Category Archives: Emerging Markets

NACM’s Credit Managers’ Index Economic Report for January 2010

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Agreed. Makes for a good stock environment.

And unemployment could even fall towards 8% which would be considered a victory
due to our absurdly low expectations.

Critical Manufacturing Improvements Lead Credit Managers’ Index Jump in January

Columbia, Maryland: February 1, 2010—The latest data is starting to turn in a decidedly positive direction; GDP numbers are the best in over a year and a half, suggesting that the recession is in clear retreat. After a mild recovery in the third quarter, numbers jumped 5.8% in the fourth. The bulk of this growth is attributed to manufacturers starting to replenish inventories, mostly since the beginning of December. This shift in strategy is reflected in the Credit Managers’ Index (CMI) numbers as well. “The jump in manufacturing was stark and unexpected and, since the decline registered in the last iteration of the index, there has been a major leap in some critical areas,” said Chris Kuehl, Ph.D., economist for the National Association of Credit Management (NACM). “The combined CMI saw a jump from 52.9 to 55.1, which is impressive enough, but the real movement came from the manufacturing side,” he said. Reinforcing the message coming from the economy as a whole, the manufacturing sector jumped from 52.1 to 55.1, reversing the trend from the December index when the sector stagnated and slipped in terms of positive factors.

There was an improved atmosphere in both manufacturing and service sectors resulting with the most activity in the combined index’s favorable factors, specifically sales and new credit applications. Sales in the combined index jumped from 56.7 to 60.7, marking the first time this figure has been above 60 in 18 months. There was also progress in new credit applications—a jump from 54.2 to 57—signaling movement in the credit sector despite ongoing issues in the financial community. One of the biggest leaps came from dollar collections, which sported readings in the 40s just nine months ago and is now at 61.3. The same pattern can be seen in amount of credit extended, now standing at 58.8 after sitting in the 40s just five months ago.

“The past pattern in the index suggests that this is developing into a classic recession exit,” said Kuehl. “The deterioration of inventory and the dramatic reduction in capacity utilization meant that any spark of demand would propel business out of this predicament and, as in past recessions, the months following the end of these strategies would show substantial growth. The trillion-dollar question is whether this growth surge can be maintained throughout the rest of the year.”

Thus far, these are the highest numbers seen in the index since February 2009 when the initial impetus of the recession was broken. Since then, growth has been even, but not dramatic. That trend of slow growth is likely to return, but the suggestion from this month’s data is that there will be pretty substantial gains for the bulk of the first quarter.

The service sector was not as dramatic as the manufacturing sector, but there was growth. The same factors seemed to be at work—increased sales and expanded availability of money. In both sectors there has been some improvement in terms of the number of accounts placed for collection and the number of disputes, and there has been a fairly steady decline in the number of bankruptcies as well. All in all, the CMI numbers of the last few months signal that business is attempting to catch up and position itself for the growth that has now finally arrived.

Manufacturing Sector

A pattern appears each time there is a recession and, in this downturn, that pattern has been as visible as it was during the recessions of the early 1970s and 1980s. The strategy employed by most companies in the face of financial strain is to reduce costs to the barest of minimums, which involves slashing the workforce, postponing or eliminating capital expenditures and reducing inventory to the lowest possible level. The CMI’s figures on capacity utilization reflect this strategy as they have fallen to levels not seen since the depths of the 1980s double-dip recession. The strategy for retailers was as extreme as it has ever been—betting that the consumer would grab whatever they could find during the holiday season—and the effort seemed to work, as the retailers managed to pull off a decent December in spite of the limited offerings. On the manufacturing side, this inventory reduction was extreme and extended such that by the end of the year supply was dangerously low, especially if one wanted to hang onto market share when recovery arrived.

