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Guest Post: For How Much Longer Can China Resist Raising Rates?
Submitted by Bo Peng
For How Much Longer Can China Resist Raising Rates?
The main focus of QE2 is not domestic but international, exporting inflation and forcing BIC's hands. This is highlighted by Brazil's immediate and very public, very undiplomatic response as well as Bernanke's very undiplomatic jab at China shortly after QE2 announcement. In this it's been very successful. BIC have been trying very hard to resist. Although India has given in and raised rates, Brazil and China (along with other export economies such as Japan and South Korea) have been resorting to other means. But for how much longer can they resist?
China's inflation is particularly worrisome to its policy makers. As a saver's society (and because of the fact that a large portion of the populace still has little disposable income), Chinese people are very sensitive to inflation. And it is because of the same reason that Japan has chosen, wisely so far, the path of lost decades rather than risking over-stimulus and hyperinflation. But Beijing erred badly in their over-reaction to the 08 crisis in late 08 and early 09, going all out trying to stimulate domestic demand and flooding everybody with cash. That was the direct trigger of today's rapidly rising inflation, on top of the chronicle inflation pressure due to exchange rates. But Chinese history is littered with lessons of inflation causing revolutions and social turmoil. Beijing knows this all too well. Although there're potent domestic political forces and economic interests against revaluing the Yuan, when inflation threatens the power, Beijing will have to quickly choose between two evils, and the anti-revaluation camp will quickly recognize it's better to lose some money than losing power all together.
Furthermore, rates are rising everywhere and the dollar is rebounding. These factors give Beijing some breathing room and the pro-revaluation camp some much needed cover.
The risk, and I suspect a main argument used by the anti-revaluation camp in Beijing, is Euro collapse. But as inflation stats keep coming in high and Europe stubbornly hangs on, time is running out. And, the later they act, the harder it will be to engineer a soft landing.
Not only do I think China may raise rates soon (when or shortly after the next inflation figure comes in if it turns out to be high, which is all but certain), but also there's a nontrivial probability that China might even resort to revaluing the Yuan some time after if inflation persists. China must fight inflation at all cost. See? Uncle Ben gets it. Forcing inflation is much more effective than all the political pressure and threats.
What would this mean to US and US investors?
1. Inflation will pick up, effectively exported back to the US through higher costs of imports (and in this regard the Chinese import price is arguably as important as raw commodities, if not more -- be careful what you wish for). Maybe this is exactly what the Fed economists with PhDs from decent departments wanted, but I happen to think this is a bad form of inflation born from higher input price as opposed to vibrant economic activity. How could this type of inflation possibly drive up employment? Oh I get it, everybody will be so desperate that we will all be scrambling to take back the illegals' jobs, which used to be so below us.
2. Unless/until Euro crisis materializes, or at least grabs headlines again, interest rates will be rising worldwide, but BEFORE the developed economies are in solid recovery ground AND as emerging economies are still trying to cool down. This is a pre-emptive strike that will most likely kill any prospect of sustained recovery in the developed world, but may play right into the hands of emerging economies. In other words, developed world is committing economic suicide by forcing global rising rates. Thanks, Uncle Sam.
3. Even if I'm wrong about the timing and method in China's effort of fighting inflation, the inevitable fact is they will have to cool it down one way or the other, be it soft landing, hard landing, or revolution. And sooner rather than later. When that happens, expect a pull-back in commodities and equities worldwide, possibly severe, and possibly coupled with a rise in treasury yields if it turns out to be a soft-landing (as the Yuan value rises, PBoC needs less foreign reserve and will unload some treasuries). Ouch, nowhere to hide.
Until then, enjoy the recovery-in-anticipation.
(Update hot off the plate: Rental in Beijing increased 23% YoY in November. Yikes.)
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ZH downgrades China credit rating..to house of cards.?
Is it news? Peter Schiller pointed it out quiet some time ago. http://bit.ly/hXYYpP
USA will be screwed if China does not keep their growth going at a ridiculus pace.
USA will screwed if the economie does not pick up at the pace the DOW is.
For the dutch speaking people: Youp van 't Hek has made a nice piece of cabaret about the enermous lending, already in 1983. http://www.youtube.com/watch?v=T-AeBAc-hlI
We have not learned shite and we wont learn shite till it has hit the fan.
California Dreaming like people over there http://bit.ly/hzKgbU ? For others its time to act. Anarchy bitches!!
Peter Schiff.
Fuck raising rates.
They simply have to revalue up to stop inflation. Buying less dollars requires less RMB printing.
Commodities priced in RMB will fall, priced in dollars they will rise. Export that inflation back to where it came from.
New Mike Pettis ~
http://mpettis.com/2010/12/chinese-growth-in-2011/
....."
I am not sure why Chinese holdings of USG bonds suggest that a Chinese slowdown will hurt US companies, but I have already explained why I do not think a sharp slowdown in Chinese growth is necessarily bad for the world. It will be very bad for commodity exporters – or at least non-food commodity exporters, since I think the demand for food from China will continue strong – but the overall effect on the rest of the world depends on the evolution of China’s trade balance. A contraction in the surplus creates net demand for the world, and so might even be marginally positive.
This marginally positive outcome won’t be evenly distributed, of course. Non-food commodity exporters will be badly hurt, while commodity importers and manufacturers will benefit.
