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Andy Xie Explains How The US Exports Inflation To China, And How It Will "Come Back To Bite Us"

Tyler Durden's picture





 

Andy Xie follows up on his earlier Op-Ed that describes how the Fed is implicitly funding the stimulus in places like China. In a simplified version of the article, he talks to Bloomberg's Betty Liu, recapping the key issues."When the Fed prints money it is just creating inflation in emerging economies. But when the inflation in the EM gets high enough, it will bounce back, it will become inflation in the US." As to why EM countries would be unable to manage their inflation, Xie says that most emerging economies are focused more on holding down their currencies, as they see "global demand as relatively weak", seeking more than anything to keep their exports competitive. "That force is allowing them to allow all the money to come in and become inflation." And unfortunately Andy does not think unemployment is going lower any time soon, attacking the very core of the Fed's dual mandate: "I don't think high unemployment is a panacea for keeping inflation down." Of course, if inflation does strike the EMs, and wage increases are demanded, making the paying field a little more level, it may just be precisely the stimulus that the US needs to get its wage structure marginally more competitive, thus pushing the "new normal" unemployment lower.

 


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Wed, 08/18/2010 - 15:12 | Link to Comment bugs_
bugs_'s picture

The clue here is where the stimulus really went and why it wasn't felt domestically.

Wed, 08/18/2010 - 15:27 | Link to Comment DaveyJones
DaveyJones's picture

"I don't think high unemployment is a panacea for keeping inflation down."

but it sure helps keep college grads down. Saw a new criminal case yesterday that was a haunting glimpse forward. Upscale shopping parking lot. Twenty something son is mouthing off hard to his mother. She is trying to get him to come into the store with him. He uses a number of choice low letter words and she slaps him once. An independent witness actually calls police. Mother is sitting crying in her car admits to slapping him and confesses that her son can not find a job, has no motivation, and is angry at the world and his parents for how "screwed up everthing is." Cops try to verify this with son who give them more choice low letter words (verifying in itself). Mom is arrested for domestic violence and taken to jail.      

Wed, 08/18/2010 - 15:44 | Link to Comment schoolsout
schoolsout's picture

I guess the son was pissed enough to press charges?

Wed, 08/18/2010 - 15:53 | Link to Comment DaveyJones
DaveyJones's picture

unfortuntely in my state, and many others, the domestic violence laws require police to make an arrest despite any cooperation or request from the "victim." The son did not cooperate and did not want to press charges, but that is common for this arena  

Wed, 08/18/2010 - 16:36 | Link to Comment akak
akak's picture

Since when is a MOTHER SLAPPING HER SON an arrestable offense?

What planet did this happen on?

Wed, 08/18/2010 - 16:42 | Link to Comment Shameful
Shameful's picture

Quiet citizen, the walls have ears.  Remember all is well in the USSA.  I'm sure she will make a fine addition to the prison work force.

Wed, 08/18/2010 - 19:41 | Link to Comment jakoye
jakoye's picture

Sure, but it's a bit different when the son is an adult. I don't think parents should be slapping their kids once the kids have passed the adult threshold. There's something a bit creepy about that.

Wed, 08/18/2010 - 19:50 | Link to Comment akak
akak's picture

OK, granted, when I made my original comment, I had missed the part about the son being 20-something.  Still, I utterly fail to see the "crime" here, unless the mother repeated and violently struck her son. 

Shit, for all we know, it was the long-suffering Mrs. Bravo finally losing patience after once again trying to do something nice for her miserable and ungrateful cur of an offspring JohnnyBravo, and if he were MY son, he'd count himself lucky getting off with just a slap!

Wed, 08/18/2010 - 23:31 | Link to Comment NoVolumeMeltup
NoVolumeMeltup's picture

Not to make light of this, but one can't help but wonder if she did, in fact slap the taste out of his mouth.

Thu, 08/19/2010 - 02:43 | Link to Comment tony bonn
tony bonn's picture

i hope she gets bitch slapped by the judge...

Fri, 06/17/2011 - 07:59 | Link to Comment floridasandy
floridasandy's picture

i hope mom kicks his sorry butt to the curb.

 

let's see who he mouths off to then, and  who he can have arrested.

Wed, 08/18/2010 - 18:12 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

 just cause they can fu*k with U.

Wed, 08/18/2010 - 15:53 | Link to Comment Shameful
Shameful's picture

Give it time to simmer.  Epic non dischargeable student loans + no jobs + degradation of culture = " fun" times for all!

