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Simon Black's Observations On McFlation Protests in China
In China, where according to whisper numbers, inflation is expected to spike by over 5% in the last month, inflation is already surging. However, courtesy of its autocratic regime, China can simply quash any protests over inflation... for now. "Sovereign Man" Simon Black (newsletter link) explains the tenuous dynamic between social instability and economic growth in the world's most populous and fastest growing country. As he notes: "The price of a Big Mac is going up in China by 7%. In fact, Chinese
state media outlets are reporting that prices for all items at McDonalds
fast food restaurants across China are going up by 1/2 to 1 renminbi
(RMB), roughly 7.5 to 15 US cents." Let's hope that China does not stop importing the US' biggest export: inflation. Otherwise, our own regime may soon be forced to see just what it means when runaway inflation (ahem, oil) ends up creating just a little popular unrest. And, in the most ironic of boomerang effects, should China start reexporting our own inflation back to us, via increased prices for beads and trinkets, then all bets may just be off.
Crushing the McFlation Protests In China
by Simon Black of Sovereign Man
The price of a Big Mac is going up in China by 7%. In fact, Chinese state media outlets are reporting that prices for all items at McDonalds fast food restaurants across China are going up by 1/2 to 1 renminbi (RMB), roughly 7.5 to 15 US cents.
It doesn’t sound like much, but it’s a sign of the times; the epic battle between countries which export deflation (namely China) and countries which export inflation (namely the United States) is drawing to a close.
For years, China and most of Asia have been diligently producing the majority of the world’s low-tech finished goods at ridiculously low prices. 60-year old women toiled for 80 cents an hour so that North Americans and Europeans could buy useless knick knacks for peanuts.
Meanwhile, Western European nations and the United States have been flooding the world with hundreds of billions of dollars, euros, and pounds. This cash has made its way into commodities markets and emerging nations’ property and capital markets.
China has been absorbing this exported inflation (and producing its own) for years– the hot money that’s crossed its borders has driven up prices, wages, and other input costs, and in order to stay profitable, companies have had to raise prices… hence the 7% capitulation for a Chinese Big Mac.
Because the renminbi has closely tracked the US dollar for so long, Chinese workers have seen their currency’s purchasing power inflate away against livestock, agricultural commodities, and now fast food.
Massive inflation is politically unpopular, even in China’s single-party regime. You don’t hear about it much in the media, but there have been riots over food prices (up 20% in the past year) as well as a spate protests from factory workers demanding (and getting) higher wages.
As an example, iPod manufacturer Foxconn increased its workers’ salaries by over 20% across the board earlier this year. Needless to say, price inflation in China (which begets wage inflation) has serious implications for input costs and finished goods prices in the west; in other words, China will start exporting its own inflation.
In their efforts to tame inflation, Chinese bureaucrats raised interest rates in October and appear be doing so again this weekend. There is also talk of price controls, lending restrictions, and additional crackdowns on speculation.
These are half-hearted efforts at best, and history shows that they never work in long run. And so, while price controls will have serious implications for the markets and nervous investors, Chinese people will likely be paying much more for their groceries again by this time next year.
Drastically higher interest rates and a strong renminbi would do the trick to curb inflation, but these measures would shock China’s economy– an equally unpopular outcome. As the country gradually transitions to one based on domestic consumption, higher rates and a stronger currency will be slowly phased in.
When push comes to shove for now, though, China’s leaders will choose inflation over stagnated economic growth. After all, it will be easier for the Politburo to crush an occasional McFlation protest, censor it from the papers, dish out a few free bags of rice, and start exporting higher prices to the West.
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Just bought 100 Gallons of Heating Oil for $3.05 per gallon. Wow. $305. Dollars and that should last for about a Month. I have been heating with 3 electric heaters waiting for Oil to come down but with it going down to 18 degrees on Sunday I thought I needed to bite the bullet and order before Sunday.