I don’t even think such a rapid slowdown in Chinese growth will be bad for China. Again it depends on how it takes place. If there is a serious attempt at rebalancing the economy by raising wages, interest rates and the currency, China can manage a much slower GDP growth rate while still maintaining a fairly high growth rate in household income and consumption. I discussed this in more detail in an entry last moth.
In the spirit of end-of-the-year pieces let me suggest a few things to watch for 2011. First, although I do not believe inflation is going to be as big a problem as many think (I believe the Chinese financial system has a built-in inflation-stabilization mechanism – see my November 18 entry), if I am wrong and inflation continues to rise, this will create a real problem for monetary policy.
Second, debt levels are worryingly high and are starting to act as a serious constraint on the rebalancing process. My friend Victor Shih at Northwestern University has done great work in trying to figure out the government balance sheet, and he worries, correctly, in my opinion, that it is becoming increasingly difficult for the PBoC to raise interest rates without creating a great deal of financial distress in government-related entities. Even the PBoC balance sheet is a real problem. How can they raise RMB interest rates without running a huge negative carry?
Third, the trade constraints are going to get worse, not better. Ashoka Mody and Franziska Ohnsorge have a very interesting piece on Vox that suggests that we shouldn’t count too heavily on consumption growth in the developed world to boost global demand. That means we are going to spend the next few years fighting over anemic demand growth, and we will be apportioning that demand via trade disputes." ......
Victor Shih ~
................." Since the publication of my editorial in the Asian Wall Street Journal on local debt, there has been a wave of interest on this issue. Several investment banks have issued reports on local debt, and some of them have disputed my main finding that current local government investment vehicle debt stands at around 11.4 trillion RMB. The World Bank likewise addressed this issue and came up with a much lower estimate on local investment company (LIC) debt. In the discussion below, I outline some reasons why I still adhere to my estimate that existing local investment vehicle debt stands at around 11 trillion RMB. Furthermore, I once again reiterate that local debt is a serious problem which will require decisive actions from the Chinese government.
Some points people have raised about my estimate of local debt:
1. The Chinese government claims that there is only 6 trillion RMB in local investment vehicle debt.
My response: A. This widely cited figure was produced by a 6/2009 CBRC survey of the situation. The exact methodology is unclear, but informants state that the CBRC extrapolated this amount on the basis of a partial study of a few provinces.
B. Other government agencies have provided conflicting and higher amounts. For example, a MOF research team uncovered "well over 4 trillion" in late 2008 (excellent Credit Swiss research even states that the 4 trillion was a YE 2007 figure).
C. The CBRC finding concerns only bank loans, but total debt should also include bond issuance and accounts payable, which constitute triangular debt.
D. if we sum the gross debt of just the top 50 or so LICs, we quickly arrive at gross debt of over 2 trillion (try adding the gross debt of Guangdong Highway, Guangdong Transportation Group, Chongqing Highway, Beijing Basic Construction, Shanghai Urban Construction and Development Company, Shanghai Pudong Development Co., Tianjin Urban Basic Infrastructure, Binhai Development...etc.), so the remaining 8000 or so entities only owe 4 trillion (on average 500 mln RMB each)?
2. The 11.4 trillion is too high when compared with total bank loans in various categories.
My response: A. First of all, total loans outstanding at the end of 2009 was well over 40 trillion RMB, and I think it is completely reasonable to believe that nearly 1/4 of it was loans to LICs. In fact, I wouldn't be surprised that a higher share of bank loans ended up in LICs.
B. Some analysts have trouble believing that such a high share of medium and long-term loans ended up in LICs. When we consider how many LICs there are and the vital role they play in the local economic strategy, it is not surprising that likely as much as 3/4 of new medium and long term loans in 2009 ended up in LICs.
C. Beyond medium and long term loans, many LICs are holding companies with subsidiaries engaged in a wide range of businesses. For example, the LICs run thousands of hotels across China, and loans to these hotels would be classified as loans to the service industry. Thus, in addition to medium and long term loans and loans to infrastructure, it is perfectly reasonable for a sizable share of working capital loans, trust loans, and loans in the "other" category to end up in LICs. Again, gross debt of these entities would also include bond issuance and debt owed to each other.
3. LIC debt can be calculated by subtracting government spending on basic infrastructure from the total infrastructure spending figure. In that light, LIC debt only increased by 2.8 trillion RMB in 2009.
My response:
A. First, as pointed out, LIC are diversified holding companies which do not only engage in infrastructure construction. For example, thousands of subsidiaries of local investment companies engage in real estate development and absorb some share of the real estate loans. The figure generated using the method above, however, may be meaningful one-day when the government decides how much of the existing LIC debt it will seek to take over as part of a bail out.
B. The calculation above assumes that much of the extrabudgetary revenue from local governments derived from land sales went to infrastructure construction. According to excellent research done by Standard Chartered and UBS on land sales, much of the land sales revenue is spent on compensating original residents, leaving only a minority share for actual investment. Thus, a realistic application of this methodology would lead to something like 3.5 trillion RMB in new loans to LICs, not just 2.8 trillion.
4. My estimate of 12.7 trillion in future LIC debt is baseless and is way too high for YE 2011.
My response:
A. To be sure, I now think most of this debt will not realize by YE 2011 also. However, it would not be far-fetched to think that most of this debt will be realize by YE 2012. This estimate is not "baseless" as it comes from the hundreds of lines of credit that banks have granted to local governments. As long as banks more or less adhere to these lines of credit, they will lend this amount to local governments at some point in the future.
