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Archive for the 'China' Category

PBOC Yuan comments

Posted by WARREN MOSLER on 17th March 2014

Reads more and more like they are paving the way for it to go down to ‘rejoin’ the rest of the EM’s and Japan etc?

The reason they give for it not going down is their fx reserves which could be used as a buffer. That implies it goes down otherwise?

“There is no basis for big appreciation of the renminbi,” the PBOC said, noting that China’s trade surplus now represents only 2.1% of its gross domestic product. At the same time, “there is no basis for big depreciation of renminbi,” the central bank added, saying that risks in China’s financial system are “under control” and the country’s big foreign-exchange reserves can serve as a big buffer against any external shocks. While pledging to give the market a bigger role in setting the yuan’s exchange rate, the PBOC said it would still implement “necessary adjustments” to prevent big, abnormal fluctuations in the yuan’s exchange rate.

Posted in China | No Comments »

Yuan weakness

Posted by WARREN MOSLER on 11th March 2014

May be a fundamental shift in trade flows?

They don’t want to spend fx to defend?

Looking to let it go to get back to where it was vs yen at 80/$ as other EM’s seem to be doing?

China Weakens Yuan by Largest Degree Since 2012

By Anjani Trivedi

March 10 (WSJ) — The People’s Bank of China set the daily reference rate Monday at 6.1312 to the dollar, compared with 6.1201 to the dollar on Friday. The 0.18% change represented the largest one-day move in the rate since July 2012. The central bank determines the rate each day, and then allows the currency to trade as much as 1% higher or lower. Since 2005, it has gradually moved the rate up, allowing the yuan to strengthen 33%, but in the last month has pushed it lower, seeking to discourage speculators who have channeled money into the economy in hopes of benefiting from the currency’s rise. On Monday, the yuan touched 6.1458 against the dollar, compared with 6.1260 late Friday in New York. The offshore yuan, which is freely traded outside China, weakened as far as 6.1309 from a closing level of 6.1095 on Friday. Premier Li Keqiang said last week at the National People’s Congress, China’s annual legislative session, that Beijing would expand the currency-trading band.

Posted in China | No Comments »

China hands death sentence to solar cell makers

Posted by WARREN MOSLER on 9th January 2014

With public banking, for better or for worse, lending is politicized:

China hands ‘death sentence’ to 75% of solar cell makers

By Toru Sugawara

December 24 (Nikkei) — The Chinese government is pushing for a drastic shakeout of the country’s overcrowded solar cell industry, supporting only a quarter of players and practically telling the rest to get out of the business.

The Ministry of Industry and Information Technology has announced a list of 134 producers of silicon materials, solar panels and other components of photovoltaic systems as meeting certain conditions, as measured by 2012 production, capacity utilization and technical standards.

In a sector said to have more than 500 companies, the ministry’s move means that three-quarters didn’t make the cut — including the core subsidiary of Suntech Power, which went bankrupt in March, and Jiangsu Shungfeng Photovoltaic Technology, Suntech’s startup rescuer.

These firms will not be able to get credit lines from financial institutions and thus will have a tough time borrowing, according to industry insiders. They will also no longer be eligible for refunds of export tariffs, a huge blow to companies that depend on overseas business. On the home front, it will be difficult for them to participate in state-run utilities’ auctions, sharply curtailing their opportunities to win orders.

Posted in China | No Comments »

China going western

Posted by WARREN MOSLER on 4th November 2013

Warren,

The following article seems to confirm your views expressed here:

Meet Liu He, Xi Jinping’s Choice to Fix a Faltering Chinese Economy

China prepares to liberalise finance as hedge funds and estate agents salivate

“bit by bit, China’s economy – if not its political structure – is being reshaped along the lines sought by Wall Street and by American-owned transnational corporations.

Back in the late 1990s, US multinationals demanded that China accept more stringent conditions than had been imposed on other developing countries in order to secure WTO membership. Beijing accepted. Now America wants two things: China’s financial sector to be opened up to US banks and the country’s savings to boost western capital markets. More than likely, Washington will get its way, perhaps not immediately but with profound effects.”

Posted in China | No Comments »

China Beige Book Shows Slowdown, Opposite Official Data

Posted by WARREN MOSLER on 25th September 2013

So it’s a mixed message?
Western educated kids turning China into Japan as well?

China Beige Book Shows Slowdown, Opposite Official Data

September 25 (Bloomberg) — China’s economy slowed this quarter as growth in manufacturing and transportation weakened in contrast with official signs of an expansion pickup, a private survey showed.

Increases in business-investment and real estate revenue also slowed, while service industries picked up and employees became tougher to find, the survey from New York-based China Beige Book International said yesterday. The report is based on responses from 2,000 people from Aug. 12 to Sept. 4 as well as 32 in-depth interviews conducted later in September.

The quarterly report, which began last year and is modeled on the U.S. Federal Reserve’s Beige Book business survey, diverges from government figures showing faster factory-output gains in July and August that have spurred analysts from Citigroup Inc. to Deutsche Bank AG to raise expansion estimates. Nomura Holdings Inc. is among banks skeptical that any rebound will be sustained next year.

The results “show the conventional wisdom of a renewed, strong economic expansion in China to be seriously flawed,” China Beige Book President Leland Miller and Craig Charney, research and polling director, said in a statement.

The data “reveal weakening gains in profits, revenues, wages, employment and prices, all showing slipping growth on-quarter — no disaster, but certainly not the powerful expansion suggested by the consensus narrative.”

The benchmark Shanghai Composite Index of stocks fell 0.4 percent at the close, while the MSCI Asia Pacific Index was down 0.2 percent at 4:50 p.m. in Tokyo.

Posted in China, Economic Releases | No Comments »

China’s Treasury Holdings Fall 21 Bln Amid Fed Talk on Taper Timing

Posted by WARREN MOSLER on 16th August 2013

I’d guess most of that was runoff of short term bills so wouldn’t alter the longer term rates but it also might be the case that China told the fed they wouldn’t buy any more secs unless they ceased QE.

The Fed doesn’t realize that we don’t need China or anyone else to keep interest rates on tsy’s anywhere we want them, so it’s likely intimidated by that kind of threat that China perhaps has already begun carrying out to make the point, as it did in 2011 when it let its entire bill portfolio run off and only started buying again after Bernanke’s ‘strong dollar’ speech and twist instead of QE, etc.

