Inflation Slowing China’s Export Engine

This is the force that ‘naturally’ brings the currency into line, and then can make it a lot weaker.

And the only way China knows to ‘fight it’ is probably with moves that will will result in a recession.

Inflation Slowing China’s Export Engine
Published: Sunday, 30 Jan 2011 | 10:46 PM ET

Inflation is starting to slow China’s mighty export machine, as buyers from Western multinational companies balk at higher prices and have cut back their planned spring shipments across the Pacific.

Markups of 20 to 50 percent on products like leather shoes and polo shirts have sent Western buyers scrambling for alternate suppliers. But from Vietnam to India, few low-wage developing countries can match China’s manufacturing might — and no country offers refuge from high global commodity prices.

Already, the slowdown in American orders has forced some container shipping lines to cancel up to a quarter of their trips to the United States this spring from Hong Kong and other Chinese ports.

Clinton presses OAS solution to Haiti impasse

So we send our Secretary of State to Haiti at the height of the Egyptian crisis?

Maybe it’s to highlight that we can’t even get it anywhere near right with Haiti, so don’t expect anything out of the US with regard to promoting human rights and representative government in Egypt.

Nor, of course, do we have any idea regarding improving the lives of majority of the citizens of the world, including our own, as we continue to believe the US govt. has run out of money and is dependent on borrowing from the likes of China and leaving the tab to the grandchildren.

Meanwhile, the risk of oil and trade disruption from the Egyptian crisis remains, however markets are today telling us they don’t think it will be much of an economic event, as the world watches to see if it spreads to other ‘non democratic’ regimes in the region.

Clinton presses OAS solution to Haiti impasse
Published: Sunday, 30 Jan 2011 | 9:27 PM ET

 
PORT-AU-PRINCE – Secretary of State Hillary Clinton urged Haiti’s leaders on Sunday to adopt an internationally backed solution to untangle an election dispute, saying the poor, earthquake-battered country needed a stable government to rebuild.

 
Clinton held talks in Port-au-Prince with outgoing Haitian President Rene Preval and leading presidential candidates on a visit overshadowed by the unfolding political crisis in Egypt.

 
She said she delivered the message that Washington wants Haitian authorities to enact recommendations by Organization of American States experts that revise contested preliminary results from chaotic November 28 elections in the Caribbean nation.

Obama himself, talking like a true convert to the Conservative Party

Looks like the media is getting on to a lot of what I’ve been saying since President Obama was a candidate?

These are not your father’s Democrats.

And they afraid we might be the next Greece, and so are on a path to turn us into the next Japan.

GDP is improving modestly, thanks to the 9% federal deficit. However, given the current credit environment and high productivity growth, it’s not enough to bring down unemployment in any meaningful way.

The near 0% interest rate policy continues to suppress private interest income and, along with it’s positive supply side effects, has helped the inflation indicators to continue to decelerate.

Increased exports evidence the more to reduced real terms of trade, with higher crude prices hurting as well. (we are exporting more and more just to ‘pay for’ the same amount of imported crude)

The last thing our standard of living needs is what the President threatened when he said something like ‘now that the worst of the recession is behind us, we can turn our attention to deficit reduction.’

LEFT TO WONDER IF HE’S ON RIGHT
By Charles Hurt
Publication: The New York Post
Date: Wednesday, January 26 2011


 
WASHINGTON – Stop spending! Cut taxes! Simplify the tax code! Expand free trade! Slice the deficit! Slaughter the pork!

No, that was not some Tea Partier or the battle cry of Republicans last night in response to President Obama’s State of the Union Address.

It was Obama himself, talking like a true convert to the Conservative Party.

The lefty liberal asked both parties last night to come together to eliminate the endless complexities in the tax code that has created a cottage industry for accountants but has been the bane of businesses and workers alike.

And he urged Congress to cut taxes. But not just any taxes.

The man many believe to be an all-out socialist whose policies have been hostile to businesses actually called on Congress last night to cut the corporate tax rate.

Few Republicans in these tough times have the guts to carry the banner of cutting this country’s corporate tax rates, which are among the highest in the world.

And it is truly astonishing to hear this from the leader of the party that is so completely devoted to trashing companies and corporate successes like Wal-Mart – even as Democrats claim to want to lower unemployment rates and foster a thriving economy.

