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Why China's Leading Indicators Are A Big Flashing Warning Light To Albert Edwards; A Triple Dip Headfake In The US?

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Wed, 12/01/2010 - 22:34 | 770546 Spitzer
Spitzer's picture

If the US treasury bubble can last this long then China has a long way to go. Maybe 10 years.

Wed, 12/01/2010 - 22:39 | 770551 Spalding_Smailes
Spalding_Smailes's picture

http://www.youtube.com/watch?v=yeE3xe3thPc

http://www.youtube.com/watch?v=H-it4HRwvRo

 

Inflation = Unrest.

They have an asset bubble that will make an arthur anderson accountant blush ...

Wed, 12/01/2010 - 22:42 | 770568 Spitzer
Spitzer's picture

And all that China has to do is depeg and buy less dollars to solve their inflation problem. That will instantly re-export that inflation back to the US.

Considering the debt levels is the US, when China does that, the dollar will do the same thing the Thai Baht did in 1997.

Thats what happens when creditors run.

 

Wed, 12/01/2010 - 22:54 | 770608 Spalding_Smailes
Spalding_Smailes's picture

They cant de peg the banks would get crushed. 

This is how they keep the advantage in trade. The manufacturing complex would get monkeyhammered.

The jobs lost/social unrest would be unwelcome.

They are walking on a tightrope.

Wed, 12/01/2010 - 23:04 | 770645 Spitzer
Spitzer's picture

No, its quite simple actually.

As the RMB appreciates, the cost of food and oil goes down for  the Chines . Since China is the creditor with the peg, the rise in the RMB is an incremental fall of the dollar.

If a Chinese family pays less for food and gas, they have more discretinary income leftover to buy their own production.

Wed, 12/01/2010 - 23:19 | 770682 ThreeTrees
ThreeTrees's picture

I hope you're right.  My economy of residence is one of the resource extracting China derivatives.

One question of your thesis:  How much slack will a Chinese person be able to pick up with their newly deflated RMB?  Demand for Chinese goods is going to implode if they depeg and I've yet to see anything to convince me that the Chinese consumer can make up a significant portion of that loss.

Wed, 12/01/2010 - 23:24 | 770699 Spalding_Smailes
Spalding_Smailes's picture

 

China ~ 700 million farmers.

GDP - per capita (PPP): $6,600 (2009 est.)
$6,100 (2008 est.)
$5,600 (2007 est.)
note: data are in 2009 US dollars

Wed, 12/01/2010 - 23:28 | 770716 ThreeTrees
ThreeTrees's picture

China ~ 700 million farmers.

That's exactly what I'm talking about.  Vast majority of them are subsistence farmers at that.  They've almost been totally left out of the massive globalist expansion of the past couple decades.

Wed, 12/01/2010 - 23:39 | 770741 Spalding_Smailes
Spalding_Smailes's picture

The people will gain wealth as the RMB goes up but are the farmers ready to spend this cash on cars or coach bags. And when the RMB goes up 20% the unemployment from the lost jobs at the factories would wipe out any gain in RMB wealth created. And the exports would get monkeyhammered.

Wed, 12/01/2010 - 23:48 | 770758 ZackLo
ZackLo's picture

who said american corporations were going to run those factories after they get their purchasing power back...

this could be interesting too

 

http://www.zerohedge.com/article/china-approves-fund-will-invest-foreign...

Wed, 12/01/2010 - 23:51 | 770770 Spalding_Smailes
Spalding_Smailes's picture

China will be strong in the future. But first we will have an asset bubble explode.

How that plays out for the ruling class is the real big question.

Fri, 12/03/2010 - 19:13 | 777037 RoloTomassi
RoloTomassi's picture

honestly the smartest post i've read on ZH in two years..

Thu, 12/02/2010 - 00:10 | 770817 Spitzer
Spitzer's picture

And when the RMB goes up 20% the unemployment from the lost jobs at the factorie. And the exports would get monkeyhammered.

They will have an ability to consume more of their own production. Hint...hint.. They can already afford to consume some of it.

Thu, 12/02/2010 - 02:55 | 771133 Fred G Sanford
Fred G Sanford's picture

I think you nailed it.  Chinese unemployment should be expected to rise significantly if the RMB were to appreciate significantly.  That would lead to an increase in social unrest in a place that already has a lot of unrest.

Thu, 12/02/2010 - 00:07 | 770803 Spitzer
Spitzer's picture

That is a dumb american myth.

Go there and see for yourself.

Thu, 12/02/2010 - 00:22 | 770843 Spalding_Smailes
Spalding_Smailes's picture

That is a dumb american myth.