China’s Treasury Holdings Fall Amid Fed Talk on Taper

By Daniel Kruger

August 15 (Bloomberg) — Holdings of Treasuries in China, the largest foreign lender to the U.S., fell in June for the first time in five months amid discussion by Federal Reserve officials about slowing the pace their bond purchases.

China’s stake dropped by $21.5 billion in June, or 1.7 percent, to $1.276 trillion, according to Treasury Department data released yesterday. Yields climbed after June 19 when Fed Chairman Ben S. Bernanke said policy makers might reduce the size of their $85 billion a month in purchases of Treasuries and mortgage securities in coming months.

The pullback by China comes as overseas holdings of Treasuries have grown $26.8 billion, or 0.5 percent this year, the slowest pace since a 2.8 percent decline in the first six months of 2006. Treasuries have lost 3.1 percent this year, according to Bank of America Merrill Lynch indexes, headed for the worst performance since 2009.

“What you saw was a knee-jerk reaction” from China, said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. The drop wasn’t “any kind of a message as to a concerted effort to wind down excess exposure because of some duration risk given the Fed’s tapering goals,” he said.

Treasury Selloff

China’s holdings in May were $1.297 trillion, less than the $1.316 trillion reported by the Treasury last month. The Treasury revises the data on a monthly basis based on the nationality of the beneficial holder of the debt, while the initial figure is derived from the location of the purchase.

The benchmark 10-year Treasury yield rose 36 basis points or 0.36 percentage point, to 2.49 percent in June. It touched 2.82 percent yesterday, the highest since Aug. 1, 2011.

The decline in China’s stake “does help explain why the Treasury market sold off in June,” said Michael Pond, head of global inflation-linked research at Barclays Plc, one of 21 primary dealers that trade with the Fed.

Currency reserves have risen 5.6 percent through June to $3.5 trillion, according to data from the People’s Bank of China. Reserve growth in 2012 was 4.1 percent, the slowest pace since 1998, the data show. Reserves had grown at a double-digit pace for 11 consecutive years.

China’s Treasury position has risen $55.4 billion or 4.5 percent so far this year after a 5.9 percent increase in 2012. The holdings declined 0.7 percent to $1.152 trillion in 2011, the first annual decline on record going back to 2001.

Investors in China held 11.1 percent of the $11.4 trillion of marketable U.S. debt in June compared with a record 14 percent in June 2009.

All foreign investors owned 49.1 percent of the marketable debt, the least since May 2011, the data, known as Treasury International Capital, show.

Demand for the debt from overseas investors fell by $56.5 billion, or 1 percent in June to $5.6 trillion. It was the first three-month decline in overseas holdings since 2001.

Posted in Bonds, China, Fed | No Comments »

China’s broadest measure of new credit fell to a 21-month low

Posted by WARREN MOSLER on 9th August 2013

This is per deliberate policy and will continue to constrain output and employment

China’s Credit Expansion Slows as Li Curbs Shadow Banking

August 8 (Bloomberg) — China’s broadest measure of new credit fell to a 21-month low as Premier Li Keqiang extended a campaign to curb a record expansion of lending that’s added risks to the nation’s financial system.

Aggregate financing was 808.8 billion yuan ($132 billion), the People’s Bank of China said in Beijing today, compared with the 925 billion yuan median estimate of analysts surveyed by Bloomberg News.

New yuan loans exceeded forecasts and accounted for about 87 percent of the total, the most since September 2011. M2 money supply growth unexpectedly accelerated to 14.5 percent.

Posted in China, Credit | No Comments »

China to keep credit growth steady: Central bank

Posted by WARREN MOSLER on 15th July 2013

This is ridiculous, of course:

China to keep credit growth steady: Central bank

July 14 (Reuters) — China’s central bank pledged on Sunday to use a mix of policy tools to adjust banking liquidity to ensure steady credit growth, in an apparent bid to soothe market concerns about tighter monetary conditions.

The central bank will “use a mix of price and quantitative policy tools to adjust liquidity in the banking system and guide steady and appropriate growth in money, credit and social financing”, it said in a statement on its website.

The central bank allowed short-term inter-bank borrowing costs to spike to close to 30 percent on June 20, a blunt warning to overstretched lenders that they must bring risky lending under control.

Posted in CBs, China | No Comments »

Frank Newman on Fox News

Posted by WARREN MOSLER on 8th July 2013

Yes, and another Banker’s Trust alumni!
;)

Note how his superior credentials as former BT CEO and Dep Tsy sec command respectful engagement
;)

Frank Newman on Fox News

Posted in China, Deficit, Government Spending | No Comments »

Chinese liquidity drill

Posted by WARREN MOSLER on 26th June 2013

With floating fx, it’s necessarily about price (interest rate) and not quantity.

That includes China’s ‘dirty float’, a currency not convertible on demand at the CB, but with periodic CB market intervention.

Loans necessarily create deposits at lending institutions, and they also create any required reserves as a reserve requirement is functionally, in the first instance, an overdraft at the CB, which *is* a loan from the CB.

So from inception the assets and liabilities are necessarily ‘there’ for the CB to price.

Liquidity is needed to shift liabilities from one agent to another.

For example, if a depositor wants to shift his funds to another bank, the first bank must somehow ‘replace’ that liability by borrowing from some other agent, even as total liabilities in the system remain unchanged.

That ‘shifting around’ of liabilities is called ‘liquidity’

But in any case at any point in time assets and liabilities are ‘in balance.’

It’s when an agent can’t honor the demand of a liability holder to shift his liability to another agent that liquidity matters.

And if a bank fails to honor a depositor’s request to shift his deposit to another institution, the deposit remains where it is. Yes, the bank may be in violation of its agreements, but it is ‘fully funded.’

The problem is that to honor its agreements to allow depositors to shift their deposits to other banks, the bank will attempt to replace the liability by borrowing elsewhere, which may entail driving up rates.

Likewise, banks will attempt to borrow elsewhere, which can drive up rates, to avoid overdrafts at the CB when the CB makes it clear they don’t want the banks to sustain overdrafts.

The problem is that only the CB can alter the total reserve balances in the banking system, as those are merely balances on the CB’s own spread sheet. Banks can shift balances from one to another, but not change the total.

So when the total quantity of reserve balances on a CB’s spreadsheet increases via overdraft, that overdraft can only shift from bank to bank, unless the CB acts to add the ‘needed’ reserves.

Or when one bank has excess reserves which forces another into overdraft, and the surplus bank won’t lend to the deficit bank.