B. Although the State Council has called for more caution in lending to local investment vehicles, we still see local governments aggressively trying to raise money from the banks. Hubei, for example, has an investment plan worth 12 trillion RMB, and plans on investing 6 trillion RMB between now and 2012 (please see http://nf.nfdaily.cn/epaper/21cn/content/20100324/ArticelJ07002FM.htm). Of the 6 trillion, at least 3 trillion will come from bank loans and other forms of debt. If Hubei is able to realize its ambition, we are already 1/4 of the way toward my 12.7 trillion estimate. Thus, unless the central government harshly restricts overall credit, I think local governments at the provincial and municipal levels will have no trouble borrowing an additional 12.7 trillion by YE 2011 or 2012.
Beyond critizing my estimate, some investment bank reports also argue that whatever the debt amount, the Chinese government is fully capable of addressing this issue and in heading off a financial crisis. On this point, I mainly agree with my colleagues, but I still don't think the problem is trivial, especially in light that local governments seem determined to take on trillions in additional debt in the coming two years to finance ambitious investment plans. My main worry is that unless Beijing decisively restricts local investment projects, local investment companies will continue to borrow in large quantities in the coming two years.
Even relatively bullish investment bank report suggests that new non-performing loans in the banks can increase by 2-3 trillion RMB in the next couple of years. To be sure, this is well within the government's ability to handle and likely will not lead to any kind of financial crisis. However, this remains a daunting problem for the government and for current shareholders of China's banking stocks. This will require the China Investment Corporation to inject tens of billions of dollars into banks through Huijin. Additional asset management companies will have to be formed to take over the NPLs. This is a lengthy and difficult process involving numerous ministries and interests, which is expected to generate a great deal of uncertainty." ......................
http://chinesepolitics.blogspot.com/
You are focusing on the wrong thing. They do not need to raise rates, they need to peg the RMB at a higher value.
The less the Chinese pay for commodities, the more discretionary income they have to spend consuming their own production.
So your telling me in the next 12 months they will not raise rates..... ? Search china inflation & if they have such a great time with inflation control without raising rates , what are they waiting for ..... ? What are commodities priced in , today ???? Not what if's, when they do raise rates ( and they will ) it blowtorches the balance sheet of the banks & gov they borrowed cheap yuan the rate top tick' is a monkeyhammer into the old nutz.
Fucking dollars, thats what.
The RMB is PEGGED to the DOLLAR.
If they revalue the RMB say 20% up, commodities get 20% CHEAPER(DEFLATION) for the Chinese.
Victor Shih will tell you about the yuan debt problems.
The banks will get blowtorched. Trillions in yuan borrowed at ultra cheap levels, rolling this over in the future is a big topic in the steam hut's I'm sure.
"A contraction in the surplus ( Non-food commodity) creates net demand for the world, and so might even be marginally positive." Really? What is non-food? Gold, copper, steel and oil, etc., right? China demand slows and this creates net demand elsewhere???
Yes, China's slowdown makes it possible for exporters elsewhere to satisfy demand for non-food products currently made in China.
"forgive me God but I do love it so." Still..."I don't think it's possible." My guess would be "Mainland China invested in US real estate debt because they couldn't believe it could be as worthless as their own." I think the HK dollar (which is pegged to the USDollar) is the "safe haven" for both Anglo and Chinese investors both. Of course for those "ready to bail on the whole kit and caboodle (?)" there appears to be the Singapore dollar and interestingly the Swedish Krona.
The last time they raised rates they knocked the price of gold for a loop. What a Goldbug would call 'A major buying opportunity'
ooooo scary.
Sent gold for a 15 minute loop.
Not even the great crash of 2008 changed gold's long term trend. Or the dollars long term trend south.
The ghost towns of China: Amazing satellite images show cities meant to be home to millions lying deserted
http://www.dailymail.co.uk/news/article-1339536/Ghost-towns-China-Satell...
need to burn through those dollars before they don't buy anything.
Hello ghost towns in Florida: http://www.boston.com/bigpicture/2010/09/human_landscapes_in_sw_florida....
Hello, ghost towns in Spain.
NYT
Empty towns in China, empty factories in the U.S. It is a good thing the Chinese Communist Fascists keep their eye on the employment ball.
All that is left in the Western World, particularly the U.S. is selling sunshine and blue sky.
Somehow financial trickery and criminality with speculation in trading paper is supposed to be superior to making things.
And the Chief Puppet of all, bought-and-paid-for Obamster, brings in the local party leaders for another "summit".
I would have loved to have been a fly on the wall, when Goldman's man Hank enlisted the Obamster into the fold. Another pliable political puppet bought off with dirty money.
How long did it take for Hope and Change to morph into Hopelessness and Spare Change?
China doesn't have a problem with inflation because the US and other exporters pay for it. Just add an ײ in your policies and you're fine for the coming years.
Some think that the Chinese government will first try price controls.
i agree with that Grouchy Marx "and an interesting try it will be." they could "also try war on the Korean Penninsula." Their options are not so limited as certain Americans may think.
Yes G. Marx,
Word on the street is that there is a program of price controls waiting to be implemented next year. The regular folks seem to think this will take care of things and are complacent for now....