I honestly can't wait to see what my fellow students are going to do when they graduate.  Know several are 6 figures in (one hit 200k) with a crap undergrad degree (Woman's Studies) and their new law degree with no job experience.

Wed, 08/18/2010 - 17:32 | Link to Comment darkpool2
darkpool2's picture

complete fucking retards all around. Retards for taking the loans for worthless ends and retards in the system that allows them to get their grubby hands on the loans. Fuck you all, I am opting out and dont ask for a cent in support----ever.

Wed, 08/18/2010 - 17:38 | Link to Comment akak
akak's picture

Your comparison of the utterly brainwashed clueless robots coming out of US universities today to the mentally retarded does a grave disservice to the truly retarded.

Wed, 08/18/2010 - 18:35 | Link to Comment Shameful
Shameful's picture

Ah if only they were just retarded.  They are also completely self centered and have unshakable belief in their mental and indeed moral superiority.  At least a handicap person will not tell you how smart they are and how they want to "change the world".

Wed, 08/18/2010 - 19:44 | Link to Comment berlinjames02
berlinjames02's picture

This is a huge problem - not just for suburban, middle-class kids.

According to Steve Eisman, who presented at the Ira Sohn conference this year, students at 'for-profit' universities will default on about $275 billion in loans. I guess that's why he calls it the 'subprime of education'.

Check out Eisman's presentation here:

http://www.marketfolly.com/2010/05/steve-eisman-frontpoint-partners-ira....

Wed, 08/18/2010 - 16:54 | Link to Comment DarkMath
DarkMath's picture

These cops had nothing better to do than arrest a poor mother trying to whip some sense into her son. Can you say police state.....

Wed, 08/18/2010 - 17:45 | Link to Comment seventree
seventree's picture

If I understood DaveyJones correctly, the cops were legally compelled to make an arrest once she had "confessed." Blame is on the state legislature in that case, and everyone who supported passage of such a law without thinking through the conseqences.

Wed, 08/18/2010 - 19:04 | Link to Comment SpykerSpeed
SpykerSpeed's picture

I'm not a fan of the government, but hitting people is always wrong.

Wed, 08/18/2010 - 19:10 | Link to Comment akak
akak's picture

You have clearly never had any children.

But for the record, I am NOT condoning beating!  A quick slap on the shoulder or butt, though, is NOT abuse!  I would argue that for many children, NEVER getting their attention thusly, and teaching them a quick on-the-spot disciplinary lesson, constitutes the much greater abuse, despite what many "feel good" airheads may otherwise think.

Wed, 08/18/2010 - 21:34 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

R E L A T I V E

domestic abuse is rampant. domestic is domestic, friend, wife, child, household. i have been roughed up. told him so and would call the police. who wants the police around. they know it.

Wed, 08/18/2010 - 15:18 | Link to Comment Pamela Anderson
Pamela Anderson's picture

The world is like a giant Monopoly game. The US (Bernanke) is the banker in the game. All the countries agree to play with dollars.The game is a rigged game because every time Bernanke runs out of money he is the only one allowed to print more money... all the money created by him, creates inflation for the other players in the game.... do you want to play a Monopoly game with a bank that can
print money anytime it runs out of it???? ....  sooner, rather than later players are going to to get tired of play a rigged game... it only takes a couple of them....

Wed, 08/18/2010 - 15:21 | Link to Comment LeBalance
LeBalance's picture

but (with the given scenario that you have outlined) what if in each satellite nation you had a local CB running interference and not allowing the local populace to see the real issue?

Wed, 08/18/2010 - 15:32 | Link to Comment Apostate
Apostate's picture

This is key. Other central banks must agree to inflate in tandem if the dollar and the USG is to survive.

It's a complex coordination problem that may be impossible. 

Wed, 08/18/2010 - 15:36 | Link to Comment DaveyJones
DaveyJones's picture

what a tangled web we weave

is there honor amongst thieves?

Wed, 08/18/2010 - 15:54 | Link to Comment Apostate
Apostate's picture

No, of course not.

How can monetary and fiscal policy be coordinated with the EU, US, China, Russia, and the Gulf oil states?

It's too complicated. Therefore, a grave national "debate" on whether or not a Muslim YMCA ought to be built on the ruins of a bankrupt coat retailer. Next up: a culture war over female masturbation. 