Obama called for free trade with foreign countries, even as his fellow Democrats continue to insist that all free traders want to do is send jobs overseas.

And he hewed to a conservative line on cutting the deficit – a truly terrifying burden that just months ago Obama dismissed as insignificant as he added trillions of dollars to it.

The moment Obama really threw down the gauntlet came when he locked arms with conservative Republicans to denounce earmarks, those fat chunks of your money that lawmakers grab to pay for pet projects back home and plum favors for political supporters.

Obama explicitly vowed in no uncertain terms that if Congress sends him any piece of legislation with any earmarks in it, he will flat out veto it.

This was met with muted applause and just a small handful of decent politicians in the chamber leaping to their feet to applaud.

The question now is whether the President Obama we heard last night was genuine – or the speech was just another cynical political ploy by a Washington politician looking ahead to his re-election next year.

Will Obama actually follow through and lead his party to join Republicans to lower the corporate tax rate, dramatically cut the deficit and finally put an end to the political pork spending that politician after politician has proved is the “gateway drug” to corruption?

A glance at his record does not leave much room for hope.

(APW) EU Considers Loans to Greece to Buy Back Bonds

They EU may as well buy the Greek bonds themselves and save the legal fees.

And probably get a higher rate, and, of course, the option to forgive if it ever suits them.

Amazing anything like this ‘option’ even gets this far as a trial balloon.

But it does.

EU Considers Loans to Greece to Buy Back Bonds
2011-01-28 14:20:53.271 GMT
By GABRIELE STEINHAUSER

Brussels (AP) — Lending Greece money to buy back its bonds
on the open market is “one option” under discussion as eurozone
governments overhaul their euro440 billion ($603 billion)
bailout fund, a spokesman for the European Union’s executive
Commission said Friday
Greece’s bonds are currently trading below face value,
meaning the country could buy them back at a discount and cut
its mounting debt pile.
The European Commission raised that idea in an internal
“working document” on improving the response to the debt
crisis, said Amadeu Altafaj-Tardio, spokesman for EU Monetary
Affairs Commissioner Olli Rehn.
However, he emphasized that the document wasn’t a proposal
from the Commission, adding “It will be up to the member states
to see to it that our response (to the crisis) is more
effective in the future.”
Speaking to journalists at the World Economic Forum in
Davos, Greek Finance Minister George Papaconstantinou confirmed
that the idea of bond buybacks was being discussed, but
stressed that Greece wasn’t “engaged in any official way in
those discussions.”
Greece was saved from bankruptcy with a euro110 billion
rescue loan from its partners in the euro and the International
Monetary Fund in May, after investors worried about the
country’s high government debt sent its funding costs soaring.
In the wake of that bailout, the European Commission, eurozone
governments and the IMF set up a euro750 billion fund to help
other governments in financial troubles. That fund in November
extended a euro67.5 billion emergency loan to Ireland.
Eurozone governments are currently discussing new crisis
measures, after the bailout of Ireland failed to stop concerns
over debt levels from spreading to Portugal and much larger
Spain. At the center of these discussions is the eurozone’s
euro440 billion portion of the bailout fund — the European
Financial Stability Facility — and whether it should be
expanded and given more powers.
In a paper published Monday, London-based consultancy
Capital Economics calculated that an EFSF-funded bond buyback
program based on the market price of Greek bonds last week,
could cut Greece’s debt pile from about euro260 billion to
around euro194 billion. That would mean that at the end of this
year, the country’s debt would stand at 126 percent of economic
output as opposed to 154 percent, Capital Economics estimated.
However, even that reduction might not eliminate fears over
Greece’s ability to repay its debts, Ben May, European
economist at Capital Economics, said in an interview.
On top of that, telling investors that there is a buyer for
their bonds would likely push up bond prices and there is no
guarantee that all investors would be willing to sell their
bonds at a discount. “So the savings would be much less than
the current market price would suggest,” May said.
To make the buyback effective, any loans from the EFSF
would have to come at very low interest rates, said May. For
its current bailout, Greece has to pay interest of more than 5
percent. Germany and other key funders of the EFSF have so far
opposed lowering interest rates.

Masha Macpherson in Davos contributed to this report.

Japan Consumption Falls In Dec As Deflation Persists

And now the Prime Minister has vowed to tighten fiscal policy.