“For two months, the CMI told a story. The number of disputes fell, dollars out for collection declined and so did almost all the factors that indicated debt was going unpaid,” said Kuehl. He further commented that the process of catching up on that debt was the first step toward returning inventory levels, and companies that needed to buy raw materials for production had to get current with their creditors, a process that began in earnest in November and in some cases as early as October. By December, the purchasing had officially started. The evidence of this recovery was noticeable in other sectors as well. The first transportation sector that would see gains when factories started back up was rail and, sure enough, freight volumes started to climb in the rail sector in November and have been climbing steadily ever since.

It is far too early to assert that manufacturing has finally escaped the ravages of this recession, but the first stage is underway. The boost provided by the need to replenish inventory has already helped to stabilize some of the metals prices and has resulted in renewed activity in everything from transportation to warehousing. The next step in the recovery will be for consumer demand to draw down this newly-established inventory and necessitate its replacement. This has yet to develop, but there are some hopeful signs. For the moment, the good news lies in the future, reflected in the manufacturing index by jumps in sales as well as amount of credit extended.

Service Sector

There was less dramatic movement in the service sector, but progress was registered nonetheless. The increase in sales was notable, although not as significant as in manufacturing this month. What is good to see is the index has crested above 60 in both new credit applications and dollar collections. Kuehl noted that it was only four or five months ago that both of these factors had readings in the 40s and, a year ago, new credit applications was in the 30s. The credit squeeze has certainly not ended, but there is more available now than there has been for almost 18 months. The system has not returned to the profligate ways of the last decade, but that is likely a good thing. The old-school thinking that used to dominate the banks and financial institutions seems to have made a bit of a comeback, which is now freeing up credit for those that are traditionally creditworthy.

“Unfortunately, the most noteworthy aspect of the service numbers was that the negative factors did not shrink as much as hoped, only letting the combined index of unfavorable factors drop from 52 to 51.9—a very small decline, and not the strong positive trend seen in manufacturing,” said Kuehl. The prime reason for this slowdown seems to be more accounts placed for collection than last month, attributable to the fact that many retail operations did not manage to escape the Christmas season unscathed. This pattern occurs every year as the holiday shopping season is make-or-break for retail and there are always casualties of consumer tastes and preferences. Still, more retailers went into this year’s season weaker than in the past and some did not make it, and these troubled accounts will likely add to the number of bankruptcies in months to come.

January 2010 vs. January 2009

The contrast between January 2009 and January 2010 is stark and the distance between the two is likely as broad as it will be for some time. It was a year ago that the recession reached its deepest point and the index showed numbers buried in the 40s. Now the index has climbed into solid expansion territory and is well into the mid 50s. It is not likely that this trajectory will be maintained indefinitely as there are still questions about how fast consumers will start to draw down new inventory, but there is also not much that would suggest a major decline at this point.

About the National Association of Credit Management

The National Association of Credit Management (NACM), headquartered in Columbia, Maryland, supports approximately 19,000 business credit and financial professionals worldwide with premier industry services, tools and information. NACM and its network of Affiliated Associations are the leading resource for credit and financial management information and education, delivering products and services, which improve the management of business credit and accounts receivable. NACM’s collective voice has influenced legislative results concerning commercial business and trade credit to our nation’s policy makers for more than 100 years, and continues to play an active part in legislative issues pertaining to business credit and corporate bankruptcy.

This report, complete with tables and graphs, and the CMI archives may be viewed at http://web.nacm.org/cmi/cmi.asp.


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India’s Growth Accelerates for First Time Since 2007

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India the next engine of growth where deficit spending remained high and the recession was largely averted?

All they need to do is let themselves become a large net importer.

India’s Growth Accelerates for First Time Since 2007

By Cherian Thomas

Aug. 31 (Bloomberg) — India’s economic growth accelerated
for the first time since 2007, indicating the global recession’s
impact on Asia’s third-largest economy is waning.

Gross domestic product expanded 6.1 percent last quarter
from a year earlier after a 5.8 percent rise in the previous
quarter, the Central Statistical Organisation said in New Delhi
today. Economists forecast a 6.2 percent gain.