& not that I agree (price controls...right), but things are extremely vibrant in the eastern cities. I rode the Hangzhou/Shanghai bullet train a few weeks ago - about 120 MPH. Cut the commute time in half. Folks are proud, lots of money evident on the streets (not unlike Japan in the late 1980's). They think the govt knows what it is doing and are - for the most part- supportive.
The Chinese gov't can do whatever the hell they want and I think you under estimate their power .Would 1 or 3 million Chinese people "disappearing" really be a problem for the Chinese Gov't ? Remember Tiananmen square ? The rebellious will be squashed like bugs .
You greatly overestimate the power of the Chinese government over thier people.
The rebellious will NOT be squashed, they will be bribed.
coldn't China institute universal health care? Much of the savings in China is for emergency medical expenses. The hospitals take cash.
Think you are right on this point. In the old Mao days, pre-1976, the Chinese 'barefoot doctor' programme enabling universal health care, was admired around the world.
It is a tragedy the Chinese dropped that under US influence. This is the reason many older Chinese still think fondly of the Mao days. Similar to how today in the formerly Communist Eastern Europe, a majority of older folks in Poland etc., would still vote now to have the Communists back.
If the Chinese restore universal health care and give their people food security, they will truly unleash the 'inner consumer' within hundreds of millions of their citizens, and they will triumph, empty cities of the moment notwithstanding.
I agree that sooner or later China will have to raise interest rates, but I don't agree with the rest. They will have to do so to fight rising FOOD prices. Nothing else gives impetus for revolt than the prospect of starvation by the poor. Right now, the ultra-low rates and QE in the US is fanning the markets in carry trade. The sloshing, bloated faux-money is also artificially inflating demand in the speculation of staple food derivatives. A positive feedback loop is created, and BAM! you have price bubbles forming that threatens to starve millions around the world. Remember, reduced purchasing power rather than food availability is a major cause of hunger and malnutrition.
It was South Korea that raised their base rates first and it is the canary in the mine to be watched for the signs. India recently raised theirs to a massive 5.75% to fight inflation at 10% - a reactionary, rather than a considered strategy and not worth emulating. We're all familiar with monetarism - interest rates had to rise sooner or later. What this means for ordinary people with mortgages, I dare not speculate.
Who the hell wants dollars? China feels left out of the party being stuck with all this paper crap, and they want to swap their 'dollars' for gold, silver, oil, wheat, corn, sugar, ANYTHING other than more paper!
>65% of ALL US dollar debt is held by the U.S. people themselves. State gov., U.S. Banks, US pension funds, US banks, US insurance companies, US mutual fund...
So no need to worry about China holding the clown paper
Bernanke, as harmful as his policies are to many constituencies in the U.S., has China cornered.
China won't admit this, and will even state the opposite, because they're not just big aggregrate purchasers of U.S. debt (for the time being), but that doesn't make it not so.
Look at the inflation they're being forced to deal with now that is devouring their consumers and putting a double edge sword of pressure on the Chinese Government, forcing it to either massively ramp up subsidies to its domestic manufacturers and consumers or drastically increase interest rates (or, believe it or not, do both).
I find this whole Chinese story comical; about as comical as official Chinese GDP growth rates.
China has to create 1.2 million jobs per month to keep employment stable. This is a conservative estimate. This is why there are good odds that the Chinese Government, if push comes to shove, will take the inflationary hit, and see to it that the inflation they're importing is offset one way or another and DOES NOT filter into export pricing - they can't afford export degradation, no matter what (although it can be rationally argued they won't be able to avoid a drop in exports for years to come).
Also, who now has greater leverage via foreign policy in terms of bases of control in oil-rich regions? The U.S. has a sphere of influence over oil reserves 8.5x the size of what the Chinese have - this is a fact, not ideological ferver or conjecture.
You can rightfully point to the glaring and factual inefficiencies, moronic planning and lack of a strategic vision on economic issues regarding U.S. economic policy, and you'd be right to do so.
To suggest, however, that China is superior in these matters...let's just say central planning has about as good a track record as central 'non-planning,' if history is a guide.
Chinese GDP numbers, which were white hot (but still overstated) at one point, have turned into heaping piles of propaganda as of late, as the Chinese Government resorts to massive subsidies and manufacturing data to put positive spin on what are far lower-than-stated GDP growth numbers.
That China now has what is likely to be the biggest real estate bubble the world has ever known (so much so, that the government is basically restricting most new real estate loans) is not going to help Chinese GDP numbers going forward.
China's growth is disproportionately modeled on assumptions that commodity prices remain stable, that cheap labor can rule the day, that exports should be the emphasis of economic growth, and that there will not come a time when the rest of the world no longer is willing or able to provide China with as deep a pool of consumption as China needs, and that other nations will not design policy to undermine the structural advantages China thought it had designed and successfully implemented to ensure that their 'sure fire' growth model works brilliantly in the future.
I think the Chinese are now coming to grips with the reality that they can either have diminishing margins and a relatively stable political climate, or take a shot at stable or higher margins while risking severe political instability and unemployment, but both are not possible with the new global economic paradigm emerging.
I am the last person who would ever call myself a fan of Bernanke. The man is a financial terrorist, as far as I'm concerned. All the proof of this for me is that his policies continually hammer savers and the financially responsible, and encourage speculation, price distortion and bubbles, subsidize large and massively inefficient and even criminally reckless banks and financial firms with massive amounts of taxpayers' monies, and have perpetuated Greenspanian 'kick the can' economics.
But he is really screwing the Chinese and Brazilians over.
