laws against concealed carry (or just against arming the citizenry), you get shoot-em-ups by crazies.
As an aside, I notice the crazies appear to congregate in states with laws that hamstring the law-abiding gun owner.
I agree with whoever said “An armed society is a polite society.”
If someone has already addressed this, I apologize.