India joins China, Japan and Indonesia in rebounding as
Asian economies benefits from more than $950 billion of stimulus
spending and lower borrowing costs. India’s recovery may stall
as drought threatens to reduce harvests and spur food inflation,
making it harder for the central bank to judge when to raise
interest rates.

“The weak monsoon has complicated the situation for the
central bank,” said Saugata Bhattacharya, an economist at Axis
Bank Ltd. in Mumbai. “Poor rains will hurt growth and stoke
inflationary pressures as well.”

India’s benchmark Sensitive stock index maintained its
declines today, dropping 1 percent to 15755.33 in Mumbai at
11:12 a.m. local time. The yield on the key 7-year government
bond held at a nine-month high of 7.43 percent, while the rupee
was little changed at 48.86 per dollar.

Before the rains turned scanty, the Reserve Bank of India
on July 28 forecast the economy would grow 6 percent “with an
upward bias” in the year to March 31, the weakest pace since
2003. It also raised its inflation forecast to 5 percent from 4
percent by the end of the financial year. The key wholesale
price inflation index fell 0.95 percent in the week to Aug. 15.

‘Recovery Impulses’

The central bank’s Aug. 27 annual report said withdrawing
the cheap money available in the economy would heighten the risk
of weakening “recovery impulses,” while sustaining inexpensive
credit for too long “can only increase inflation in the
future.”

As the global recession hit India, the central bank
injected about 5.6 trillion rupees ($115 billion) into the
economy, which together with government fiscal stimulus amounts
to more than 12 percent of GDP.

China’s economic growth accelerated to 7.9 percent last
quarter from 6.1 percent in the previous three months, aided by
a 4 trillion yuan ($585 billion) stimulus package and lower
borrowing costs. China and India are the world’s two fastest
growing major economies.

Interest Rates

The Reserve Bank of India kept its benchmark reverse
repurchase rate unchanged at 3.25 percent in its last monetary
policy statement on July 28 and signaled an end to its deepest
round of interest-rate cuts on concern that inflation will
“creep up” from October. The next policy meeting is scheduled
for Oct. 27.

Manufacturing in India rebounded to 3.4 percent growth in
the quarter ended June 30 after shrinking 1.4 percent in the
previous three months. Mining rose 7.9 percent compared with 1.6
percent while electricity growth almost doubled to 6.2 percent
during the period, today’s statement said.

India’s move to a higher growth trajectory is on course,
Ashok Chawla, the top bureaucrat in the finance ministry, told
reporters in Mumbai.

Drought or drought-like conditions has been declared in 278
districts in India, or 44 percent of the nation’s total, as
rainfall has been 25 percent below average so far in the four-
month monsoon season that started June 1, the farm ministry said
Aug. 27.


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Guaranty Bank: OTS Closes the Barn Door

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Interesting they are selling the assets to a foreign bank, presumably at high rates of return. Just one more thing that pushes exports and reduces our real terms of trade and standard of living.

Also, by addressing the banking issue from the ‘top down’ by funding the banks and supporting net interest margins, the US govt. has neglected the borrowers who are still not earning sufficient income working (or collecting unemployment) to make their payments.

The answer was my payroll tax holiday, per capita revenue sharing, and $8/hour job for anyone willing and able to work. That would still immediately reverse things and prevent continuing deterioration, but the losses are gone forever.

It has been widely reported that the assets of Guaranty Bank (Texas) will be seized Friday by the FDIC and sold to Banco Bilbao Vizcaya Argentaria SA of Spain.

Meanwhile the OTS issued a Prompt Corrective Action (PCA) to Guaranty yesterday. Maybe they didn’t get the memo …

Also, from the WSJ: In New Phase of Crisis, Securities Sink Banks

Guaranty owns roughly $3.5 billion of securities backed by adjustable-rate mortgages, with two-thirds of the loans in foreclosure-wracked California, Florida and Arizona, according to the company’s latest report. Delinquency rates on the holdings have soared as high as 40%, forcing write-downs last month that consumed all of the bank’s capital.