... and to his, your and our own demise.
China sets an 8% growth target and increases the money supply enough to get it, regardless of inflation.
The west sets a 2% inflation target and increase the money supply enough to get it, regardless of the growth.
Who's fooling who?
If you really believe China is growing at 8%, I humbly suggest you reconsider.
True Chinese growth is far lower than the official numbers the Chinese Government publishes.
Much of the subsidization and 'winners picked by state' in China, including real estate developers, solar energy firms, battery technology firms, and so forth, have comprised a significant % of the true Chinese GDP growth also, and much of this growth has either been wholly or woefully inefficient.
The end game strategy for Bernanke, and now, Trichet, is to force China between re-pegging the Yuan by floating it, or swallowing massive inflation, in order to re-jigger the massive imbalance in global trade that China is responsible for a significant portion of.
The frightening possibility (to Bernanke & Trichet) is dawning that China would rather suffer inflation for an extended period of time rather than risking significant hits in their labor market. That China has a large national surplus puts them in a position to be able to do so, if they desire.
Sunshine.
You are correct. Bernanke's main goal is to stop China. After all, what country would peg their currency to the USD, and still have the cheek to call themselves an independent country?
However, under the law of unintended consequences combined the certainty that Murphy will prevail, my question is which country hits the brick wall first ?
good question. my guess is the U.S. will hit the wall before China. Just watch
We have a tendency to make the assumption that the Elites are trying to "fix" the economy, manage soft landings and make life better for the populace.
The problem with this is they are not. They are attempting to create an environment where they can produce goods, sell at the highest prices and pay the least costs to create greater profits. They attempt to use financial instruments to transfer as much wealth as possible. They attempt to create governments that continue control and enslave the native populations.
Until we realize that as long as we play along with this global exercise we will remain enslaved to the Elites, we are doomed to wear chains.
It doesn't matter what the Chinese do. It doesn't matter what the Bernak does. It doesn't matter if Melvin King sucks every dick in Ireland as Olin fucks them in the ass.
The only thing that matters is what will you do? Your participation creates legitimacy. To the extent you use currency- you are complicit. To the extent you use credit- you are complicit. To the extent you pay taxes- you are complicit. To the extent you follow their laws- you are complicit.
As you begin the new year, I hope we all carefully consider the purposeful genocide that is being waged against the non-elite of this planet. The pollution of land, water and air. The poisoned foods filled with empty calories, obesity and cancer. The constant wars that take our youth and leave dead and crippled for the theft of resources and creation of debt for interest. That we become aware of the efforts to eliminate privacy and intercede in our every action. The physical molestation at airports, bus stations and on trains. That we examine the content of our education systems that attempt fill minds with propaganda. That the media of film, television and video is dangerous in the minds that fail to question content and reasoning- as these skill sets have been eliminated from the education process.
Is this your ideal of how you want to live? For your children? Your grandchildren? The numbers that are most important are these: 99.7 to .3. That is the approximate ratio of the Elites to everyone else.
Excellent post.
+1. Ditto that.
What the the F is all of this gobbledeegoo that is being pumped into the comment section of ZH over the last 48 hours? Good grief, Hong Kong, take a freankin' chill pill. A lot of Americans are stupid, gazing blankly at I phone 4s reading articles about when the white one is going to come out...but those people DO NOT read or post on ZH.
As for the article, and I read every China thing I can get my mitts on...
...about that quote I just have to say...DUH! Years back some giant voice came out of the Chinese sky and said, "If you build it they will come." To some extent, they did come...but to another great big extent, they DID NOT come and there are giant malls and entire cities and apartment building and hotels sitting all over the place there...and if you go to many of those places, the only thing will you will hear is the plaintive sound of the cricket. As for that voice, I guess you can still hear that too as it is now begging people to "Please come...we built it already."
And that's also a great big DUH because you cannot CENTRAL PLAN THE MOST POPULOUS NATION ON EARTH without screwin' it up and being really inefficient...resulting in what it has resulted in...things, including small villages, PRICED FOR STUPID.
So yeah...they will figure this out and raise rates like bat-shit crazy...coming soon to a headline near you.
But I will digress and watch Hong Kong work on cutting and pasting and "pushing stuff of the page" because when Hong Kong does that, they end up posting some stuff that is SO STUPID...it is very LOLable.
So I'm watching and readying myself to post LOL a lot!
Cdad
Did you follow the link I posted above about empty cities?
There are some people who are actually aware of this already, even in China...
Zero Debt,
No, I did not follow the link to empty cities. I did not for two reasons, and I'll mention one of them...because I know about those things already.
I suspect central planners in China, which is to say COMMUNISTS, also know this because they built this stuff. I also think that is why the chart on China is looking about a sober as the chart on little Ms. EUR/USD, too.
I also know that if China does not start controlling capital inflows via interest rates [and other secret weapons that COMMUNISTS use], those communists are quickly going to find that they are f'd. In fact, I think they already know they are f'd and have been sitting around in huge and poorly decorated rooms...tacky really...trying to figure out which crappy option to take...because right now all the options are crappy.
But good luck out there...what with Hong Kong going all Post-a-holic this weekend.
Who is Hong Kong?
The most fashionable policy tool of Chinese regulators is currently the bank reserve ratio and not interest rates and it appears to be the least controversial option. However it wouldn't help because at the same time they are targeting 16% growth of M2 and 7T RMB in new loans for 2011. It's schizophrenic monetary policy at best but they have no other option because if they contract M2, growth will fall below target as it is mainly inflation-driven fixed-asset construction, which the anectodal satellite images indicate, but do not prove.