The only open avenue (the way they see the world) is buying fx.

And note that they’ve already started buying some dollars and have been welcomed by the euro zone to buy their national govt debt.

Consumption Falls In Dec As Deflation Persists

TOKYO (Dow Jones)–Japanese consumers remained downbeat in December, as deflation persisted and the employment situation remained mixed, data released by the government Friday showed.

 
Taken together, the figures are the latest sign that the economy will have to rely largely on exports to fuel growth as conditions remain dreary at home.

 
All household spending fell 3.3% from a year earlier in December, the Ministry of Internal Affairs and Communications said. The drop was considerably worse than the median forecast for a 0.6% fall tipped by economists surveyed by Dow Jones Newswires and the Nikkei. It was also sharper than a 0.4% fall in November.

 
In another sign that consumers remained hesitant to spend, retail sales fell 2.0% in December from a year earlier, data from the Ministry of Economy, Trade and Industry showed. The decline was mostly due to a sharp drop in auto sales, which fell by 24.1% in the month following the end of government purchasing incentives. Sales at large-scale retailers fell 1.8% from a year earlier, after adjustment for the change in the number of stores.

 
Highlighting the continued deflation, Japan’s core consumer price index fell 0.4% from a year earlier in December, Ministry of Internal Affairs and Communications data showed. While the result was slightly better than the 0.5% expected by economists, it marked the 22nd straight monthly decline, underscoring how entrenched the country’s deflation problem remains. Core prices, which exclude volatile prices of items such as fresh food, fell by 0.5% in November.

 
The slight easing in the price falls, moreover, stems from rising energy prices, which may only hurt individual spending down the line, economists said.

 
Higher energy and natural resource prices, if they are reflected in the price of consumer goods, “may lead to people cut back on consumption when circumstances surrounding households are already severe,” said Atsushi Matsumoto, an economist at Mizuho Research Institute.

 
Even with the upward pressure on prices, Matsumoto said it will be difficult for Japan to get out of deflation in the next fiscal year beginning in April, despite Prime Minister Naoto Kan’s government setting that timeframe as a goal.

 
Meanwhile, despite a fall in Japan’s jobless rate to 4.9% in December from 5.1% in the previous month, the closely watched jobs-to-applicants ratio was unchanged at 0.57. That number, which means there are only 57 jobs for every 100 job applicants, shows that firms have yet to ramp up hiring despite improvement in earnings.

 
“The jobless rate did show some improvement, but we need to remain very cautious as it’s still close to 5%,” a Ministry of Internal Affairs and Communications official briefing reporters said.

Japan Vows to Push Fiscal Reform after S&P Downgrade

The one nation that was at least sort of moving towards at least some proactive fiscal expansion may no longer be doing so.

Following through with this would make the yen fundamentally stronger (harder to get).

I singled out David Beers of S and P for criticism only because he does understand the difference between ability to pay and willingness to pay with regard to currency issuers vs currency users.

And Prime Minister Kan’s remarks couldn’t be more out of paradigm:

Japan Vows to Push Fiscal Reform after S&P Downgrade

 
Japanese leaders vowed on Friday to push ahead with tax reforms needed to rein in bulging public debt, but doubts persisted over whether the government could succeed in the face of a divided parliament.

 
Rating agency Standard and Poor’s cut Japan’s long-term debt rating on Thursday for the first time since 2002 while the International Monetary Fund had harsh words for Washington and Tokyo, saying they need to act urgently to cut their deficits.

 
Prime Minister Naoto Kan has made tax and social security reform, including a future rise in the 5 percent sales tax, a priority given the rising costs of Japan’s fast-aging society and a public debt that is the biggest among advanced nations.

 
“The important thing is to maintain fiscal discipline and ensure market confidence in Japan’s public finances,” Kan, who took over in June as Japan’s fifth premier since 2006, told parliament’s upper house.

 
But with Kan’s voter support sagging at around 30 percent, opposition parties which control the upper house have shown little inclination to compromise — something S&P highlighted when explaining its reasons for the downgrade.

 
Kan’s finance minister echoed his stance, saying the government must show its commitment to fiscal discipline, while Deputy Chief Cabinet Secretary Hirohisa Fujii said the government would take S&P’s criticism to heart.