Guaranty is one of thousands of banks that invested in such securities …

It’s not just their own bad loans (usually C&D and CRE) taking down the local and regional banks, but also bad investments in securities based on other bank’s bad loans.


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China Macro Flash:Capital Requirement May Tighten To Further

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Looks like the push to restrict lending is continuing.

The new capital will ‘automatically’ be available for profitable loans, but it will take some time and some repricing of risk.

>   
>   (email exchange)
>   
>   On Fri, Aug 21, 2009 at 5:53 AM, Dave wrote:
>   
>   Good summary of rumored changes in China’s banking system
>   

China Macro Flash: Capital Requirement May Tighten To Further Curb Lending

The reported tightening of bank capital requirement is in a draft of
regulatory changes that are being circulated among banks for feedback.
It is likely a measure prepared by the government to curb loan growth
and asset price bubbles. If bank loans and asset prices continue to
rise, new rules could be enforced quickly, but if both stabilize or
undergo healthy adjustments or corrections, it is not clear how soon the
changes will be adopted.

The core of changes suggested in the draft is to end the connection
among banks through mutual holding of subordinated and hybrid debts.
These debts are issued by one bank and held by other lenders. Those
debts that relate one bank to another may increase systematic risk of
the banking sector.

The new rule proposes that:1) The holding of subordinated and hybrid
debts issued by other lenders should be capped. This will make new
issuance of such debts more difficult. 2) Subordinated and hybrid debts
can no longer be counted as supplementary capital. 3) Banks that fall
below the capital adequacy requirement will have to either shrink
balance sheets or issue more shares to lift capital adequacy ratios.

The proposed changes, if implemented, will likely curb loan
growth as some banks will have to cut new loans to fulfill the
requirement. Also, the changes will likely affect smaller banks more
than large state-owned banks. Almost all key state-owned banks (except
the Agricultural Bank of China) were listed in recent years, and their
capital adequacy ratios should be high enough to cope with the change.
Smaller banks facing limited channels of fund raising could suffer the
most. Current excess liquidity should help lower the cost of capital. If
banks need to fulfill the required adjustment in a short period of time,
this could tighten the liquidity condition in the market sizably,
putting downward pressure on asset prices.


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China Money Rates Drop as Central Bank Stops Pushing Up Yields

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Check out the last ‘house hunting’ story.

Looks like they are on to that angle of attack, directing
that form of ‘investment’ as a matter of public purpose,
much like we have done with our public policies over the years.

Also looks like the cut back in lending was to try to moderate
what they deemed to be ‘overheating’ and should only be temporary.

Seems the rate hike was only 26 basis points (not that rates matter very much in any case).

Very interesting note here:

Chinese banks usually “frontload” lending in the first half of each year.

China Money Rates Drop as Central Bank Stops Pushing Up Yields

August 18 (Bloomberg) — China’s money-market rates dropped after the central bank stopped driving up the benchmark bill yield for the first time in six weeks, fanning speculation it will ease availability of funds to stem a slump in stocks.

The People’s Bank of China said it sold 45 billion yuan

($6.6 billion) of one-year bills at a yield of 1.7605 percent, unchanged from last week’s auction. The central bank has let the yield rise 26 basis points since resuming sales of one-year bills on July 9, following an eight-month suspension.

“The authorities may want to ease the market panic after a big slump in stocks,” said Zhang Lei, a fixed-income analyst at Shenyin Wanguo Research & Consulting Co. in Shanghai. “The unchanged yield is a signal that the central bank will stick to its loose monetary policy.”

The seven-day repurchase rate, which measures funding availability on the interbank market, declined 12 basis points, or 0.12 percentage point, to 1.30 percent as of 5:30 p.m. in Shanghai, according to the China Interbank Funding Center. A basis point is 0.01 percentage point.