Zero Debt,
Hong Kong is not so much a person as it is a place. I'm sure you have heard of it.
Listen, I have learned a lot about Chinese people over the years beyond that those people are just really good at putting stuff together for half pennies on the dollar. I've also learned that they are REALLY GOOD AT REVERSE ENGINEERING things too, which is good if your people are not all that talented at inventing stuff. But China is also very good at discombobulating and cutting and pasting and pushing things over the edge...if you know what I mean ;) You just have to be careful when China is doing that because it never bodes well...for anything.
About a 16% M2 target and regulators...I don't even think those things matter because it is clear that things have gotten away from those central planners...duh. [But if they are actually planning on more loans...ummmm...then those guys are just bat-shit stupid and I have grossly underestimated how bat-shit stupid Chinese communist central planners really are. Maybe I need to redouble my DD on the China front].
As for anecdotal satellite pictures...whatever. There are all kids of actual videos posted online here and there showing these Chinese ghost towns. Call it anecdotal if you like, but there are some pretty serious folk moving in for the kill on that Chinese stock market...the kind of people that...eh hem...don't tend to be wrong on money matters....ever.
Keep your head down ZD...
FORD does the same thing. That's how they learned to build decent cars.
What's you said is quite incompressible (including the fuzzy reference to Hong Kong).
Lots of Love right back at you.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/12/14_K...
Chinese buying PM on the sly. Getting rid of dollars as fast as they can.
We have a tendency to make the assumption that the Elites are trying to "fix" the economy, manage soft landings and make life better for the populace.
The problem with this is they are not. They are attempting to create an environment where they can produce goods, sell at the highest prices and pay the least costs to create greater profits. They attempt to use financial instruments to transfer as much wealth as possible. They attempt to create governments that continue control and enslave the native populations.<<<<
I will go with this. They are not fixing anything. They are destroying things. People think that somehow the FED is going to fix things. I mean come on. Look at what they are doing. Actions speak louder than words. Simply said, they are destroying the United States. Case closed. Nothing more, nothing less.
Nicely done. People naively assume benevolence from "their" institutions. This is clearly not the case when jews are at the controls.
http://www.youtube.com/watch?v=QFBC4wOxnPs&feature=related
The Answer
by
Calvin Russell
of
Austin, Texas
The problem is central planning anywhere, here or China or anywhere else. It cannot be done well. It's just a case of who's the worst or who's the least bad. In China's case they actually build cities without regard to where people want/need to live versus where the government would like to have them. You can build a city or suburb as they do but will you put in a Chinese Starbuck's before anyone is there? No.
In the U.S. case it's not the government building stuff as much as monetary and government policy which builds a housing bubble or puts incentives and tariffs in the way of various businesses...not too mention regulatory bills with thousands of pages (healthcare, finance, etc.).
Central planning will always fail and miss the mark because it requires omniscient gods to do it right. Unfortunately, we are stuck with flawed men and concentrated/special interests.
The U.S. inefficiencies lay in the construct of taxation and incredibly inefficient transfer payments to the huge block of government workers (at federal, state AND local levels of government), entitlement spending (which if done by rational and efficient economic actors could save a likely 35% to 50% of what the government spends) and the military-industrial complex, which now consumes as much money as medicare does (and is incredibly inefficient, with politicians forcing the DoD to buy expensive weapons' systems and enter into wasteful contracts due to corporate sponsorship or providing/maintaining jobs back at home - see Seawolf Submarines & Connecticut as an example).
And to be fair, all governments engage in some central planning. Japan, in the wake of WWII, as reorganized by the U.S., was encouraged to identify and pick winners and losers, and that's how behemoths like Sony, Toyota and Mitsubishi (the whole shebang, from banking to ballistics) came into being.
Our Province spends 500 million on welfare and 44% of that money is taken by administration.
Quebec ? ...... no . Gotta be the Newfies . If it was Quebec , you could add several more zeroes .
Yes, all governments do central planning because it is the nature of the beast. However, the U.S. Constitution specifically limited central planning. It cannot be done well. It is also immoral at its core because it mobilizes large numbers of people and resources for someone else's purposes. It is also impossible for government to be efficient because of its nature and the nature of involuntary relationships. Every time I see a politician, especially a Republican (they ought to know better) talk about eliminating waste and fraud and making an agency more efficient I want to throw something at the TV...or occasionally laugh derisively.
When governments go in for wholesale central planning which nearly every government on earth now does, even ours, we get the results. The results are wealth transfers as you state very well to favored groups, individuals and constituents. It is so inefficient and eventually corrupt that societies begin a downward spiral of shared poverty. In centrally planned-collectivist societies, those with government favor and those who do the least win. In free economies it is those who produce the best goods and work the hardest that win. China and others will build empty cities and we will create sector bubbles that do essentially the same thing.
I hope they do maximum damage to DC.
How foolish American Christians sow the seeds of their own destruction. Fools they were and fools they are. I came from them. I walked out of the fog one day in 2004. I once was blind but now I see.
http://www.youtube.com/watch?v=tXCoGZjEI8w
+1 Thanks for the video link.