Wed, 08/18/2010 - 16:08 | Link to Comment Pamela Anderson
Pamela Anderson's picture

Most of the other players in the game (other countries) can't let the value of their own currencies to rise as a consequence of the depreciating dollar, because it will kill their exports, so they end up printing money to keep up with the falling dollar.... is a sad game that doesn't make sense..... this game is going to come to an end.... just think about it... Monopoly is a great game when is played by players that can't print money every time they run out of it .....   Keynes really was nuts!!!

Wed, 08/18/2010 - 16:24 | Link to Comment ozziindaus
ozziindaus's picture

Depreciating dollars? Where?

http://www.bloomberg.com/apps/quote?ticker=DXY:IND

Exports find homes if they are in demand. Since a sea change has occured in the US consumer sentiment, most people confuse/disguise/blame the demand destruction with currency imbalances. This is not the case this time.

You know there is a point where goods will not be bought at any price.

Wed, 08/18/2010 - 16:39 | Link to Comment Apostate
Apostate's picture

The 100 year trend is towards depreciation. If you have a very short-term outlook, then yes, on occasion, the dollar can appreciate relative to other instruments.

The DXY is relative to other spot fiat currency prices. All that means is that the dollar has depreciated at a slower rate than the other currencies. 

Wed, 08/18/2010 - 17:23 | Link to Comment akak
akak's picture

ZING!

Well said, as usual, Apostate!

I would go further and state that, except for forex daytraders, the Dollar Index is USELESS and MEANINGLESS as a measure of anything.  It, like the dollar itself, is just a yardstick using a constantly changing (and shrinking) unit of measurement.  To compare the DXY at 82 today vs. at 82 in, say, 1987 is clueless at best and more likely just more disingenuous misinformation, as doing so would be comparing apples to oranges.

For the last time, Ozziandias and everyone else, THE US DOLLAR INDEX IS NOT A MEASURE OF THE ABSOLUTE VALUE OF THE US DOLLAR!

Wed, 08/18/2010 - 18:02 | Link to Comment ozziindaus
ozziindaus's picture

and for the last time, where's the hyperinflation you promised us? I know what the DXY represents. It was just a quick way to make a point. I could have used oil, houses, treasuries, equities, commodities etc to show the increase purchasing power of dollars or ABSOLUTE VALUE but that would just get you pushing gold. 

Wed, 08/18/2010 - 17:56 | Link to Comment ozziindaus
ozziindaus's picture

The trend is a result of economic expansion and the deflation is the reverse. You earn your salary on a monthly or bi-weekly basis so what difference does it make over that period of time? It's unlikely you will discover a roll of cash your grandparents left for you 100 years ago and tangible assets adjust accordingly. We are seeing deflation and your dollar, however it's measured, buys more today then it did a few years ago. My bet is that it will keep it's purchasing power for a while regardless of how it tracks on the FX market.

And what a load of bullshit regarding the higher prices stoking inflation. It's the exact opposite. Inflation drives prices (amongst other factors) NOT the other way around. If a meeting of the minds is not met between the seller and consumer (liquidity) then you have no deal. Again this is a demand and not a command driven economy.

Wed, 08/18/2010 - 18:08 | Link to Comment akak
akak's picture

.

You are an egregious liar and you know it if you are daring to claim that "the dollar today buys more than it did a few years ago."  Yeah, if one's only purchases are houses and Florida condos!  In everything that REALLY matters on a day-to-day basis, prices are up compared to a few years ago. 

Why don't you try and convince us that up is down and black is white while you're at it.

Wed, 08/18/2010 - 18:32 | Link to Comment ozziindaus
ozziindaus's picture

Houses, oil, silver, copper, platinum, milk, wheat, corn.....ahhh yawn....palladium, aluminum, money (that's right, the cost of money has dropped), rhodium, cars (incentives), shipping, NG, haircuts, clothes, entertainment.......

So which one of those items do you not purchases indirectly on a day-to-day basis? Others are monopolized such as drugs or government controlled like stamps.

PS I take offense to the egregious liar comment. 

Wed, 08/18/2010 - 18:51 | Link to Comment akak
akak's picture

.

If you take offense at what I stated, then prove me wrong.

Please tell us in what year, in what fantasy world, you are making your comparisons against?  I took "a few years ago" to suggest, say, 2005 or 2006 ---- so show me how all those items you mentioned (again, with the exception of the bubble assets of houses and real estate) have FALLEN in price in the last four or five years? 

Or are you going to be just as disingenuous as I expect you to be, and try to compare certain select commodities, such as rice and silver, against their early-mid 2008 highs?