A government report showed on Aug. 11 that industrial production gained 10.8 percent in July, less than the 12 percent median estimate in a Bloomberg survey of economists. Urban fixed-asset investment for the seven months to July 31 climbed

32.9 percent, which was also short of analyst forecasts.

China’s Investment-Grade Debt Ratings Affirmed by S&P

Aug. 18 (Bloomberg) — China’s investment grade credit rating was affirmed by Standard & Poor’s Ratings Services, which cited the country’s “exceptional” economic growth potential.

S&P maintained China’s A+ long-term sovereign credit rating and its A-1+ short-term rating, according to a statement issued today. The outlook on the long-term credit rating remains stable, S&P said.

“Fiscal flexibility remains significant,” S&P said in the statement. “The Chinese government faces moderate risks of balance sheet damage if there is a steeper and more prolonged economic slowdown than currently expected.”

Banks report fewer new loans

August 17 (China Daily) — China’s new lending in July fell to less than a quarter of June’s level, as banks sought to limit credit risks and the flow of money into stocks and property.

Banks extended 355.9 billion yuan in loans, down from 1.53 trillion yuan in June, the People’s Bank of China reported on its website last week. M2, the broadest measure of money supply, rose 28.4 percent.

China Construction Bank Corp, the nation’s second-largest lender, said recently that it will cut new lending by about 70 percent in the second half to avert a surge in bad debt.

The government wants to avert bubbles in stocks and property without choking off the recovery of the world’s third-biggest economy.

A smaller loan number “is probably a good thing – we’re coming off this ridiculously high level of lending in the first half,” said Paul Cavey, an economist with Macquarie Securities in Hong Kong.

Premier Wen Jiabao reiterated in a statement on Aug 9 that a “moderately loose” monetary policy and “proactive” fiscal policy will remain unchanged because the economy faces problems including sliding export demand and industrial overcapacity.

UBS AG stated in a July 31 note that the scale of China’s new lending in the first half was “neither sustainable nor necessary.” New loans of 300 billion yuan to 400 billion yuan a month in the second half would be “more than enough” to support the nation’s recovery, the report said.

Chinese banks usually “frontload” lending in the first half of each year.

The credit boom and a 4 trillion yuan stimulus package drove 7.9 percent economic growth in the second quarter from a year earlier and helped General Motors Co to report a 78 percent increase in vehicle sales in China in July.

A record $1 trillion yuan in loans through June has also helped to drive this year’s 79 percent gain in the Shanghai Composite Index.

Central bank and finance ministry officials said on Aug 7 that they will scrutinize gains in stock prices without capping new lending. The Financial Times reported the same day that the central bank had told the largest state-controlled lenders to slow growth in new loans, citing unidentified people familiar with the matter.

Credit exploded after the People’s Bank of China scrapped quotas limiting lending in November and told banks to back Wen’s 4 trillion yuan stimulus package.

Zhang Jianguo, the president of China Construction Bank, expressed concern about loan growth last week, saying some industries are growing too rapidly and some money isn’t flowing into the real economy.

Housing prices “are rising too fast and housing sales are growing too fast”, Zhang said.

Property sales climbed 60 percent in value in the first seven months from a year earlier, the statistics bureau said.

China’s banking regulator urged lenders on July 27 to ensure credit for investment projects flows into the real economy.

Three days later, the regulator announced plans to tighten rules on working capital loans.

Stephen Roach, chairman of Morgan Stanley Asia, said on July 29 that surging lending and infrastructure spending worsened imbalances in the Chinese economy and “could sow the seeds for a new wave of non-performing bank loans”.

Instead of pumping up growth, the government should do more to boost private consumption, he said.

China goes house hunting to rev up economy

August 18 (Reuters) — The Chinese government is attempting to pass the baton of growth from State-funded infrastructure investment to the private housing sector, a risky but necessary move to sustain the economic recovery.

