The China Thread

Sorry Ram don't know it.

Trotsky from Kitco, makes some interesting points on China:

trotsky (@falling money supply) ID#377387:
Copyright (c) 2002 trotsky/Kitco Inc. All rights reserved
there's no mystery there. bank assets are declining - industrial and commercial lending has been contracting for 3 years, and now the mortgage credit bubble has simply stopped dead as well. since 'money' in the fiat system is only added with the help of fresh debt creation, its supply tends to begin to shrink when the credit expansion for whatever reason stops ( in this case: industrial overcapacities & higher mortgage rates ) .
the HUGE existing debt mountain therefore also represents the major argument supporting the idea that the coming economic downturn will be deflationary in nature. 'money' will be destroyed on account of defaults, and consequently, the money supply should then shrink further. also, the savings-starved private sector will attempt to build up cash balances - this liquidity preference is also set to contribute to the deflation ( i.e., the 'price' deflation, since goods purchases will be continually deferred. the current weak X-mas shopping seaon is a small foretaste of what's in store in the future ) .
no wonder the bond market is rallying gain - it KNOWS.

trotsky (Pit yorkie) ID#377387:
Copyright (c) 2002 trotsky/Kitco Inc. All rights reserved 1. why would China flop? it will flop when the credit expansion comes to a halt. note in this context that China's internal credit expansion is inextricably linked to the US current account, and with it, to the US credit expansion. in China, a plethora of malinvestments has taken place, as always happens when too much money out of thin air hits an economy. how do we know? look at commodity prices - they are a symptom of the fact that demands on resources are made that those resources can't currently meet. look at the recent reports that China is bulding more steel mills than can't possibly be fed by currently available iron ore production. note also, that the Chinese government, scared that the boom is getting out of control, has belatedly ordered the state owned banks to stop lending to car manufacturers, steel producers and aluminium producers ( all of whom strain the electricity infrastructure close to breaking point at this stage ) . it is a TYPICAL Misesian crack-up boom, and it will end the same way such booms ALWAYS end: a bust as soon as the credit expansion stops. well, the credit expansion IS stopping.

as for the US economy, the statement "That still needs the USA which will only come down when interest rates hike" is imo naive. as a matter of fact, after 3 years of extraordinary 'stimulus' measures ( i.e., an unprecedented rate cutting spree, the biggest expansion in the budget deficit ever, and an unconstrained mortgage credit and housing boom ) the US economy looks incredibly anemic. over 30% of resources are idle - industrial capacity utilization is creeping along at depression levels, personal income has first fallen, and now stagnates. meanwhile, it has taken nearly $7 in ADDITIONAL credit to produce $1 of GDP 'growth', which in turn is largely a statistical mirage anyway ( not only hedonic indexing contributed, but also the fact that what amounts actually to a net negative for the economy is counted as a 'positive' in the GDP accounts, like e.g. the wasteful government spending - esp. on defense - and the rise in oil prices ) .
your 'solution', namely to 'simply print money' obviously is exactly what has happened over the past 3 years already, and it has irrevocable damaged the economy's structural integrity imo...to the point that when the dreaded consumer rescession finally strikes, we could be faced with a bust that exceeds anything seen since the 30's. you are also conveniently forgetting that 'printing' money alone doesn't achieve anything - someone must be willing and able to borrow and spend the money ( i.e. must take actions that further deplete the pool of real funding, putting the economy ever deeper into the hole ) . however, who is left to do that? total US credit market debt is now at nearly 360% of GDP - $36 trillion. even if we assume a low interest expense of say 7% for the entire amount, the economy would need to produce $ 2.5 trillion annually in NET PROFITS to simply pay for the interest on this amount. we're running into mathematical impossibilities here, which is why it has become a "Ponzi economy" where new credit is taken on to pay off old credit & interest.
so instead of fearing rate hikes, you should ask, 'how much potential stimulus is left to avert the collapse?' - and the answer is, not enough.

Copyright (c) 2002 trotsky/Kitco Inc. All rights reserved i meant the effect the US trade deficit with China has on China's money supply. since the Yuan is pegged, money supply in China has exploded at well over 20% growth rates. this produces malinvestment in China. the same holds of course for other mercantilist Asian nations that finance the US current account by printing up domestic currency to buy US govt. debt. the point here is that it's a vicious cycle, with all participants apparently 'forced' to print as much 'money' as possible. this creates various booms and boomlets, but depletes the pool of real funding. once the pool of real funding effectively begins to shrink, it doesn't matter anymore how much money you print - the boom can not be restarted then ( Japan's experience over the past decade+ ) .
this is the problem the Fed has encountered now as well....like i said, an unprecedented rate cutting spree has done very little to improve the US economy's most important facets. it is a huge mistake to avert a realignment of the production structure in order to avoid a recession, or a deep recession. it hollows the economy out, while the recession simply happens later - and then is much worse than it would have been otherwise.
in short, the central banks can only con the market for a little while...and are making things worse while doing so.

Copyright (c) 2002 trotsky/Kitco Inc. All rights reserved @'it's not like in the 30's when they intentionally took the money away...'

like i said before, this assertion does not jibe with the facts. free bank reserves increased by over 400% between late 1929 and early '33, a sign that the Fed's printing presses were indeed running hot. also, the inflationists can NOT explain what happens in Japan, can they? after all, the BoJ has been printing money like crazy for well over 10 years now, and it just keeps sloshing around in MM funds, unused...or is wasted by the government on white elephant projects.
when you know about a neighborhood that is visited by one of those money helicopters don't hesitate to let us know. so far, the modus operandi of the CBs is the same as it always was....and the US money supply has begun to shrink, i.e. there's now deflation in the actual broad money measures. it will get worse.
also, i don't think that China's boom/bust cycle is not important for us - China is the world's largest manufacturer of goods. what happens there is probably VERY important for the rest of us.