Going to be a lean Christmas this year. $305. is about half my SS Check.
sounds like Ben's plan to starve and freeze those on fixed income is working.
someone got to pay the bill....nothing personal folks
Big Mac's going up 1/2 to 1 RMB in china is not an idicator of inflation; in fact, it's not even worth mentioning.
China will have deflationary problems if they over compensate for inflation, and the inflation they are experiencing is artificial; the surge of speculative foreign investment dollars chasing the term 'emerging markets'.
They have severe overcapacity and over-employment; and a global real estate bubble ready to pop; countries like China and France still have way overpriced homes; peak levels even now.
all these deflationary and deleveraging issues still needs to be dealt with.
It's like saying the economy is recovering here in the states; when in fact its just the freed up capital from not paying mortgages and other bills. people are just getting smarter, reducing debt, reducing liabilities, because they have too; and chinese will eventually be doing the same thing.
What is the ticker for the Sino Plastic Pumpkin Index on Bloomie?
I'd still rather be in China's shoes right now (similar to the U.S. around 1930's). They have resources and manufacturing and they aren't indebted to anyone.
We have debt, no resources other than agriculture (which is dependent on cheap oil). When inflation or deflation happens across the globe, would you rather be the country with the resources and production to make goods or would you rather be the country relying on other countries for your resources?
The U.S. could rebuild its manufacturing sector but it will take years and significantly cheaper labor prices.
I use the Oil sparingly. I never let the temperature over 58 degrees. At night I have a warm comforter and let the temperature go down to about 52 degrees. I dress warm.
water TURN UP THE HEAT..your home will deteriorate rapidly at those temps..think mold in the walls, busted pipes, expansion and contraction of wood ..save yourself the planet will take care of itself
waterfall - heating with oil is a crime against the planet!! you deserve to freeze you leach on the gov dole (SSecuity)..pray for global warming
**sarc off**
ps i did not junk you..some tree hugger got ya
There is no natural gas in my area. I would probably switch to propane but cannot afford to buy another furnace. I have been using portable electric heaters with one right in front of me so the house temp can be lower. Yet, I do worry about a fire with the portable heaters.
I have looked into buyiing a Wood Stove but they run about $4,500. installed.
As far as my SS, I have paided into the system for about 45 years. Both sides around 15% of my income. I feel that I deserve what the Government promised when they collected that Money from me. Although, now it appears that it" was under false pretense. When I started to pay in the Government said that it would be your "Retirement Income. Not supplemental Income.
In my opinion the Government did not have the right to take the money out of the Social Security Lock Box. But, they did. Now they lie to cover their theft.
I'd get another quote on that woodstove, shouldn't be more than $1500 for a basic unit imo.
But if you're in the states, why not just move somewhere warmer?
that price includes the chimney!
Unless you live in NYC or other big cities, you can buy a wood burning stove for anything from $150-$1000 depending on the size and there's tons and tons of wood (you don't even have to chop down) lying all over the place.
Here around me people frequently dump project-leftover wood by the dumpster and as long as it's not chemicals treated, one has plenty of free heating material
Wood Stove Insert delivered, installed and includes the chimney liner. The liner and installation is really expensive.
"I feel that I deserve what the Government promised when they collected that Money from me. Although, now it appears that it" was under false pretense. When I started to pay in the Government said that it would be your 'Retirement Income.' Not supplemental Income.
"In my opinion the Government did not have the right to take the money out of the Social Security Lock Box. But, they did. Now they lie to cover their theft."
There was never a lock box, it was a Ponzi from the beginning under FDR. You deserve nothing because you actually believed the socialist liars and cooperated with them in robbing future generations. If you'd listened to the conservative "wingnuts" of your generation, you'd be a wealthy man having saved for your own retirement with gold and silver.
There was never a lock box, it was a Ponzi from the beginning under FDR. You deserve nothing because you actually believed the socialist liars and cooperated with them in robbing future generations.