This is all routinely addressed by the CB purchasing securities either outright or via repurchase agreements. It’s called ‘offsetting operating factors’, which also include other ‘adds and leakages’ including changes in tsy balances at the fed, float, cash demands, etc.

And when the CB does this they also, directly or indirectly, set the interest rate as they do, directly or indirectly, what I call ‘pricing the overdraft.’

So to restate, one way or another the CB sets the interest rate, while quantity remains as it is.

And those spikes you are seeing in China are from the CB setting rates indirectly.

The evidence from China is telling me that the western educated new kids on the block flat out don’t get it, probably because they were never told the fixed fx ‘monetarism’ they learned in school isn’t applicable to non convertible currency???

In any case the CB is the monopoly supplier of net reserves to its banking system and therefore ‘price setter’ and not ‘price taker’, and surely they learned about monopoly in school, but apparently/unfortunately have yet to recognize their currency itself is a simple public monopoly?

Thinking back, this is exactly the blunder of tall Paul back some 33 years ago. He made the same rookie mistake, for which he got credit for saving the US, and the world, from the great inflation of his day.

However, the fact that he made it worse, vs curing anything is of no consequence.

What matters is how the western elite institutions of higher learning spin it all…

:(

Posted in CBs, China, Currencies | No Comments »

Fitch says China credit bubble unprecedented…

Posted by WARREN MOSLER on 17th June 2013

Nothing that fiscal adjustment can’t keep from spilling over into the real economy.

But that’s not how the western educated offspring now in charge learned it…

Fitch says China credit bubble unprecedented in modern world history

By Ambrose Evans-Pritchard

June 16 (Telegraph) — China’s shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned.

The agency said the scale of credit was so extreme that the country would find it very hard to grow its way out of the excesses as in past episodes, implying tougher times ahead.

“The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation,” said Charlene Chu, the agency’s senior director in Beijing.

“There is no transparency in the shadow banking system, and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is, and this undermines signalling,” she told The Daily Telegraph.

While the non-performing loan rate of the banks may look benign at just 1pc, this has become irrelevant as trusts, wealth-management funds, offshore vehicles and other forms of irregular lending make up over half of all new credit. “It means nothing if you can off-load any bad asset you want. A lot of the banking exposure to property is not booked as property,” she said.

Concerns are rising after a string of upsets in Quingdao, Ordos, Jilin and elsewhere, in so-called trust products, a $1.4 trillion (0.9 trillion) segment of the shadow banking system.

Bank Everbright defaulted on an interbank loan 10 days ago amid wild spikes in short-term “Shibor” borrowing rates, a sign that liquidity has suddenly dried up. “Typically stress starts in the periphery and moves to the core, and that is what we are already seeing with defaults in trust products,” she said.

Fitch warned that wealth products worth $2 trillion of lending are in reality a “hidden second balance sheet” for banks, allowing them to circumvent loan curbs and dodge efforts by regulators to halt the excesses.

This niche is the epicentre of risk. Half the loans must be rolled over every three months, and another 25pc in less than six months. This has echoes of Northern Rock, Lehman Brothers and others that came to grief in the West on short-term liabilities when the wholesale capital markets froze.

Mrs Chu said the banks had been forced to park over $3 trillion in reserves at the central bank, giving them a “massive savings account that can be drawn down” in a crisis, but this may not be enough to avert trouble given the sheer scale of the lending boom.

Overall credit has jumped from $9 trillion to $23 trillion since the Lehman crisis. “They have replicated the entire US commercial banking system in five years,” she said.

The ratio of credit to GDP has jumped by 75 percentage points to 200pc of GDP, compared to roughly 40 points in the US over five years leading up to the subprime bubble, or in Japan before the Nikkei bubble burst in 1990. “This is beyond anything we have ever seen before in a large economy. We don’t know how this will play out. The next six months will be crucial,” she said.

The agency downgraded China’s long-term currency rating to AA- debt in April but still thinks the government can handle any banking crisis, however bad. “The Chinese state has a lot of firepower. It is very able and very willing to support the banking sector. The real question is what this means for growth, and therefore for social and political risk,” said Mrs Chu.

“There is no way they can grow out of their asset problems as they did in the past. We think this will be very different from the banking crisis in the late 1990s. With credit at 200pc of GDP, the numerator is growing twice as fast as the denominator. You can’t grow out of that.”

The authorities have been trying to manage a soft-landing, deploying loan curbs and a high reserve ratio requirement (RRR) for banks to halt property speculation. The home price to income ratio has reached 16 to 18 in many cities, shutting workers out of the market. Shadow banking has plugged the gap for much of the last two years.

However, a new problem has emerged as the economic efficiency of credit collapses. The extra GDP growth generated by each extra yuan of loans has dropped from 0.85 to 0.15 over the last four years, a sign of exhaustion.

Wei Yao from Societe Generale says the debt service ratio of Chinese companies has reached 30pc of GDP – the typical threshold for financial crises — and many will not be able to pay interest or repay principal. She warned that the country could be on the verge of a “Minsky Moment”, when the debt pyramid collapses under its own weight. “The debt snowball is getting bigger and bigger, without contributing to real activity,” she said.

The latest twist is sudden stress in the overnight lending markets. “We believe the series of policy tightening measures in the past three months have reached critical mass, such that deleveraging in the banking sector is happening. Liquidity tightening can be very damaging to a highly leveraged economy,” said Zhiwei Zhang from Nomura.

“There is room to cut interest rates and the reserve ratio in the second half,” wrote a front-page editorial today in China Securities Journal on Friday. The article is the first sign that the authorities are preparing to change tack, shifting to a looser stance after a drizzle of bad data over recent weeks.

The journal said total credit in China’s financial system may be as high as 221pc of GDP, jumping almost eightfold over the last decade, and warned that companies will have to fork out $1 trillion in interest payments alone this year. “Chinese corporate debt burdens are much higher than those of other economies. Much of the liquidity is being used to repay debt and not to finance output,” it said.

It also flagged worries over an exodus of hot money once the US Federal Reserve starts tightening. “China will face large-scale capital outflows if there is an exit from quantitative easing and the dollar strengthens,” it wrote.

The journal said foreign withdrawals from Chinese equity funds were the highest since early 2008 in the week up to June 5, and withdrawals from Hong Kong funds were the most in a decade.

Posted in China, Credit | No Comments »

China Plans to Reduce the State’s Role in the Economy

Posted by WARREN MOSLER on 28th May 2013

More evidence the western educated kids have taken over.