You are welcome. Without the foolish goyim going along for the ride, these jews would not be able to pull this off. My hat is off to them for being so clever. They are more than capable adversaries.
http://www.youtube.com/watch?v=MlvaN2c-Oto
Gilad Atzmon, former Israeli, former jew, now a member in good standing of
the human race and excellent musician by the way, speaks on jewish tribalism and forgiveness. When I hear him speak and I hear him play, I understand why they were put here, as in God's orginal plan, which was to be a blessing to the human race, instead of a curse. Satan corrupted this plan, as usual.
One must understand. These neocons are Trotskyites. They changed over the conservative party because they needed the help of the Christian right, which was dutifully given to them by popular foolish televsion preachers etc. We all bought into it. We all accepted it. We thought it was the right thing to do, I mean afterall, all of our lives we were taught that jews were God's chosen people ,etc. But this is not the case. Our seminaries were infiltrated and corrupted probably starting in earnest in the early 1900's about the same time as Lord Balfour, British Foreign Secretary, a Rothschild agent, was pushing for new "jewish homeland". A amazing coincidence , no? I have crossed the Rubicon now and I will never go back.
You'll never go back to what - sanity?
Fascinating rant. You know what I think? I think you're fucking cukoo for cocoa puffs.
To Sean7k @ 12:46,
Well said indeed.-
Central planning will always fail and miss the mark because it requires omniscient gods to do it right. Unfortunately, we are stuck with flawed men and concentrated/special interests.<<<
What do you propose we do about it? Maybe we should just wish they would all go away but they won't. Our fathers and grandfathers allowed this to happen. They ignored it and played a game of pretend. They should have stepped up the plate and did what they had to do. I blame this for this. But they are gone now. So I forgive them now. But in this time, in this day, in this hour, are we going to just sit back and allow it to happen just like they did? Are we going to foist this on our children and grand children? What we are witnessing is the end of a way of life here in this country. People better wake up and fast.
I'm assuming Thomas Chittum's scenario as the most likely.
The balkanization of the United States always the plan ,imho. That way, it is divide and conquer. I mean right now, we have organizations like Azlan formed up. They say they want a independent Mexican state in the Southwest United States, because they say the United States stole the land from Mexico. Now technically, I believe they have a point but there has been too much water under the bridge to do anything about that now. So now we see unbridled illegal immigration into this country. This helps the zionist plan for world domination by causing the United States to dissolve more or less into racial conflicts, while they sit it out and watch to see what happens. So whitey had better learn and understand what is going on here. Whitey has a target on his back and no amount of wishful thinking on our parts will change this. The wars that come about , will be confusing and bloody and needless and sad because the real enemies of this country will not be fighting us. Sad but true. Incidentally, certain foundations who owe their allegiences to certain parties in London, are funding such endeavors by the Mexicans. Most of the Mexicans, buy into it and play along like it is their original idea, never stopping to realize that they are being used a cultural battering ram against the white western european culture, the last living culture that is more than capable of fighting and winning a war with the political jewish zionist. They know this. This is why we are on the short list. Again, sad but true.
http://www.aztlan.net/homeland.htm
Nice Marxist rant you got going across about six different article threads.
Some advice...In through the nose, out through the mouth, and take a walk in the fresh air, buddy.
You can do this stuff on Yahoo, troll out this crap there, and get a few bites. I suspect that ZH readers/members are a sufficiently sharper group of guys and don't cotton to this kind of post-a-holism.
So rest up there, Carl. There is no point in what you are doing here on ZHedge today. It's embarrassing, man. Have some pride.
You should kill yourself.
Well said. That's the bottom line. The arrogance is staggering.
Our sovereignty has been completely and openly overrun by an unelected FR calling all the shots, foreign and domestic. They no longer even try to hide it.
Your point is well taken. I DO blame our ancestors especially in the early 20th century where this stuff became entrenched, Fed, FDR, Soc. Sec., takeover of education, etc. However, I simultaneously forgive them in that no one really knew how things would turn out. With the nonstop crises of the early and mid 20th century (WWI, G. Depression, WWII, nuclear weapons, etc.) it was easy to let government grow as it promises a way through the problems.
Now, there is no excuse. We have watched repeated failures of the same ideas sometimes packaged differently. We have to resist and it starts with ideas. Ideas are slow to develop and spread but they are more powerful than anything else. Most revolutions just trade one dictator for another...the Louis' of France for Napoleon, the Romanov's of Russia for Lenin's and Stalin's, etc. The U.S. revolution was different because it was not only against something but for something, as well. It did not actually require the destruction of society or the country as most other's. So, figure out what you are for as well as what you are against. That is the inherent danger of Tea Party type movements. The know what they hate and are against but I bet they would have trouble knowing what they are for and what to replace "it" with.
The advantage is that central planning including our monetary policy and collectivism in general cannot last. It will break of its own accord. It will just be a painful messy process.
Chinese financials have been selling off sharply since early November. China Life, Industrial and Commercial, Bank of China, China Merchants, China Citic are all at or below their 200d SMA (Hong Listed shares). China Construction is on its way. All well off of highs since the Bernank opened the floodgates again.
might put a little (or a lot) on FXP, unless expecting a sweft & sustainable trend-reverse..........
This sentence fragment contradicts itself....TWICE.
Seriously, go take a break. Allow yourself to gather your critical thoughts until they resemble a point. And only then...post.
AYE, AYE, CAP'N! shall I aim for something kinda like yours to gwar5 below?