Whoa partner. Back up the fucking cart. You're telling me that because he was not a one man voting block and did not have enough capacity to defeat the standing army of the united states government that he is not entitled to anything? Are you fucking crazy?
If this is your line of reasoning, I anxiously await the government to come knocking on your door for the rest of its tribute. Let us know how you feel.
In the end, any attacks on social security are takings without an offer to recompense the affected parties the market value of the taking... it's incredibly simple. If you want to adhere to this philisophy, then you necessarily give up all of your property rights to the state. Needless to say, there may come a day when you second guess your platform.
"There was never a lock box, it was a Ponzi from the beginning under FDR. You deserve nothing because you actually believed the socialist liars and cooperated with them in robbing future generations. If you'd listened to the conservative "wingnuts" of your generation, you'd be a wealthy man having saved for your own retirement with gold and silver."
If that is the case then they lied about my tax rate. So, instead of a 35% tax rate I paid 50% when you add the 15% for Social Security & Medicare on to the normal 35%.
Think about moving to a more temperate climate. Don't live where the weather can kill you. Its Winter and I put on a hat. Problem solved.
$3.16 gal. 12/10 delivery. I feel ya.
$3.42 gal.
just called to check, ouch!
It's a ponzi race to the explosion. Whoever explodes last wins. Open society versus closed society. Place your bets.
But which is which? I can't really tell the difference.
Should I go with the one that incarcerates children for life, or the one that has prison populations made up almost entirely of ethnic minorities? The one that prosecutes people for free speech, or the one with the highest execution rate in the world? The one that is crushing the life out of its industries with regulations and high taxes, or the one reciving huge amounts of aid from abroad just to stay afloat?
Oh shit, those are all the US.
in the defense of the society, ethnic minorities are far more likely to commit serious crimes requiring incarceration.
Especially true, trav7777, if one does not consider financial fraud and criminal wars to be "serious crimes" as compared to say, marijuana sales or possession.
Sorry, which is the open society?
The American consumer just left the building. How will Uncle Sam measure GDP growth now? Better bring back "Slick Willy" (Clinton) he was the true master of fuzzy math/logic. I can't wait to read MSM's spin on economic growth and the resurgent American Walmart Shopper (suicide shopper)!
At my company I am the macro guy who is supposed to think about the big picture. But when I try to explain some things about finance to my friends the questions invariably turn to "how will this affect me". To that end I look at fast food as one of the more reliable indicators of how inflation is starting to hit the common man.
To wit, the $5 lunch was something that faded in early 2008, it simply could not be found. But in the ensuing deflation it returned. Soon tho it will be a distant memory and as the ultimate leading indicator I point to Wendy's Jr Bacon Cheeseburger. Where it was previously the marquee item on the $1 menu it is now $1.30. This is how inflation starts. Its not immediately apparent, but a 30% rise in the price of a lunchtime staple should be a warning shot across the bow of middle america that something bad is coming.
oh, this too ;) http://www.youtube.com/view_play_list?p=F79EBE9FB77C107C
McDonald Double Cheesburger went from $1.00 to $1.19. I always order without a drink or with water (no charge).
Pork bellies were indeed one of the biggest gainers of the past 12 months, but milk wheat and beef are also up considerably. $0.19 doesn't seem like much, just like the Wendy's exapmle doesn't seem like much, but you're talking a 20% price increase. What more the $5 lunch's last refuge was the dollar menu. With that gone we can bid our final farewells to an affordable daily meal.
Costco sells 4 roller sandwiches, filled with chunky chicken salad, lettuce, and tomato, for $8.99. I buy the pack on Sunday, and eat one at work every day except the day that our little Vietnamese lady in the coffee shop makes pho (home-made, for $6.00--a bit overpriced, but the weather is horrid). So my lunch is a grand total of $2.25 those four days. If you have a larger group, they sell the chicken salad by itself; when the kids were at home, I did that, when I didn't roast a chicken and make the salad with the leftovers, . It's even cheaper, even with decent whole grain bread over $3.00/loaf. Why the hell is everyone so opposed to bagging it? You can't take three minutes out of your life to save $6.00 per person?