:(

China Plans to Reduce the State’s Role in the Economy

By David Barboza and Chris Buckley

May 24 (NYT) — The Chinese government is planning for private businesses and market forces to play a larger role in its economy, in a major policy shift intended to improve living conditions for the middle class and to make China an even stronger competitor on the global stage.

Posted in China | No Comments »

China’s Manufacturing Growth Slows as Economic Recovery Falters

Posted by WARREN MOSLER on 23rd April 2013

More signs the new, western educated/monetarist generation is restricting credit growth at the ‘state lending’ and local govt level:

China’s Manufacturing Growth Slows as Economic Recovery Falters

April 23 (Bloomberg) — China’s manufacturing is expanding at a slower pace this month on weakness in global and domestic demand, fueling concern that the world’s second-biggest economy is faltering.

The preliminary reading of 50.5 for a Purchasing Managers’ Index (EC11CHPM) released by HSBC Holdings Plc and Markit Economics compared with a final 51.6 for March. The number was also below the median 51.5 estimate in a Bloomberg News survey of 11 analysts. A reading above 50 indicates expansion.

China’s stocks slumped as the data provided further evidence of an economic slowdown after weaker-than-estimated numbers for gross domestic product last week prompted banks including Goldman Sachs Group Inc. to cut full-year forecasts. In Washington, central bank Governor Zhou Xiaochuan said April 20 that a 7.7 percent first-quarter expansion was reasonable and “normal,” highlighting reduced expectations after 10 percent- plus rates during the past decade.

“This paints a picture of a continued painfully slow recovery for China’s manufacturing sector,” said Yao Wei, a Societe Generale SA economist based in Hong Kong. “The government needs to help translate the easy liquidity conditions into real growth.”

President Xi Jinping’s officials are grappling with constraints on export demand, property-market overheating, the risks associated with a surge in so-called shadow banking, and weakness in consumption because of a campaign to rein in official perks such as spending on banquets.

The Shanghai Composite Index fell 2.6 percent, the biggest decline in three weeks.

Posted in China, Government Spending | No Comments »

China Local Debt May Top Estimates, Former Minister Says

Posted by WARREN MOSLER on 8th April 2013

It took that much local debt expansion (deficit spending) to support the economy they’ve had.

Supporting said local expansion supports said growth and backing off removes that support.

China Local Debt May Top Estimates, Former Minister Says

April 7 (Bloomberg) — Local Chinese governments may have more than 20 trillion yuan ($3.2 trillion) of debt, exceeding the official estimates, former Finance Minister Xiang Huaicheng said at the Boao Forum for Asia.

Xiangs estimate for provincial and city government borrowings is almost double the 10.7 trillion-yuan figure that the National Audit Office gave for such debt in a 2011 report. The combined debt of Chinas central and local governments may currently be more than 30 trillion yuan, said Xiang, who served [...]

Posted in China | No Comments »

The Stockman’s big swinging whip

Posted by WARREN MOSLER on 1st April 2013

The Man from Snowy River

By Banjo Paterson

So Clancy rode to wheel them — he was racing on the wing
Where the best and boldest riders take their place,
And he raced his stock-horse past them, and he made the ranges ring
With the stockwhip, as he met them face to face.
Then they halted for a moment, while he swung the dreaded lash,
But they saw their well-loved mountain full in view,
And they charged beneath the stockwhip with a sharp and sudden dash,
And off into the mountain scrub they flew.

Unemployment is everywhere and always a monetary phenomenon, and necessarily a government imposed crime against humanity. The currency is a simple public monopoly.

The dollars to pay taxes, ultimately come from government spending or lending (or counterfeiting…)

Unemployment can only happen when a govt fails to spend enough to cover the tax liabilities it imposed, and any residual desire to save financial assets that are created by the tax and by other govt policy.

Said another way, for any given size government, unemployment is the evidence of over taxation.

Motivation not withstanding, David Stockman has long been aggressively promoting policy that creates and sustains unemployment.

Comments below:

State-Wrecked: The Corruption of Capitalism in America

By David Stockman

March 30 (NYT) — The Dow Jones and Standard & Poors 500 indexes reached record highs on Thursday, having completely erased the losses since the stock markets last peak, in 2007. But instead of cheering, we should be very afraid.

Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later within a few years, I predict this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.

Phony money? What else are $US other than credit balances at the Fed or actual cash in circulation? Of course he fails to realize US treasury securities, also known as ‘securities accounts’ by Fed insiders, are likewise nothing more than dollar balances at the Fed, and that QE merely shifts dollar balances at the Fed from securities accounts to reserve accounts. It’s ‘money printing’ only under a narrow enough definition of ‘money’ to not include treasury securities as ‘money’. Additionally, of course, QE removes interest income from the economy, but that’s another story…

Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion).

And also debited/reduced/removed an equal amount of $US from Fed securities accounts. The net ‘dollar printing’ is 0.

Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the bottom 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans.

Yes, and anyone who understood monetary operations knows exactly why QE did not add to sales/output/employment, as explained above.

So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants,

‘Paying off the debt’ is simply a matter of debiting securities accounts at the Fed and crediting reserve accounts at the Fed. There are no grandchildren or taxpayers involved, except maybe a few to program the computers and polish the floors and do the accounting, etc.

unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nations bills.

The nations bills are paid via the Fed crediting member bank accounts on its books. Today’s excess capacity and unemployment means that for the size govt we have we are grossly over taxed, not under taxed.

By default, the Fed has resorted to a radical, uncharted spree of money printing.

As above, ‘money printing’ only under a narrow definition of ‘money’.

But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

With floating exchange rates, bank liquidity, for all practical purposes, is always unlimited. Banks are constrained by capital and asset regulation, not liquidity.

When it bursts, there will be no new round of bailouts like the ones the banks got in 2008.

There is nothing to ‘burst’ as for all practical purposes liquidity is never a constraint.

Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even todays feeble remnants of economic growth.

This dyspeptic prospect results from the fact that we are now state-wrecked. With only brief interruptions, weve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy.

The currency itself is a simply public monopoly, and the restriction of supply by a monopolist as previously described, is, in this case the cause of unemployment and excess capacity in general.