 


But its in the news spitzer.... (33 seconds in) 700 million poor farmers . From 2008

 

Now spitzer that looks like a hoe in that farmers hand not an iphone. He has a donkey and a mud hut/straw and hes going to .... "pick up the slack".....

 

http://www.youtube.com/watch?v=u1SQeRBs7SY

Thu, 12/02/2010 - 01:50 | 771029 trav7777
trav7777's picture

see what?  the vast polluted rivers and lakes?  Or did you mean down the street through the smog?

When you go there, you see the potemkin villages of Shanghai and Beijing.  Good luck getting to see reality behind the facade.

Wed, 12/01/2010 - 23:48 | 770759 Spitzer
Spitzer's picture

I hope you're right.

This is not a matter of right and wrong, this is how economics works.

One question of your thesis:  How much slack will a Chinese person be able to pick up with their newly deflated RMB?

 

I can tell you first hand from traveling to China and Thailand. It costs fuck all nothing to live in these countries now, just imagine a 25% maybe 50% rise in the purchasing power of their currency !

I would say 95% of these people already have cell phones. I have travelled around the small towns and villages, you even see some iPhones kicking around. There is already laptops around too.

There is huge potencial to pick up slack.

 

 

 

Wed, 12/01/2010 - 23:57 | 770785 Spalding_Smailes
Spalding_Smailes's picture

The job loss from the 50% rise would make tiananmen square look like a food fight. The export oligarchy would never allow it, game over for exports/jobs/communist party, party.

Thu, 12/02/2010 - 00:42 | 770915 Oh regional Indian
Oh regional Indian's picture

Maybe the point being missed in this whole discussion is that we are looking at the death of Supply side economics in the "want" sector and a calamitous situation in multiple sectors on the "need" side of the equation.

phones and laptops mean jack-shit when you cannot keep a roof over your head or eat.

I am speaking from daily observations of the Indian Dysfunction which closely mirrors the Chinese dysfunction.

ORI

http://aadivaahan.wordpress.com 

Thu, 12/02/2010 - 00:59 | 770930 Spalding_Smailes
Spalding_Smailes's picture

Great point as always.

The inflation is no joke if 40-50% of your income goes toward your food .

Thu, 12/02/2010 - 01:34 | 771002 Oh regional Indian
Oh regional Indian's picture

Thanks Spalding and Exactly!

ORI

Thu, 12/02/2010 - 02:45 | 771114 Spitzer
Spitzer's picture

Simple solution, export it back.

Thu, 12/02/2010 - 02:44 | 771109 Spitzer
Spitzer's picture

It costs NOTHING to live in these countries. An apartment with a bathroom in the middle of Bangkok, $80 a month.

Its the Americans that will be looking for a roof over their heads.

Thu, 12/02/2010 - 03:12 | 771156 XPolemic
XPolemic's picture

WRONG!

It costs you nothing to live in these countries, it costs the local population the same as everywhere else on the planet: 100% of their income.

If their income remains unaffected, then the value of the currency has little effect, but if they lose their income, life is expensive (no matter how cheap you percieve it to be.)

In the short term Asians would be worse off, but in the long term, they would be much better off. But how do you convince people to go through short term pain for long term gain? Western people refuse to accept that proposition, but in Asia you just start shooting people and they eventually go along.

Thu, 12/02/2010 - 03:21 | 771164 eatandtravel
eatandtravel's picture

Spitzer my man.  Don't be so sure of yourself.  China  is growing but it's not a wealthy country by any stretch.  In can't feed its population without America.  It has 25% of the world's population but has access to 6% of world's drinkable water. 

How will China grow with the lack of commodities?  Who has coal, natural gas and huge oil reserves?  America.

China's economy is geared for a highly levered global economy.  They have excess capacity.  Domestic demand isn't going to pick up the slack.

China is in trouble...

 

 

Thu, 12/02/2010 - 05:37 | 771228 revenue_anticip...
revenue_anticipation_believer's picture

The New China is a Govt/business partnership (fascist socialism) that works, and brute force has/will be used in Tibet, and outlying provinces...and in the center, more gently but with assured confidence...

THIS China, is, after all, a PLANNED Economy...there are aspects of "Free-Market-like/Capitalistic resource/manpower/money allocation...BUT don't compare what happens, don't assume ANYTHING regards their 'bubbles too high' and 'sure to burst'

If needed, the 'empty cities WILL REMAIN empty, like money in the bank..they will eventually be used, allocated..and yet 'privately owned'

The drops in the Chinese stock market are induced by the Bank of China, planned that way...just simply because of an excess of economic optimism, 'animal spirits'...

stop using the Western Business-Model paradigm/attitude..oversight and remember that Chinese work-ethic/culture means working 14hours/day everyday, the whole family,  if needed... Millennia of high population density, of living at the economic margin - nearly no excess production..