I will admit that I never had to before; when I worked in France, we had subsidized meals paid for by the employer, and later here, I had an expense account, and always had a client I could take to lunch. I still don't feel the need, really, but when one looks at the ridiculous amount of money wasted on so-called restaurant (garbage) food on a daily basis at lunch, it's really a no-brainer.
Before the kids left for college, I typically used leftovers, for them and for myself. THERE IS NOTHING WRONG WITH THIS. It used to be called "home economics."
Soft examples work:
I needed a 3.5 plug male to male connector for a sound system.
3 feet long.
Small town Canada
The Source
CAD15
That smarts.
Same wherever you go. I live in Dallas and routinely see cords like that ridiculously priced.
I just go to Ebay and buy them for next to nothing. Have to wait a week or so, but at the price you'll pay on Ebay, you can have a spare in the drawer.
Let them eat rice cake-chinese marie antoinette
egg noodles and ketchup...
Goodness gracious does Mandy look fine this morning !!! Yow Za
And the prices of oil and gold promptly went down on this mcflation news.
But!.....But!....
....if the Chinese and others around the world refuse to absorb all this inflation, they will have to cave in ultimately on currency revaluation!
But!....But!...
...Bernanke, Geithner, Obama = strong dollar crowd, all by their own statements!
What's going on here, people? Is someone being played?
Is our government lying to us?!
Why dont they just copy it and sell it for $.10 on the dollar? Offer the Chinese $.10 menu. Worked for everything else.
IMPORTANT LESSON FOR THE U.S.:
It’s Too Late For China To Stop Inflation Because of Stimulus Lag Effects. There’s no question that China will experience high inflation over the next few years says Andy Xie.
Due to lag effects of monetary policy and fiscal stimulus, the effects can’t be removed until a few years forward, 25 November 2010, (Business Insider) http://www.businessinsider.com/andy-xie-its-too-late-for-china-to-stop-i...
I thought the idea was to export inflation, and increase the prices on Chinese trinkets and slow the trade deficit. Of course, by doing so, China has less US currency in its hands for which it needs to find a home each year (in the form of Treasury purchases, since what else can you do with those darn FRNs as they pile up?)
Oh, I forgot - the Fed will just monetize all the Treasuries left in the "unclaimed" bin as we go forward. Just as well.
An open society is actually a recent evolution. I would say it began with the telegraph and it is reaching the tipping point where the ability for individuals and governments to keep secrets is coming to a close. The kicking and screaming fighting this tipping point to an open society is akin to pissing into the wind. An open society has larger supply chain implications, the leadership should consider the opportunity and embrace it rather than oppose it.
yeah, we WANT China to increase prices. The trade balance is untenable even at this figure.
the whole point is to get them to repatriate dollars by buying things made here.
The problem China has is that their industry isn't profitable NOW, much less with less dollar revenue. If trade flows normalize somewhat, they are facing an incredible contraction.
Chinese high school students have already rioted over price increases.
http://www.businessweek.com/news/2010-11-25/chinese-students-riot-after-dining-hall-prices-raised-news-says.html
Vegetable prices are up 50% this year, the price for a bowl of noodles with some veggies at a local shop rose 15% last week. Items in the supermarkets are up anywhere from 5-75%. Cafeteria prices at the universities are kept low to keep the students happy.
Anyone know what average wage is there? I seem to remember the Foxconn's employees getting raises to 30 cents an hour after all the suicides, if that's true then a 7-15 cent increase is a major bump.
It depends, and yes, I've been there for business.
It depends on which district and what sector/segment.
If you are talking general manufacturing in the major zones, such as in Shenzhen, it's about 1,100 yuan (roughly 170 USD) per month - I think Foxconn workers, all 780k or so of them, make about this.