As the federal government and its central-bank sidekick, the Fed, have groped for one goal after another smoothing out the business cycle, minimizing inflation and unemployment at the same time, rolling out a giant social insurance blanket, promoting homeownership, subsidizing medical care, propping up old industries (agriculture, automobiles) and fostering new ones (clean energy, biotechnology) and, above all, bailing out Wall Street they have now succumbed to overload, overreach and outside capture by powerful interests.

He may have something there!

The modern Keynesian state is broke,

Not applicable. Congress spends simply by having its agent, the tsy, instruct the Fed to credit a member bank’s reserve account.

paralyzed and mired in empty ritual incantations about stimulating demand, even as it fosters a mutant crony capitalism that periodically lavishes the top 1 percent with speculative windfalls.

Some truth there as well!

The culprits are bipartisan, though youd never guess that from the blather that passes for political discourse these days. The state-wreck originated in 1933, when Franklin D. Roosevelt opted for fiat money (currency not fundamentally backed by gold), economic nationalism and capitalist cartels in agriculture and industry.

Under the exigencies of World War II (which did far more to end the Depression than the New Deal did), the state got hugely bloated, but remarkably, the bloat was put into brief remission during a midcentury golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in the White House and William McChesney Martin Jr. at the Fed.

Actually it was the Texas railroad commission pretty much fixing the price of oil at about $3 that did the trick, until the early 1970′s when domestic capacity fell short, and pricing power shifted to the saudis who had other ideas about ‘public purpose’ as they jacked the price up to $40 by 1980.

Then came Lyndon B. Johnsons guns and butter excesses, which were intensified over one perfidious weekend at Camp David, Md., in 1971, when Richard M. Nixon essentially defaulted on the nations debt obligations by finally ending the convertibility of gold to the dollar. That one act arguably a sin graver than Watergate meant the end of national financial discipline and the start of a four-decade spree during which we have lived high on the hog, running a cumulative $8 trillion current-account deficit. In effect, America underwent an internal leveraged buyout, raising our ratio of total debt (public and private) to economic output to about 3.6 from its historic level of about 1.6. Hence the $30 trillion in excess debt (more than half the total debt, $56 trillion) that hangs over the American economy today.

It also happens to equal the ‘savings’ of financial assets of the global economy, with the approximately $16 trillion of treasury securities- $US in ‘savings accounts’ at the Fed- constituting the net savings of $US financial assets of the global economy. And the current low levels of output and high unemployment tell us the ‘debt’ is far below our actual desire to save these financial assets. In other words, for the size government we have, we are grossly over taxed. The deficit needs to be larger, not smaller. We need to either increase spending and/or cut taxes, depending on one’s politics.

This explosion of borrowing was the stepchild of the floating-money contraption deposited in the Nixon White House by Milton Friedman, the supposed hero of free-market economics who in fact sowed the seed for a never-ending expansion of the money supply.

And the never ending expansion of $US global savings desires, including trillions of accumulations in pension funds, IRA’s, etc. Where there are tax advantages to save, as well as trillions in corporate reserves, foreign central bank reserves, etc. etc.

As everyone at the CBO knows, the US govt deficit = global $US net savings of financial assets, to the penny.

The Fed, which celebrates its centenary this year, fueled a roaring inflation in goods and commodities during the 1970s that was brought under control only by the iron resolve of Paul A. Volcker, its chairman from 1979 to 1987.

It was the Saudis hiking price, not the Fed. Note that similar ‘inflation’ hit every nation in the world, regardless of ‘monetary policy’. And it ended a few years after president Carter deregulated natural gas in 1978, which resulted in electric utilities switching out of oil to natural gas, and even OPEC’s cutting of 15 million barrels per day of production failing to stop the collapse of oil prices.

Under his successor, the lapsed hero Alan Greenspan, the Fed dropped Friedmans penurious rules for monetary expansion, keeping interest rates too low for too long and flooding Wall Street with freshly minted cash. What became known as the Greenspan put the implicit assumption that the Fed would step in if asset prices dropped, as they did after the 1987 stock-market crash was reinforced by the Feds unforgivable 1998 bailout of the hedge fund Long-Term Capital Management.

The Fed didn’t bail out LTCM. They hosted a meeting of creditors who took over the positions at prices that generated 25% types of annual returns for themselves.

That Mr. Greenspans loose monetary policies didnt set off inflation was only because domestic prices for goods and labor were crushed by the huge flow of imports from the factories of Asia.

No, because oil prices didn’t go up due to the glut from the deregulation of natural gas .

By offshoring Americas tradable-goods sector, the Fed kept the Consumer Price Index contained, but also permitted the excess liquidity to foster a roaring inflation in financial assets. Mr. Greenspans pandering incited the greatest equity boom in history, with the stock market rising fivefold between the 1987 crash and the 2000 dot-com bust.

No, it wasn’t about Greenspan, it was about the private sector and banking necessarily being pro cyclical. And the severity of the bust was a consequence of the Clinton budget surpluses ‘draining’ net financial assets from the economy, thereby removing the equity that supports the macro credit structure.

Soon Americans stopped saving and consumed everything they earned and all they could borrow. The Asians, burned by their own 1997 financial crisis, were happy to oblige us. They China and Japan above all accumulated huge dollar reserves, transforming their central banks into a string of monetary roach motels where sovereign debt goes in but never comes out. Weve been living on borrowed time and spending Asians borrowed dimes.

Yes, the trade deficit is a benefit that allows us to consume more than we produce for as long as the rest of the world continues to desire to net export to us.

This dynamic reinforced the Reaganite shibboleth that deficits dont matter and the fact that nearly $5 trillion of the nations $12 trillion in publicly held debt is actually sequestered in the vaults of central banks. The destruction of fiscal rectitude under Ronald Reagan one reason I resigned as his budget chief in 1985

I wonder if he’ll ever discover how wrong he’s been, and for a very long time.

was the greatest of his many dramatic acts. It created a template for the Republicans utter abandonment of the balanced-budget policies of Calvin Coolidge and allowed George W. Bush to dive into the deep end, bankrupting the nation

Hadn’t heard about an US bankruptcy filing? Am I missing something?

through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy. In effect, the G.O.P. embraced Keynesianism for the wealthy.

He’s almost convinced me deep down he’s a populist…

The explosion of the housing market, abetted by phony credit ratings, securitization shenanigans and willful malpractice by mortgage lenders, originators and brokers, has been well documented. Less known is the balance-sheet explosion among the top 10 Wall Street banks during the eight years ending in 2008. Though their tiny sliver of equity capital hardly grew, their dependence on unstable hot money soared as the regulatory harness the Glass-Steagall Act had wisely imposed during the Depression was totally dismantled.