Just a reminder, WHO built the Western Railroad from San Francisco to the half-way point...WHO...not the Irish, but imported 'little people' who produced like no other ethnic groupAsking about 'slack', living under deprivation/hardship and suceeding not matter how much work/time it takes to survive... 

is it that some economic/stock market writers  actually INTEND to mislead, to benefit their own book??

 

Thu, 12/02/2010 - 10:14 | 771448 Kayman
Kayman's picture

The Chinese worked on many railroads because there was no paying work at home. And despite the dangerous conditions, working and living at home in China was no better.

Now China exports worthless junk that most economies could live without. 

Either way, exporting goods or exporting people is China's only short/medium term option.

China is in a frenzy akin to a gold rush. The transition ought to be interesting to see.

May the Chicoms live in interesting times.

Thu, 12/02/2010 - 01:44 | 771016 Double down
Double down's picture

Which they will not do because discretionary income in Asia = savings = PM or real estate.

No safety net, no discretionary spending.

Thu, 12/02/2010 - 02:52 | 771128 Spitzer
Spitzer's picture

No safety net

Which results is efficient free market solutions rather then massive unaffordable bureaucracies that usurp money out of people's paychecks every day.

 

Thu, 12/02/2010 - 10:17 | 771466 Kayman
Kayman's picture

Spits

I had to read that twice:

Implication (China) does NOT have a "massive unaffordable bureaucracy".

Read your history; China invented useless bureaucracy.

Thu, 12/02/2010 - 01:49 | 771023 trav7777
trav7777's picture

and the fact that much of the national GDP is operating on negative or marginal profitability is of no matter when the RMB appreciates?

their margins cannot be compressed any further; they have entire cities that are empty, factories that are idle.  They are a mercantilist ponzi.

There isn't the demand domestically absent a massive *increase* in debt in the nation.  There's already a massive overhang of that for capacity.

Thu, 12/02/2010 - 09:50 | 771410 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Debt, yes! Enter Bill Gross and PIMPCO. Create a massive, deep and liquid government RMB debt market. Sure, we'd be happy to help you out. Become a new reserve currency. Borrow like nobody's business ... become the world's biggest consumer .... wait, where did I see that before?

Wed, 12/01/2010 - 23:54 | 770778 Rogerwilco
Rogerwilco's picture

Tightrope indeed. They have to maintain over 7% growth just to employ the kids coming out of the countryside, 7% just to stand still. Their version of TARP in '08 was almost three times the size of ours as a percentage of GDP, and now PBoC has to find an exit strategy that keeps growth above 7% without causing inflation -- and you thought Bernanke had troubles! What they're trying to do is the economic equivalent of walking a tightrope in a hurricane while juggling three running chainsaws.

Thu, 12/02/2010 - 00:43 | 770912 JLee2027
JLee2027's picture

So much for the China myth about taking over the planet. How can they ever become the #1 economy when they still import food and depend on stealing then copying others inventions for their exports? Answer, they can't.

Thu, 12/02/2010 - 03:13 | 771157 XPolemic
XPolemic's picture

That's how the United States became a super power, why wouldn't it work for China?

Thu, 12/02/2010 - 09:50 | 771409 snowball777
snowball777's picture

Take advantage of...

...their cartel tactics in commodity production and mining.

...their lead on green power production (dependent on said commodities).

...the fact that the US no longer has production capacity.

...their treasuries by selling into the Fed's "monetization ATM" (note: not an automated teller) until Ben has ~30% more than they do, then punking him, and spiking yields.

Wed, 12/01/2010 - 23:50 | 770767 eatthebanksters
eatthebanksters's picture

You're a smart one Spitzter.  If China depegs they kill their export based economy and their GDP goes in the tank over night.  The bubble goes nuclear when it explodes.  Think about what you say before you say it.

Thu, 12/02/2010 - 00:44 | 770920 JLee2027
JLee2027's picture

China is headed for a crash...this isn't news to those following them.

Thu, 12/02/2010 - 02:55 | 771135 Spitzer
Spitzer's picture

Is that you Paul Krugman ?

What would you do if your currency bounced up 50% ?

Thu, 12/02/2010 - 10:03 | 771431 snowball777
snowball777's picture

Highly dependent on whether one actually has currency, Spitski.

There is a culture of mass consumption in the US that made Chi-Merica work and those ironic commies can't duplicate it!

60% of the melamine-laced crap moving through Fontana, CA warehouses isn't marketable in China. All that capacity isn't for shit without exports because ChiCom domestic demand doesn't include fucking Bratz dolls, m'kay? 