And that's SCARY to Chinese Manufacturers and the government - Foxconn, Quanta & HP, for example, are already building factories in western provinces of China where wages will be much, much cheaper - Chongqing and Henan.
This is already happening - to prevent manufacturers from finding alternate production bases in Asia, the government is helping manufacturers to move to lower wage, formerly remote provinces, by guaranteering the grid and housing will both meet the demands.
Let us not forget that a 'luxury' dinner with specialties of the house - I'm speaking the best restaurant in town - will run locals about $2 to $3 USD for everything, and a decent apartment (luxurious by Chinese standards) will run about $40 to $55 USD per month, depending on location (there are rumors of heavy subsidies in western provinces where new units are being priced around half this, to entice relocation of manufacturing facilities - I do not know if this is the case or not).
Where is this? In Beijing, you can't buy lunch for $2 anymore outside of noodle shops and fast food. I don't know what wages are in the manufacturing centers, but to keep a good worker will probably cost at least 5000 yuan per month. I have a friend with just a high school education, doing logistics, who was offered 7000 yuan per month to quit her job in Dongguan. The factories in Guangzhou are hiring illegals from Vietnam to hold wages down.
In Beijing, the restaurants, car washes, etc., are all hiring. They can't keep workers on at low wages anymore.
In the manufacturing provinces. It's totally different then Shanghai, which is full of legal and financial firms, or Beijing, which is full of government offices.
Just 18 months ago, the only native Chinese making anywhere near 7000 yuan per month would have had to have been working as a professional for a western firm, such as lawyer or tax consultant, etc.
Post-lunch shampoo in Chang An is now $2 for 30 minutes, where 5 years ago it was $1 for an hour. Still tap water in the bottle, however.
Has any scientist analyzed exactly what is in the dust that is unstoppable there?
I am not 100% sure (and I'm lazy to google it), but I think you've made a mistake - those in Shenzhen got a 100% rise, the rest got a 20% rise.
It's all pretty murky, still. Workers are reluctant to talk about it, and accurate data is hard to come by.
I did find this month old article in the last minute or so, which highlights the confusion (base pay of 1100 yuan per month, but 2000 yuan take home after all expenses are deducted?):
http://news.yahoo.com/s/nm/20101119/wl_nm/us_china_foxconn
"According to one worker, the factory pays a basic wage of 1,100 yuan ($165.8) a month, which he added is less than what Foxconn had promised to pay its workers when it raised wages recently.
Take-home pay, after overtime and deductions for social security, is about 2,000 yuan per month."
silver bitchez!
China is going to find out a hard way what happens when you borrow money to people who spend more than they earn.
Their Treasury bonds are going to steadily lose the value, and the extra yield they earn is going to be in value loosing paper money...
China Money supply growth near 20% annual, inflation 7% annual.
And "growth" at 8%?
Now I understand... China's central bank prints as much money as is needed to keep the growth figures at 8%.
Let's see what happen with the official "growth" stats when the money supply grows at 0% annually.
The jobs we gave away, were only for a temporary reduction in price until our dollar had waned and china had to start charging MORE.
Outsourcing, you get fucked in the beginning with job losses, fucked in the middle with money flowing out of the country, and really fucked in the end with weak dollar and more expensive than ever Chinese good that used to be made in the U.S.
Problem is, the commodities rise to, making it impossible to make it here in the U.S.
Stupid, asinine, idiotic, retarded free trade policies. Only idiots thought them up or support them.
If you rely on McD's as your indicator of cost of living in China (or anywhere else), you're probably better suited to a career at McD's than in finance.
'The Economist' magazine, which is held in high regard by many, has used a Big Mac Inflation Indicator for some time now, and it has correlated with whatever the best guestimates of inflation out there pretty well.
I know the Big Mac index. Trust me, nobody moves money based on it.
PS Free trade gets a bad rep from policies that are peddled as "free trade" but are in fact only free on the import side.
I agree with you.
I don't have all the answers, but I can spot bullshit slogans and the tortured explanations for them as well as anyone.