If the Bernank is trying to get China to de-peg their currency, it may be working. We'll just have to wait and see what unintended consequences the next chapter brings in this never ending saga.
Uh huh. Wow.
-
--
China doesn't need to raise rates. China is not the USA. China has loan limit quotas for banks, ability to enforce higher reserve ratios, and an exchange rate it can play with before resorting to a raising rates. Higher rates only hurt the economy and the citizens taking loans without solving the problems. You guys all shorted based on some fantasy rate raise in China when any look at the data indicates they already have slowing money velocity and would not resort to that. The reality is, China is much closer to lowering rates rates than raising them. But you guys are so focused on the one tool the US Fed uses that you can't see that rates are not even the optimal tool. Oh well.
It would be interesting to see PBoC rates lowered given current inflation. The latest official CPI print was 5% + and anecdotally food price inflation is 10-20%, while the Bernank has driven commodity futures anywhere from 20-100% plus since the summer. Maybe aggregate demand from the West is about to go bungie jumping again.
The banks are taking a bath. Each cycle that administrative measures are implemented in lieu of currency adjust ments or rate hikes, the CCP is that much further removed from its own fiat. The economy now at $4.5tn provides a nice experiment to test the limits of central planning and capitalism with Chinese characteristics.
If you have good data, like electricity production or actual debt numbers including gray market lending, I'd love to seen them.
And what would be the rationale behind China LOWERING rates?
The big recent event that six weeks later still hasn't been widely recognized is that China practically stopped buying Treasuries in mid-November, in step with the launch of QE2. Look at the numbers for foreign central bank holdings of Treasuries in Fed custody in H.4.1, here: http://www.federalreserve.gov/releases/h41/hist/h41hist1.htm
They were growing by an average of more than $20b a week during the 13 weks leading up to Nov. 10, since when they are up less than $3b in six weeks. There is no way such a screeching halt could have happened unless China led it, as China accounts for nearly half of all foreign central bank holdings of Treasuries.
I don't mean to oversimplify this story. Prior to mid-August, foreign central banks had been buying only about $4.5b of Treasuries a week, on average since the beginning of the year. China and other foreign central banks responded to "QE lite" and other signals that QE2 was coming by sharply increasing their purchases of Treasuries, to that average of >$20b a week. And then when QE2 was launched, they suddenly almost stopped buying.
Of course, QE2 means that net isuance of Treasuries to the market is drastically reduced, as the Fed is buying about two-thirds. Still, that remaining one-third is not small and China has made a clear decision to abstain. That's the main reason why Treasuries prices tanked despite a massive drop in supply.
The usual story out there, that QE drove private investors away from safe havens and towards risk, is only a small part of what happened. That would be expected to work through two mechanisms. First, QE would cause private investors to anticipate inflation and thus to shift into the kind of assets that would inflate most. That did happen to some extent. Second, QE would reduce supply of Treasuries driving up their prices and making them less attractive relative to riskier (according to conventional wisdom) asset classes. The reverse happened: Treasuries prices fell.
Yet private investors fled them anyway. It's all about China. In any securities market, when there's one big traditional buyer who has been pushing up prices for ages, and then suddenly that buyer pauses, the rest of the market takes fright and prices drop hard.
But the reason for China's halt in buying Treasuries is still unclear. Perhaps the central bank simply thinks it overbought in August-November, and is merely re-balancing its portfolio back to its pre-August weights.
The author is right that a primary goal of QE2 was to persuade China and others to stop buying Treasuries as a means to supress their currencies. But China hasn't stopped suppressing its currency (the yuan hasn't gained much, and imports haven't shot up). So China must be buying some other foreign currency assets for now, instead of Treasuries. But what? There are frankly not a whole lot out there that are good substitutes for Treasuries, as everything else is less liquid and thus for a buyer as big as China's central bank impossible to buy without running the price up like an idiot.
So this situation appears unstable. Either China will return to buying Treasuries, and drive their prices back up, or China will reduce suppression of its currency, and Chinese imports will surge in foreign currency terms (much by paying more for commodities, Spitzer is very right on that).
Good point. But I have a simpler explanation why China went binging on treasuries before QE2 and then bruptly stopped afterward.
China's foreign reserve has one driver and one driver only: to hold down the CHY exchange rate. It's much more reactive than proactive, as in "manipulation" casually thrown around everywhere. PBoC sees exchange rate pushing the upper bound of the floating band, starts buying whatever foreign currencies that want to buy CHY, and therefore day in and day out ends up a big pile of foreign currencies, most of which happens to be USD. PBoC really doesn't have much control in either the amount of composition of its foreign currency reserve, as long as it's tasked to defend the trading band.
Now, right before QE2, USD was tanking and hot money was pouring into China (among others). Therefore PBoC had to buy a lot of dollars, which quickly got recycled into treasuries. Right after QE2 announcement, treasury yields started rising, along with USD. Hot money started flowing into the US. PBoC didn't have to push back from the upper bound of the floating band. Therefore no treasuries.
Your point is well taken. The bigger problem that China has is that any time you try to artificially manipulate currencies and markets you can back yourself into a corner. As long as no one responds to what you are doing it will work. However, other nations manipulate currencies and tariffs and regulations to compensate, as well. It has worked for China because we simply tolerated it with only occasional feeble protests.
I hate the Fed and the high stakes game it's playing but a part of me does like the corner it drives the Chinese into. That corner is there because of their own policies.