Can’t argue with that!

Within weeks of the Lehman Brothers bankruptcy in September 2008, Washington, with Wall Streets gun to its head, propped up the remnants of this financial mess in a panic-stricken melee of bailouts and money-printing that is the single most shameful chapter in American financial history.

The shameful part was not making a fiscal adjustment when it all started falling apart. I was calling for a full ‘payroll tax holiday’ back then, for example.

There was never a remote threat of a Great Depression 2.0 or of a financial nuclear winter, contrary to the dire warnings of Ben S. Bernanke, the Fed chairman since 2006. The Great Fear manifested by the stock market plunge when the House voted down the TARP bailout before caving and passing it was purely another Wall Street concoction. Had President Bush and his Goldman Sachs adviser (a k a Treasury Secretary) Henry M. Paulson Jr. stood firm, the crisis would have burned out on its own and meted out to speculators the losses they so richly deserved. The Main Street banking system was never in serious jeopardy, ATMs were not going dark and the money market industry was not imploding.

While the actual policies implemented were far from my first choice, they did keep it from getting a lot worse. Yes, it would have ‘burned out’ as it always has, but via the automatic fiscal stabilizers working to get the deficit high enough to catch the fall. I would argue it would have gotten a lot worse by doing nothing. And, of course, a full payroll tax holiday early on would likely have sustained sales/output/employment as the near ‘normal’ levels of the year before. In other words, Wall Street didn’t have to spill over to Main Street. Wall Street Investors could have taken their lumps without causing main street unemployment to rise.

Instead, the White House, Congress and the Fed, under Mr. Bush and then President Obama, made a series of desperate, reckless maneuvers that were not only unnecessary but ruinous. The auto bailouts, for example, simply shifted jobs around particularly to the aging, electorally vital Rust Belt rather than saving them. The green energy component of Mr. Obamas stimulus was mainly a nearly $1 billion giveaway to crony capitalists, like the venture capitalist John Doerr and the self-proclaimed outer-space visionary Elon Musk, to make new toys for the affluent.

Some good points there. But misses the point that capitalism is about business competing for consumer dollars, with consumer choice deciding who wins and who loses. ‘Creative destruction’ is not about a collapse in aggregate demand that causes sales in general to collapse, with survival going to those with enough capital to survive, as happened in 2008 when even Toyota, who had the most desired cars, losing billions when 8 million people lost their jobs all at once and sales in general collapsed.

Less than 5 percent of the $800 billion Obama stimulus went to the truly needy for food stamps, earned-income tax credits and other forms of poverty relief. The preponderant share ended up in money dumps to state and local governments, pork-barrel infrastructure projects, business tax loopholes and indiscriminate middle-class tax cuts. The Democratic Keynesians, as intellectually bankrupt as their Republican counterparts (though less hypocritical), had no solution beyond handing out borrowed money to consumers, hoping they would buy a lawn mower, a flat-screen TV or, at least, dinner at Red Lobster.

Ok, apart from the ‘borrowed money’ part. Congressional spending is via the Fed crediting a member bank reserve account. They call it borrowing when they shift those funds from reserve accounts at the Fed to security accounts at the Fed. The word ‘borrowed’ is highly misleading, at best.

But even Mr. Obamas hopelessly glib policies could not match the audacity of the Fed, which dropped interest rates to zero and then digitally printed new money at the astounding rate of $600 million per hour.

And ‘unprinted’ securities accounts/treasury securities at exactly the same pace, to the penny.

Fast-money speculators have been purchasing giant piles of Treasury debt and mortgage-backed securities, almost entirely by using short-term overnight money borrowed at essentially zero cost, thanks to the Fed. Uncle Ben has lined their pockets.

Probably true, though quite a few ‘headline’ fund managers and speculators have apparently been going short…

If and when the Fed which now promises to get unemployment below 6.5 percent as long as inflation doesnt exceed 2.5 percent even hints at shrinking its balance sheet, it will elicit a tidal wave of sell orders, because even a modest drop in bond prices would destroy the arbitrageurs profits. Notwithstanding Mr. Bernankes assurances about eventually, gradually making a smooth exit, the Fed is domiciled in a monetary prison of its own making.

It’s about setting a policy rate. The notion of prison isn’t applicable.

While the Fed fiddles, Congress burns. Self-titled fiscal hawks like Paul D. Ryan, the chairman of the House Budget Committee, are terrified of telling the truth: that the 10-year deficit is actually $15 trillion to $20 trillion, far larger than the Congressional Budget Offices estimate of $7 trillion. Its latest forecast, which imagines 16.4 million new jobs in the next decade, compared with only 2.5 million in the last 10 years, is only one of the more extreme examples of Washingtons delusions.

And with no long term inflation problem forecast by anyone, the savings desires over that time period are at least that high.

Even a supposedly bold measure linking the cost-of-living adjustment for Social Security payments to a different kind of inflation index would save just $200 billion over a decade, amounting to hardly 1 percent of the problem.

Thank goodness, as the problem is the deficit is too low, as evidenced by unemployment.

Mr. Ryans latest budget shamelessly gives Social Security and Medicare a 10-year pass, notwithstanding that a fair portion of their nearly $19 trillion cost over that decade would go to the affluent elderly. At the same time, his proposal for draconian 30 percent cuts over a decade on the $7 trillion safety net Medicaid, food stamps and the earned-income tax credit is another front in the G.O.P.s war against the 99 percent.

Never seen him play the class warfare card like this?

Without any changes, over the next decade or so, the gross federal debt, now nearly $17 trillion, will hurtle toward $30 trillion and soar to 150 percent of gross domestic product from around 105 percent today.

Not that it will, but if it does and inflation remains low it just means savings desires are that high.

Since our constitutional stasis rules out any prospect of a grand bargain, the nations fiscal collapse will play out incrementally, like a Greek/Cypriot tragedy, in carefully choreographed crises over debt ceilings, continuing resolutions and temporary budgetary patches.

No description of what ‘fiscal collapse’ might look like. Because there is no such thing.

The future is bleak. The greatest construction boom in recorded history Chinas money dump on infrastructure over the last 15 years is slowing. Brazil, India, Russia, Turkey, South Africa and all the other growing middle-income nations cannot make up for the shortfall in demand.

Agreed.

The American machinery of monetary and fiscal stimulus has reached its limits.

Do not agree. In fact, there are no numerical limits.