 
“The Japanese government must humbly take the rating by a leading world ratings agency and further deepen its awareness of the importance of restoring fiscal health,” Fujii, a former finance minister, told a news conference.

 
Dropping the Ball?

 
Analysts had said the S&P downgrade could bolster Kan’s campaign for fiscal reform, but the premier initially did little to sell his case, telling reporters after the downgrade was announced that he was “not very familiar with the matter”.

Senator Pat Toomey- Pay China First Act

Gets stupider by the day…

“Sen. Pat Toomey (R-Pa.) introduced what Democrats are calling the “Pay China First Act,” which would require the federal government to pay all its debt obligations first and everything else — vets, schools, you name it — with what’s left.”

Okay, so we tell Ben Bernanke to press the “China debit/credit buttons” on the keyboard first. That should take about 2 seconds, and then we can get back to crediting and debiting everything else as we always do.

This is what supposedly qualifies for serious economic debate in the US these days.

Hawkish Comments from LBS

The problem with the euro zone trying to keep the costs of imports down in this context is that it can only be done via a strong currency, which works against their desire to increase net exports, and even that doesn’t necessarily work if the foreign supplier has sufficient pricing power, as the Saudis do with crude prices.

It’s all about the struggle to optimize real terms of trade, which is difficult enough when the leadership understands the real issue as well as the monetary system.

Unfortunately they don’t seem to understand either one, and their real standard of living pays the price.

Karim wrote:

These are very hawkish comments from one of the more centrist and
pragmatic Governing Council members. ECB starting to realize that the
austerity measures taking place are only in 12% of Euro GDP (the PIGS).
The remaining 88% increasingly going in a different direction in terms
of macro performance.

 

5:31 ECB Bini Smaghi: “Core” CPI Losing Its Relevance
5:31 ECB Bini Smaghi: Deflation Risks Were Overestimated
5:30 *BINI SMAGHI: EURO AREA MUST `SIGNIFICANTLY’ CONTAIN COSTS
5:30 *BINI SMAGHI: RISING RISK OF `SECOND ROUND EFFECTS’ OF INFLATION
5:30 *BINI SMAGHI SEES HIGHER INFLATION FROM EMERGING MARKET PRODUCTS
5:30 *BINI SMAGHI: PAST SHOWS TENDENCY TO UNDERESTIMATE INFLATION
5:30 *ECB’S BINI SMAGHI: IMPORTED INFLATION CAN NO LONGER BE IGNORED

Claims/Durables/GDP

Karim says:

CLAIMS

  • Labor Dept cites delayed filings in 4 states (Georgia, Alabama, North and South Carolina) as cause for 51k back-up in claims.
  • Those states probably depressed prior number, so current level likely closer to 420k; consistent with 150-200k gains in payrolls

ORDERS

  • Core capital goods orders rise 1.4% in December after 3.1% gain prior month; running at 9% at a 3mth annualized rate
  • Core shipments up 1.7% after 1.4% gain
  • Core shipments and core orders both revised higher for October and November

GDP

  • See notable upside risk to Q4 GDP tomorrow. Consensus 3.5%.
    Focus appears too much on inventory drag (which will be large) and not enough on contribution from net trade and these capex revisions.
  • Could see 5% print tomorrow.

S&P Cuts Japan Debt Rating to AA Minus

David Beers at S and P knows better and should be ashamed of himself and his organization for not making it crystal clear that ‘ability to pay’ is not in question, and that downgrading Japan has to be based solely on their assessment of ‘willingness to pay.’

Also note that even with repeated downgrades the term structure of risk free rates remains a function of market perceptions of where the BOJ will set rates down the road, along with a few ‘technicals’ of supply and demand.

S&P Cuts Japan Debt Rating to AA Minus
Published: Thursday, 27 Jan 2011 | 4:02 AM ET
By: Reuters

 
Ratings agency Standard & Poor’s cut Japan’s sovereign debt rating to AA minus from AA on Thursday, warning that Japan’s government debt ratio would continue to rise more than it had previously expected.

 
The agency said it expects Japan’s fiscal deficits to remain high in the next few years, which would further reduce the government’s already weak fiscal flexibility.

 
The outlook on the long-term rating was stable, it said, reflecting its view that Japan’s strong external balance sheet and monetary flexibility partially offset the pressures stemming from the fiscal side.