 

Thu, 12/02/2010 - 03:10 | 771147 eatandtravel
eatandtravel's picture

Why would inflation appear in the United States if the Chinese depeg their currency?  No velocity means no inflation.

Thu, 12/02/2010 - 03:17 | 771158 XPolemic
XPolemic's picture

Two reasons:

1. Chinese stuff would become more expensive and

2. The US dollar would drop like a money packet from a helicopter if China (and Japan, and Saudi Arabia and ....) stopped buying US Treasuries, because the Benanke would pick up the slack, inflating the money supply to the moon and monetizing the debt, which would result in commodity prices going parabolic, and commodities are like your breakfast and stuff.

Thu, 12/02/2010 - 04:57 | 771218 eatandtravel
eatandtravel's picture

I agree the prices at Wal Mart will increase temporary.  If prices continue to incresse, production will move to Mexico.

Regarding the world dumping the dollar, hell no.  You can't replace something with nothing.  China will experience a hard fall.  Japan is in trouble.  We know about Europe.

Commodity prices are going higher thanks to the Chinese and hot money.  What happens when the Chinese stop buying?  All that hot money will run for the door and soft and hard commodity prices will drop very fast.

If you are smart, buy American...

 

 

 

 

Thu, 12/02/2010 - 05:32 | 771233 XPolemic
XPolemic's picture

I sense that you may be an idiot, but am ready to change my mind.

Regarding the world dumping the dollar, hell no.  You can't replace something with nothing.  China will experience a hard fall.  Japan is in trouble.  We know about Europe.

I am not sure if you are just babbling, or trying to condense your thoughts to save you typing. The world was ready to dump the dollar long ago. If it wasn't for military intervention, it would have already been dumped. Are you implying that the US will continue to invade countries at an ever increasing rate to protect the dollar? How will it pay for it? Will the Chinese lend a hand?

Commodity prices are going higher thanks to the Chinese and hot money.  What happens when the Chinese stop buying?  All that hot money will run for the door and soft and hard commodity prices will drop very fast.

Ummm .... huh? Do you even know how markets work? You know that oil is a commodity, yes? You know that commodities are priced in USD, yes? Are you saying that the world is about to stop buying oil, corn, wheat, steel and cotton? I find your ideas intriguing and would like to subscribe to your newsletter.

If you are smart, buy American...

As the USD drops I increasingly do, but I am not sure what point you are trying to make. Maybe you work for the Fox news channel and are unable to string together a coherent idea.


Thu, 12/02/2010 - 10:32 | 771499 Kayman
Kayman's picture

XP

If China depegs, the direction of the RMB is a toss up. It could just as easily fall over the medium term, since Corporate America (the partners of Chinese Fascism) would need to find alternative slave factories.

And of all the debt-laden, deficit growing, blind countries in the world, the U.S. continues to be the least ugly sister at this economic dance.

To paraphrase Churchill, the U.S. dollar is the worst currency in the world; except for all the others.

Saudi Arabia is not going to price oil in RMB.

Fri, 12/03/2010 - 19:28 | 777076 RoloTomassi
RoloTomassi's picture

the dollar is not just the reserve currency, its the reserve language...as much as we all appreciate the dilution and all that crap, remember without a seismic and fundamental shift in the wealth transmission mechanism that is the british/american empire mercantilism/globalisation model we are still prone/destined to witness an abject deflationary impulse..china in its current state is not capable of leading the reform..in any ways..buying the dollar is the only trade because we are not ready to build a system outsid of this "free-market"/globalistion framework we live in

Thu, 12/02/2010 - 04:10 | 771193 strannick
strannick's picture

 

 

If they depeg and let their currency appreciate, yeah, they'll export inflation to the US, and thats all they will export. Their crappy little trinket-stand economy will go tits up faster than you can say 'ancient Chinese secret, huh?'

Thu, 12/02/2010 - 06:26 | 771254 Non Passaran
Non Passaran's picture

What do you mean by "buy less dollars"? Their exports are paid for in dollars (which then get exchanged in return for T bills), so I wouldn't say they buy dollars, but if they did they couldn't buy less dollars without lowering their exports or making their currency even cheaper. As for exporting inflation, I doubt that demand for products made in China (no food or other essentials) is inelastic - Chinese exports would drop.

Wed, 12/01/2010 - 23:59 | 770790 malek
malek's picture

@Spitzer:
Not so sure about 10 years, but generally yes, it has a way to go.

Also from an american point of view:
I can invest quite some part of my money in China, because
-if China flourishes but US slumps, I can live off my investments
-if China busts then US should benefit, and I will have an income from a paid job.

Looks like a well spread risk to me.

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