Japan is sinking into old-age bankruptcy and Europe into welfare-state senescence. The new rulers enthroned in Beijing last year know that after two decades of wild lending, speculation and building, even they will face a day of reckoning, too.

The state-wreck ahead is a far cry from the Great Moderation proclaimed in 2004 by Mr. Bernanke, who predicted that prosperity would be everlasting because the Fed had tamed the business cycle and, as late as March 2007, testified that the impact of the subprime meltdown seems likely to be contained. Instead of moderation, whats at hand is a Great Deformation, arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices a form of inflation that the Fed fecklessly disregards in calculating inflation.

It’s not at all disregarded. And the Fed has only done ‘pretend money printing’ since they ‘unprint’ treasury securities as they ‘print’ reserve balances.

These policies have brought America to an end-stage metastasis. The way out would be so radical it cant happen.

How about a full payroll tax holiday? Too radical to happen???

It would necessitate a sweeping divorce of the state and the market economy. It would require a renunciation of crony capitalism and its first cousin: Keynesian economics in all its forms. The state would need to get out of the business of imperial hubris, economic uplift and social insurance and shift its focus to managing and financing an effective, affordable, means-tested safety net.

These are the conclusions of his way out of paradigm conceptualizing.

All this would require drastic deflation of the realm of politics and the abolition of incumbency itself, because the machinery of the state and the machinery of re-election have become conterminous. Prying them apart would entail sweeping constitutional surgery: amendments to give the president and members of Congress a single six-year term, with no re-election; providing 100 percent public financing for candidates; strictly limiting the duration of campaigns (say, to eight weeks); and prohibiting, for life, lobbying by anyone who has been on a legislative or executive payroll. It would also require overturning Citizens United and mandating that Congress pass a balanced budget, or face an automatic sequester of spending.

Whatever…

It would also require purging the corrosive financialization that has turned the economy into a giant casino since the 1970s. This would mean putting the great Wall Street banks out in the cold to compete as at-risk free enterprises, without access to cheap Fed loans or deposit insurance. Banks would be able to take deposits and make commercial loans, but be banned from trading, underwriting and money management in all its forms.

I happen to fully agree with narrow banking, as per my proposals.

It would require, finally, benching the Feds central planners, and restoring the central banks original mission: to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy. Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism.

Rhetoric that shows his total lack of understanding of monetary operations.

That, of course, will never happen because there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market recovery, artificially propped up by the Feds interest-rate repression.

No govt policy necessarily supports rates. Without the issuance of treasury securities, paying interest on reserves, and other ‘interest rate support’ policy rates fall to 0%. He’s got the repression thing backwards.

The United States is broke fiscally, morally, intellectually and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse.

How about a full payroll tax holiday???

If this sounds like advice to get out of the markets and hide out in cash, it is.

I tend to agree but for the opposite reason.

The deficit may have gotten too small with the latest tax hikes and spending cuts.

(feel free to distribute)

Posted in Banking, Bonds, CBs, China, Comodities, Currencies, Deficit, Employment, Exports, Fed, Government Spending, Greece, Inflation, Interest Rates, Oil, Political, Recession, trade | No Comments »

CBRC to boost control of lending to local govts

Posted by WARREN MOSLER on 15th March 2013

The question is whether this slows down new lending. Appears it does?

CBRC to boost control of lending to local govts

By Xie Yu

March 15 (Xinhua) — The China Banking Regulatory Commission has drafted a guideline to boost the risk control of local governments’ financing vehicles. The guideline reiterated that the authority will control the total volume of loans that go to local governments’ financial vehicles, or LGFV, demanding that the volume should not surpass the level of late 2011. Chinese banks had 9.1 trillion yuan of outstanding loans issued to LGFV as of September 30, 2011, and at least 65 percent of these loans were fully covered by cash flows. The current loans amount to about 9.3 trillion yuan. The regulator requires banks to keep the percentage of those loans below the 2012 level. Local governments have set up more than 6,500 financing vehicles to raise money for projects.

Posted in China, Government Spending | No Comments »

Food price increases drive China’s inflation to 10-month high

Posted by WARREN MOSLER on 11th March 2013

‘inflation’ there can mean a lot of people can’t afford to eat, and, hence, regime change:

Food price increases drive China’s inflation to 10-month high

March 9 (Xinhua) — China’s annual consumer inflation rebounds to a 10-month high of 3.2 percent in February on accounts of rising food prices during the Spring Festival season. On a month-on-month basis, February’s CPI gained 1.1 percent from the previous month. Food prices, accounting for nearly one-third of weighting in China’s CPI, remained a key driver of inflation in February as the Spring Festival season, which fell within that month, pushed up demands. The NBS statement said food prices jumped 6 percent last month from the same period last year, propelling the CPI up by 1.98 percentage points. But the upward trend is unlikely to sustain as the holiday effect fades off and the warming weather will help supplies, the NBS said.

Posted in China, Inflation | No Comments »

China’s Economic Data Show Weakest Start Since 2009

Posted by WARREN MOSLER on 10th March 2013

China’s Economic Data Show Weakest Start Since 2009

March 10 (Bloomberg) — China’s industrial output had the weakest start to a year since 2009 and lending and retail sales growth slowed, toughening challenges for a new leadership that wants to narrow the gap between rich and poor.

Production increased 9.9 percent in the first two months and retail sales rose 12.3 percent, government data showed March 9, trailing economists’ estimates. New local-currency loans in February fell to 620 billion yuan ($99.6 billion), the People’s Bank of China said yesterday, lower than the estimates of 27 out of 28 analysts in a Bloomberg News survey.

Strengthening U.S. demand after the unemployment rate fell to a four-year low may help incoming Premier Li Keqiang achieve the 7.5 percent expansion in gross domestic product sought by policy makers entering the final week of their meeting at the National People’s Congress in Beijing. China’s exports jumped 23.6 percent in the first two months of the year, the most for a January-February period since 2010.

“Exports are still an important growth driver for China so the pickup should make policy makers less concerned about the disappointment in some of the other indicators,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong. “When push comes to shove, they know the recipe to kick-start growth, so if things do slow down to a rate they aren’t comfortable with, they can encourage investment.”

At the same time, February credit data indicate the central bank may be working to contain the expansion in lending and aggregate financing that started last year, said Kuijs, who previously worked as an economist for the World Bank in Beijing.