Construction cranes sprouting in big cities, busy furniture shops and soaring property sales all show that the transition is going smoothly so far, though officials are wary that house prices may rise too high, too quickly.

China’s biggest listed property developer, Vanke, lifted its housing starts target for this year by 45 percent, while its rival Poly Real Estate said sales in Jan-July rose 143 percent from a year earlier.

On the ground, construction firms, big and small, are trying to meet the demand, last years’ downturn now a distant memory.

“It’s been a long time since we’ve had a day off. Several months, I think, though I can’t remember exactly,” said Zhang Minghui, owner of a small building company in Beijing.

“From late last year to early this year, we basically had nothing to do. Everybody was careful with their money because of the crisis and so projects got delayed.”

Zhang cut his staff to three in November but is now back up to a crew of 14.

The economic importance of the property sector in China is hard to overstate. Investment in residential housing accounted for about 10 percent of gross domestic product before a property boom turned to bust in 2008, roughly the same as the contribution from the country’s vaunted export factories.

The government’s first steps last year to revive the stalling Chinese economy were to offer tax cuts to encourage home purchases, followed by rules to ease access to mortgages.

These are bearing fruit.

With housing investment up an annual 11.6 percent in the first seven months, Chinese growth momentum is broadening out and the central government has been able to slow the pace of its stimulus spending on infrastructure.

Real economy

But Beijing must strike a fine balance in its bid to kick-start the housing market.

On the one hand, it wants rising prices to persuade house hunters to stop putting off purchases and to get developers to invest in new projects. On the other hand, it is wary of prices rising too quickly, luring speculators into the market and turning it into an asset bubble, not an economic driver.

“Because it is closely linked to so many industries, volatility in the real estate market will inevitably lead to macroeconomic volatility,” the government-run China Economic Times warned on Monday.


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Brazil Lula Vetoes Spending Limits for 2010 Budget, Estado Says

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Brazil seems to be catching on?

Brazil Lula Vetoes Spending Limits for 2010 Budget, Estado Says

August 14 (Bloomberg) — Brazil’s President Luiz Inacio Lula da Silva vetoed 20 items in the guidelines for next year’s budget that sought to curtail government spending on public
works, O Estado de S. Paulo said.

Lula also vetoed a measure that would have limited the government’s ability to increase investment under its so-called Growth Acceleration Program, which is comprised of infrastructure spending on ports, roads and energy projects, the Sao Paulo-based newspaper reported, citing the official gazette.


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Geithner Pledges Smaller Deficit as China Talks Start

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Geithner Pledges Smaller Deficit as China Talks Start

By Rebecca Christie and Rob Delaney

July 27 (Bloomberg) — Treasury Secretary Timothy Geithner pledged the U.S. will shrink its budget deficit over the next four years and boost national savings,

Ah, ‘national savings,’ that gold standard measure that’s inapplicable with our non convertible dollar and floating fx policy.

Today it’s nothing more than another term for our trade balance.

‘National savings’ falls when the federal deficit rises and those funds thus created are held by non residents.
On a gold standard (or other fixed fx regime) that represented a gold outflow, as non residents were holding US currency that was convertible into gold on demand. And the gold supply was the national savings.

Anyone who uses that term in the context of non convertible currency is either ignorant or deliberately misleading.

and he called on China to maintain efforts to ease the impact of the global recession. “We are committed to taking measures to maintaining greater personal saving and to reducing the federal deficit to a sustainable level by 2013,” Geithner said in opening remarks for Strategic and Economic Dialogue meetings with Chinese officials in Washington.

Since total non government savings of financial assets equals federal deficit spending to the penny (it’s an accounting identity) cutting the deficit and increasing domestic savings can only be done by simultaneously reducing our trade deficit by exactly that much. That would likely mean importing a lot less from china.

So what his words are telling them is that the US is committed to buying less from them. That should give them a lot of comfort?