Wed, 08/18/2010 - 15:25 | Link to Comment Apostate
Apostate's picture

That's how dollar inflation works. The dollar saturates some pissant country until wages rise and that government becomes too big for its britches.

Then, those dollars head back to the US, triggering a fresh round of extra inflation. This time, however, it's unlikely the cycle will repeat. There's not enough virgin territory, and the US can't exactly go to a post-knowledge economy.

Unless you count "Jersey Shore."

Wed, 08/18/2010 - 15:30 | Link to Comment faustian bargain
faustian bargain's picture

Mmmmm, post-knowledge economy. Sounds...medieval.

Wed, 08/18/2010 - 16:12 | Link to Comment DiverCity
DiverCity's picture

We can only hope.

Wed, 08/18/2010 - 16:39 | Link to Comment faustian bargain
faustian bargain's picture

"Bring out yer dead!"

Wed, 08/18/2010 - 16:12 | Link to Comment DiverCity
DiverCity's picture

.

Wed, 08/18/2010 - 16:22 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Coming to a suburb near you.

Wed, 08/18/2010 - 15:34 | Link to Comment caconhma
caconhma's picture

EM countries are still playing economic games  going back to their colonial past, specifically selling their products to the USA and EU close for nothing getting IOY promises to be paid later.

This set of mentality has over-lived itself a long time ago. The problem is that the USA is losing its industrial competitive advantages and has less and less to offer in return taking into account its terrible overpriced labor market.

At the present world development stage, EM countries should do more and more trading between each other enjoying their own low labor cost and, in a process, drastically reduce their needs for outside reserve currencies.

This process will lead to collapse of the US$ as a reserve currency and a runaway inflation in the USA.

Wed, 08/18/2010 - 15:33 | Link to Comment Pladizow
Pladizow's picture

Andy Xie interviewed by Ms. Meesohauwnee.

Wed, 08/18/2010 - 16:54 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

ditto, booty bitchez†

Wed, 08/18/2010 - 15:46 | Link to Comment ozziindaus
ozziindaus's picture

This is a demand driven collapse and should not be confused with a command economy as China thinks the US is. Consumers decide on consumption through their mood, feeling and credit availability, all of which are tanking. Prices may influence their decision but the threat of increasing prices only hurts the seller.

No go. Chinese propaganda will not be tolerated.

PS This US vs China economic conflict is as phony and shallow as the NBA. There are no sides, they profit off one another explicitly but under covert adversarial guises. As usual, the US always leaves those nations it beds with feeling raped and China is going to feel like one hell of a whore when this is over. 

Wed, 08/18/2010 - 15:51 | Link to Comment Babalooee
Babalooee's picture

and here I'd been looking for that danged inflation all over the place

Wed, 08/18/2010 - 16:13 | Link to Comment Segestan
Segestan's picture

Come back to Bite us? ... we already got chewed up by globalization, the chicoms got rich. Now they act like We are fucking them.

Wed, 08/18/2010 - 16:25 | Link to Comment Shameful
Shameful's picture

Well the joke is on them to.  If your employer only pays you in IOUs which aren't good, you sorta end up working for free.  Now the tech and factories they have our real, the financial assets, not so much.

Wed, 08/18/2010 - 16:31 | Link to Comment ozziindaus
ozziindaus's picture

Exactly. Like this was not a complicit arrangement. US Corporations profited and the US imported deflation at the heels of an infaltionary explosion going back decades.

China can cry all they want. The US government has aided their growth long enough at the expense of it's own people. The US public has had just about enough of this non violent for profit nation building.

Wed, 08/18/2010 - 16:35 | Link to Comment infotechsailor
infotechsailor's picture

_ that asian lady is clone, prime example of the majority of the eggheaded American financial commentators.  Prices are falling, jobs numbers are still declining, spending is way down, so the unlimited inflation of the money supply is perfectly acceptable so long as it does not overpower deflationary forces.

People aren't buying enough cars and houses, so when can we start throwing money out of helicopters?

Wed, 08/18/2010 - 16:29 | Link to Comment Caviar Emptor
Caviar Emptor's picture

What Xie describes is another aspect of The Double Whammy: just when you were hoping that un/underemployment, wage stagnation and a housing bust would bring prices down....Surprise! Energy bills are at boom time levels, food is rising, and so are a host of other consumer non-negotiables like transportation, education, taxes, insurance, healthcare, bank fees and charges. 