Increasing Optimism

New local-currency loans in February trailed the 700 billion yuan median estimate in a Bloomberg survey and were lower than the 710.7 billion yuan in the same month last year and the 1.07 trillion yuan figure in January. Aggregate financing, a broader measure of credit, fell to 1.07 trillion yuan last month from a record 2.54 trillion yuan the previous month, PBOC data showed.

U.S. stocks have risen 8.8 percent this year, compared with a 2.2 percent gain in the Chinese benchmark index, as optimism increases that the world’s biggest economy is responding to an unprecedented monetary stimulus. In China, the decline in four February purchasing managers’ indexes, and official data released over the past week, are raising concerns that a recovery that started in the fourth quarter may be peaking even as house-price gains accelerate and inflation risks increase.

Spending Crackdown

The growth in January-February retail sales was below the lowest economist projection of 13.8 percent and was the smallest for that period since 2004. The moderation follows a crackdown by new Communist Party chief Xi Jinping on lavish spending by government officials and state-owned companies, part of efforts to curb corruption and waste.

Shares of Kweichow Moutai Co. (600519), maker of the eponymous high- end white spirit, have dropped 19 percent since Xi took power on Nov. 15, compared with a 14 percent gain in the Shanghai Composite Index.

The increase in factory output compared with the 10.6 percent median estimate in a Bloomberg survey. The statistics bureau doesn’t break out figures for January and February retail sales and industrial output in an attempt to smooth distortions caused by the timing of the Lunar New Year holiday.

Fixed-asset investment excluding rural areas in the first two months of the year rose 21.2 percent, against a median economist estimate of 20.7 percent and a 20.6 percent pace for the whole of 2012.

Inflation Worry

Consumer prices climbed a more-than-estimated 3.2 percent in February from a year earlier. Standard Chartered Plc estimates inflation will average 4 percent this year, compared with the government’s target of 3.5 percent.

“From a monetary policy perspective, by mid-2013, the inflation issue should begin to move up policy makers’ list of things to worry about,” Li Wei, a Shanghai-based economist with Standard Chartered, said in March 9 note. Li forecasts the central bank will raise benchmark interest rates once in the fourth quarter by 25 basis points as the CPI rises above 5 percent.

China’s economic growth slowed for seven quarters before recovering to 7.9 percent in the final three months of 2012, led by government-directed spending on infrastructure. The central bank also allowed expansion in credit in the less-regulated shadow banking sector.

The rebound may accelerate to 8.2 percent in the first quarter before slowing to 8 percent in the last three months of the year, according to median estimates in Bloomberg surveys last month.

Policy Dilemma

At the same time, the PBOC has flagged growing inflation and financial risks since December and the government stepped up efforts to curb resurgent home prices on March 1, ordering higher down payments and interest rates for some mortgages and implementation of a 20 percent capital gains tax.

“Policy makers face a dilemma as growth is weakening yet inflationary pressure keeps building,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. “The government will eventually have to tighten policy to contain inflation but in the short term, the next several months, the government may put policy on hold to observe how growth and inflation move and fine-tune accordingly.”

Posted in China | No Comments »

China to Raise Budget Deficit by 50 Percent to Boost Demand

Posted by WARREN MOSLER on 5th March 2013

The elders must have overruled the western educated kids…
;)

Note on China deficit spending:
The headline deficit spending is relatively low at 2% of GDP. The heavy lifting is done by state sponsored lending which is maybe 20%+ of GDP. Don’t know what level that is at currently.

China to Raise Budget Deficit by 50 Percent to Boost Demand

March 5 (Bloomberg) — China plans to raise its budget deficit by 50 percent this year as the central government cuts taxes and boosts measures to support consumer demand in the world’s second-biggest economy.

The gap will widen to 1.2 trillion yuan ($193 billion) in 2013 from 800 billion yuan last year, amounting to about 2 percent of gross domestic product, the Ministry of Finance said in its budget report to the National People’s Congress in Beijing today. Local governments will run a combined deficit of 350 billion yuan and the Ministry of Finance will issue bonds to cover their shortfall, according to the report.

The larger fiscal deficit indicates China’s incoming leaders may step up efforts to support expansion and address income inequality, with growth forecast to fall below the annual average of 10.5 percent the country reported under President Hu Jintao and Premier Wen Jiabao. Officials have pledged to make expansion more sustainable, emphasizing quality over speed and Wen said today he’s targeting 7.5 percent economic growth this year.

“The higher fiscal gap and improved consumption will be positive for the economy,” Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, said before the report. Boosting spending on the social safety net and education subsidies would reduce inequality and “help reverse the rising trend in the savings rate,” he said.

Except the deficit adds to non govt. savings, yuan for yuan.

Posted in China, Government Spending | No Comments »

Quotes from 60m interview (both interviews about Chinese real estate)

Posted by WARREN MOSLER on 4th March 2013

Both interviews are worth watching:

First interview

Zhang Xin (a very large commercial property developer who’s company is worth $10bn)

“Office is the only property sector which is doing well”

“Residential property development in China has really come to and end.”

“Corruption is everywhere in China…whoever has power is in the position to be corrupt.”

“For a Chinese living in China…if you ask one thing everyone pray[s] for, its democracy…8000 miles away [from the US] people [in China] are looking for it [democracy], longing for it.”

From the second interview

60 minutes: “No nation has ever built so much, so fast.”

Question (Leslie Stahl): ‘How important is real estate to the Chinese economy? Is is central?”
Answer (western investment banker): “Yes, its the main driver of growth and has been for the last few years.”

Question (Leslie Stahl): “Who’s left holding the bag?”
Answer (western investment banker): “there are multiple classes of people who are going to be wiped out by this. People who have invested three generations worth of savings…will see their savings evaporate and then of course there are 50mm construction workers…”

Largest Residential Property developer in China (a $53bn real estate empire)

Question: “Are you the biggest home builder in the world?”
Answer (Wang): “Yes, maybe.”

Question (LS): “A typical apartment in Shanghai cost about 45x the average resident’s annual salary.”
Answer (Wang): “Even higher.”
[the US housing bubble price to income ratio peaked at about 6.6x...]

Question (LS): “Are homes in China too expensive today?”
Answer: (Wang): “Yes”

Question (LS): “What does that mean for your economy if its too expensive for the vast majority of people?”
Answer (Wang): “Dangerous…that’s the bubble…that’s the problem.

Question: “Is there a bubble?”
Answer: “Yes, of course…if it bursts its a disaster.”

Posted in China, Housing | No Comments »