Geithner’s comments reinforced his efforts to reassure China, the largest foreign holder of American government debt, that this year’s record U.S. budget gap won’t pose a long-term danger. The shortfall is on course to reach $1.8 trillion in the year through September.

Geithner and Secretary of State Hillary Clinton are hosting Vice Premier Wang Qishan and Dai Bingguo, a state councilor, at the meetings today and tomorrow, the first such gathering since President Barack Obama took office.

Obama called for the two nations to deepen cooperation and work together to help the global economy. “As Americans save more and Chinese are able to spend more, we can put growth on a more sustainable foundation,” Obama said in his remarks. “Just as China has benefited from substantial investment and profitable exports, China can also be an enormous market for American goods.”

Wonderful, we work and produce goods and services for them to consume. That is called diminished real terms of trade and a reduced standard of living for the us.

Outside Investment

U.S. officials said last week they plan to raise concern
about China’s resistance to foreign investment at the talks,

China’s growing dollar reserves result mainly from foreign investment, where foreigners buy yuan with dollars so they spend the yuan in China on real investment (and maybe a bit of speculation).

while Chinese officials this year have highlighted their own worries about the value of their American investments.

Yes, and the play us for complete fools.

Geithner fielded a bevy of questions about the deficit during his June visit to Beijing. China’s holdings of U.S. Treasuries reached $801.5 billion in May, recording about a 100 percent increase on the level at the beginning of 2007, according to U.S. government figures.

“Recognizing that close cooperation between the United States and China is critical to the health of the global economy, we need to design a new framework to ensure sustainable and balanced global growth.”

No hint of what that ‘framework’ might actually be.

After seeing the ‘framework’ they’ve come up with for the US financial structure the odds of anything functionally constructive seem slim.

The Obama administration will take steps to put the U.S. on course for economic health, he said.

Like reducing the federal budget deficit when current steps have fallen far short of restoring aggregate demand?

Obama’s Goals

“The president also is committed to making the investments in clean energy, education and health care that will make our nation more productive and prosperous,” Geithner said. “Together these investments will ensure robust U.S. growth and a sustainable current account balance.”

Non look to add to aggregate demand in any meaningful way, especially with the associated tax increases.

And investement per se reduces standards of living. It’s only when that investment results in increased productivity for consumer goods and services is there an increase in our standard of living.

Geithner also repeated his call for China, which has posted record trade surpluses in recent years, to increase demand at home.

“China’s success in shifting the structure of the economy towards domestic-led growth, including a greater role for spending by China’s citizens, will be a huge contribution to more rapid, balanced, and sustained global growth,” Geithner said.

Just what we need, a billion non residents increasing their real consumption and competing with us for real resources.

In the talks today and tomorrow in Washington, U.S. officials said they plan to tell the Chinese the American rebound from a recession won’t be led as much by consumers as past recoveries.

That means our standard of living won’t be recovering even though GDP is recovering.

The American side also will urge China to rely more on household spending and less on exports for growth, an official told reporters in a July 23 press briefing in Washington.

Clearly the obama administration does not understand the monetary system and is working against actual public purpose.

The U.S. is concerned that there’s been a hardening of attitudes regarding China’s treatment of foreign investment, the official also said last week. China’s exchange-rate policy is another topic for discussion, the official said.

Total confusion on that front as well.

We push for a weak dollar/strong yuan policy so prices for China’s products at our department stores rise to the point we can’t afford to buy them.

Then we try to get them not to sell their dollar reserves because it might make the dollar go down.

From Mauer:

Hey, why don’t we all move to Latvia, where they do all of the stuff that Geithner advocates:

Latvia, which pegs its currency to the euro, now has a “strong”, stable currency. Good for them. They are sustaining this strong currency by crushing demand. Exports are down 28pc, but imports are down even more. The result of this Stone Age policy is economic contraction of 18pc this year, and 4pc in 2010.