Gold is your only friend through what's ahead. 2% yields won't keep up with prices in the real world and the Fed won't let yields rise. Stocks have gone nowhere in 12 years and could crash at any time. Junk bonds are a big risk in a depression. ETFs rip you off. Real estate will be in the craper for a generation. 

Unless you got a bankster father, Goooold

Wed, 08/18/2010 - 16:33 | Link to Comment partimer1
partimer1's picture

Andy is one of the very few who really gets it.  He also said that the driver is not really the Fed or the government, but its the multinational corps.  They funnel the money back to EM countries. Low rate pushes money to go to EM countries.  We are fucked, believe it or not.

 

Wed, 08/18/2010 - 18:29 | Link to Comment Treeplanter
Treeplanter's picture

Yeah, Andy adds a missing perspective.  I think China knows they are vulnerable to sharing the coming collapse.  They're now encouraging their people to stock up on gold.   Greece should have done that ten years ago.  There would be less desperation now.

Wed, 08/18/2010 - 16:56 | Link to Comment Hunch Trader
Hunch Trader's picture

Perhaps feeding EM inflation is one of the actual goals, until EM realize that they cannot continue to suppress their currencies in order to guarantee exports, and are finally forced to create independent CB and monetary policies in their respective countries.

As a side effect, the citizens of EM countries would finally start getting richer vs rest of the world, and could say goodbye to being "undeveloped" or "emerging".

 

Wed, 08/18/2010 - 19:51 | Link to Comment BlingBlingBen
BlingBlingBen's picture

Betty Liu is hot!! I didn't hear a word of Xie's statement. CNBC will be offering her a contract soon. Melissa Lee and Erin

Burnett are starting to get old. 

Wed, 08/18/2010 - 20:38 | Link to Comment Hephasteus
Hephasteus's picture

There used to be a tribe in Africa that carves out a knot hole that is just slightly bigger than the piece of fruit they put in it and they keep the hole very narrow at the opening. They then put a piece of fruit in the hole. A monkey sticks his hand in there and grabs the fruit. But then he can't get his hand back out. So the hunters go and kill him and they have monkey brains as a delicacy because the brain is pure fat and they had no other decent sources of fat in the area as every other animal was lean and mean.

Exporting inflation to emerging economies is the exact same process. It's letting what you want interfere with what you want. Like the monkey wanting to be free but wanting the fruit more.

Wed, 08/18/2010 - 20:48 | Link to Comment tom
tom's picture

And don't she know it. Teasing all of us like that with that comment about getting bit on the butt.

Hold on, this was supposed to be about Andy Xie. It's great to see him getting picked up by Bloomberg as a columnist and talking head. A rare soul who resisted the sell side's cheer-leading, pump-and-dump mandate to the point that the major banks dumped and shunned him.

As I keep harping, to the extent stimulus or any deficit spending is funded with foreign borrowing, it will be spent abroad, either as increased imports relative to exports, or as increased outgoing foreign investment relative to incoming. That's why they call it the balance of payments.

http://keynesianfailure.wordpress.com/

Wed, 08/18/2010 - 22:42 | Link to Comment Bluesquid
Bluesquid's picture

Sectors of our country will experience rampant inflation as our country becomes a belligerent bully in the entire world. Central Bankers and multi national corporations will collude to push all money to china. China , full of poor ignorant cheap labour will build itself into the next great nation. The yuan will supplant the dollar as the RC, and the Bankers and MNC's will get richer making a middle class in china. fractional reserve banking only works if there is something to do, and a reason to save. We are overpaid to save, and too fat to do anything. the credit bubble that just burst was one last FRB money grab, and cover story for the abandoning of the us economy.

Wed, 08/18/2010 - 23:36 | Link to Comment Itsalie
Itsalie's picture

"Of course, if inflation does strike the EMs, and wage increases are demanded, making the paying field a little more level, it may just be precisely the stimulus that the US needs to get its wage structure marginally more competitive, thus pushing the "new normal" unemployment lower."

 

Only arithmatically challenged folks would think it a worthwhile exercise. In Vietnam, a highly skilled technician trained in a precision engineering plant is paid $250 a month net, in the US it is 20 times or more. Does bernanke or Krugman really think $2tr of money printing has closed the gap even 1%? If not, maybe TD should recommend tme to print 20 times more, like $80 tr?

 

Sat, 10/02/2010 - 06:49 | Link to Comment Herry12
Herry12's picture

There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
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