But hey, you’ve got a “healthy” currency and a country which is pursuing a “sensible” fiscal policy with lots of belt tightening. And supposedly “building up national savings” as a consequence of these wonderful policies.

Where do we find these people?


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South Korea’s Economy Grows at Fastest Pace in Almost Six Years

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So far it is just a rebound but part of a pattern of generally better than expected data and supports the notion that removing fiscal drag does restore domestic demand.

South Korea’s Economy Grows at Fastest Pace in Almost Six Years

By Seyoon Kim

July 24 (Bloomberg) — South Korea’s economy expanded at
the fastest pace in almost six years last quarter as exports and
household spending jumped.

Gross domestic product rose 2.3 percent from the first
quarter, when the nation skirted a recession by growing 0.1
percent, the Bank of Korea said today in Seoul. That was better
than the 2.2 percent growth estimated by economists.

Samsung Electronics Co. today joined exporters Hyundai
Motor Co. and LG Electronics Inc. in reporting profit surged
last quarter, helped by a weaker currency and demand fed by $2.2
trillion in stimulus worldwide. Consumer spending climbed 3.3
percent from the first quarter, the most in seven years, fueled
by interest rates at a record-low 2 percent.

“Exports have improved more than expected while domestic
demand got a big boost from the fiscal and monetary policy
steps,” said Lee Sang Jae, economist at Hyundai Securities Co.
in Seoul. “I expect Korea to remain on a recovery path” even
after the boost from the stimulus measures wanes, he said.

The Kospi stock index rose 0.4 percent today in Seoul,
taking the year’s gains to 34 percent after a 41 percent drop in
2008. The won rose 0.2 percent to 1,249.55 per dollar.

Last quarter’s expansion was the fastest since the economy
grew 2.6 percent in the last three months of 2003. Exports
gained 14.7 percent, also the biggest advance in almost six
years. From a year earlier, GDP shrank 2.5 percent.


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savings rates, growth, and struggling green shoots

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So in the US the high savings rate is hurting growth, and in South Africa the low savings rate is hurting growth.

Next thing they’ll be saying is economies should not have a savings rate in order to have optimal output and employment…

Did I say they don’t understand the monetary system???!!!

And one reason the green shoots may be dying is the relentless monetary tightening as lower rates for savers,

quantitative easing as Central Banks accumulate higher yielding securities in exchange for reserve balances,

and lower interest paid by governments on their securities due to the lower rates

all contribute to removing interest income from world consumers.

South Africa’s Low Savings Threaten Growth, Nene Says

by Nasreen Seria

July 6(Bloomberg) — South Africa’s low savings rate is
crimping the country’s rate of sustainable economic growth,
Deputy Finance Minister Nhlanhla Nene said.

The low rate is also inflating the current account deficit,
making South Africa more reliant on foreign capital inflows,
Nene said in a speech to the South African Savings Institute in
Johannesburg today.

The rate of growth in consumer savings has been declining
since the first three months of 2006 after the central bank cut
interest rates to a 24-year low in 2005, spurring spending.
South Africa’s total savings rate is 17 percent of gross
domestic product, according to the quarterly bulletin of the
South African Reserve Bank.

“Persistently high current account deficits can lead to
macroeconomic instability if foreign liabilities rise too much
and foreign capital inflows dry up,” Nene said. “By reducing a
country’s dependence on foreign capital inflows, higher domestic
saving therefore makes an economy less vulnerable to sudden
reversals in capital flows.”

The current account deficit, the broadest measure of trade
in goods and services, widened to 7 percent of GDP in the first
quarter as mining and manufacturing exports collapsed.

South Africa also needs to boost its savings in order to
lift the economic growth rate, Nene said. Africa’s biggest
economy is in its first recession in 17 years, and will probably
contract 1.5 percent in 2009, according to the World Bank.

“It is crucial to raise the level of our national saving
in support of both short-term economic stability and long-term
productivity growth and prosperity,” Nene said.


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