Joined: Oct 25, 2004 Posts: 1343 Location: Stalag 13
Posted: Fri Jul 04, 2008 11:58 pm Post subject: Re: Leading Economic Indicators Warn of China Downturn
idiom wrote:
Quote:
Yes I have proof. Do you really think that I would post something I couldn't prove???
Heck I would.
China can always borrow to subsidise Oil, and they might do that long enough to break America. Then Oil comes back down for them.
A lot of Americans, when first hit with petrol price increases, simply put it on their credit cards. The Untied States has already played is deficit spending card, China still has that in hand.
I agree. The Chinese government has the dollar cash reserves to continue subsidizing fuel and oil for years, thus keeping energy prices lower than in the west. They will not voluntarily let their economy collapse. For a while, any serious world demand destruction will mostly come from the US and Europe. Very soon the western countries' economies will be smoldering ruins. _________________ Now why didn't I think of that?
Joined: Oct 23, 2004 Posts: 5922 Location: New Jersey
Posted: Sat Jul 05, 2008 9:59 am Post subject: Re: Leading Economic Indicators Warn of China Downturn
This may sound surprising, but the average price the US paid for oil was only $64.26 in 2007 (and yes, I have proof, check out page 27 of this government report).
When the US price for imports gets about $140, the US balance of trade will worsen by $400 billion per year. I don't think foreigners will let the US charge an unlimited amount for oil on our (figurative) national credit card. If they do, they will not only be left with having dollars falling in value, but they will have less oil - not more.
We are going to live in some interesting times soon. _________________ It's already over, now it's just a matter of adjusting.
Posted: Sat Jul 05, 2008 2:52 pm Post subject: Re: Leading Economic Indicators Warn of China Downturn
Interesting indeed Dante. Listening to some talking heads this morning on Fox with at least hafl of them saying we may be over the hump with regards to oil prices/housing slump/stock market slump etc.
I'm not a doomer by any means but to hear these cheerleaders is so laughable. Having lived thru the oil price & employment & housing & mortgage rate & inflation horror stories of the 1976 - 86 period I learned first hand how slow these cycles progress. It took at least 10 years for most of these issues to settle down. And that was with the demand desrtruction putting PO on the back burner for at least 10 years. I'm not arrogant enough to predict how bad it will get but, IMHO, it's certainly going to get worse on many levels before it gets better.
Joined: Oct 23, 2004 Posts: 5922 Location: New Jersey
Posted: Sat Jul 05, 2008 3:26 pm Post subject: Re: Leading Economic Indicators Warn of China Downturn
ROCKMAN wrote:
Listening to some talking heads this morning on Fox with at least hafl of them saying we may be over the hump with regards to oil prices/housing slump/stock market slump etc.
Yes it does appear that most economists/analysts are for some reason expecting a 'recovery' later in 2008. They may be incorrectly projecting a second quarter improvement, due to $100 billion in rebates, to the whole year. The $100 billion rebate will actually show up as something like a $300 or $400 annulaized rate of spending increase in GDP figures, personal spending, etc. The optimists will then say - look, there's our recovery.
But those rebates are spent and the price of energy is marching ever higher. So the economy is set to fall - and hard. Even so, I expect oil to be still moving higher. The stock market is a mixed bag. Those companies that benefit from rising natural resource prices will do well, the others will do worse. _________________ It's already over, now it's just a matter of adjusting.
Posted: Sun Jul 06, 2008 2:45 am Post subject: Re: Leading Economic Indicators Warn of China Downturn
DantesPeak wrote:
This may sound surprising, but the average price the US paid for oil was only $64.26 in 2007 (and yes, I have proof, check out page 27 of this government report).
When the US price for imports gets about $140, the US balance of trade will worsen by $400 billion per year. I don't think foreigners will let the US charge an unlimited amount for oil on our (figurative) national credit card. If they do, they will not only be left with having dollars falling in value, but they will have less oil - not more.
We are going to live in some interesting times soon.
I don't think it will get to $140, at least w/o WTI going to new highs at around $150-160. The US doesn't import only light sweet crude, which is generally what's tracked when oil prices are reported. Supposedly, 3/4s of US refining capacity can process heavy sour crude...
Quote:
In fact, more than three-fourths of US refinery capacity can process heavy sour
And w/ a price differential of up to $45/bbl as of 2008...
Quote:
First, I believe Frontier Oil (FTO) is in the best position. Their two refineries, one in Cheyenne, Wyoming and the other in El Dorado, Kansas, are capable of processing all the heavy/sour crude they can get. In October they were buying January Heavy/sour crude from Canada with a $45 per barrel differential.
The US average can be less than the WTI price.
Clearly all US refineries can't purchase oil at this price differential, but it seems to result in a US per barrel average that's ~$10-20/bbl less than what WTI sells for, although this varies. For example, April 08 prices were ~$97/bbl, compared to the ~$107/bbl WTI average while July 07 prices were at ~$66/bbl, ~$17/bbl less than the WTI average. _________________
Sun, Jul 6 2008. 11:11 PM IST
Will China be winded after Olympic sprint?
In order to prevent the currency from appreciating, the People’s Bank of China (PBoC) has been forced to acquire ever larger amounts of dollars
breakingviews.com | Edward Chancellor
[...]
While this view of China’s prospects may prove correct in the long term, serious clouds are appearing on the horizon. That’s the view of Jim Walker, former chief economist of CLSA and founder of the Hong Kong-based consulting firm Asianomics. Walker adheres to the Austrian school of economics, whose most famous exponents include Ludwig von Mises and the Nobel laureate Friedrich von Hayek.
Austrians are obsessed with interest rates, and most particularly about what happens when central banks apply the wrong rates. When interest rates are too low, they argue, credit expands too rapidly. This stimulates investment and fosters asset price bubbles. Eventually, credit “inflation” shows up in rising consumer prices. But by then, it’s too late to stop the damage. The end of the boom reveals the misallocation of capital, or “malinvestment” as the Austrians insist on calling it. After which, there follows a painful process as the economy is forced to adjust back to equilibrium.
Walker believes that Beijing has allowed an Austrian-style bubble to inflate in China. In equilibrium, he argues, short-term interest rates should be roughly in line with the economy’s nominal GDP growth. But China has actually enjoyed interest rates well below the rate of inflation at a time when its economy has been expanding rapidly. Negative real rates are a consequence of China’s policy of pegging the renminbi to the dollar. In order to prevent the currency from appreciating, the People’s Bank of China (PBoC) has been forced to acquire ever larger amounts of dollars. The expansionary consequences of this policy could have been neutralised by the PBoC issuing “sterilization” bonds to soak up renminbi issued to buy dollars. But sterilization in recent years has been inadequate, says Walker.
The result has been strong credit growth. This, in turn, has fuelled an extraordinary investment boom. Investment has been growing at 25% a year and constitutes around 40% of GDP. Most of the fruit of this new investment has been exported abroad. The trade surpluses so generated have meant yet more intervention in the foreign exchange markets and further credit growth. For a while, this must have seemed like a virtuous cycle. Now it’s turning vicious.
Chinese export growth is set to fall sharply. Europeans initially took up the slack after the housing bust dented the appetite of American consumers for all things “Made in China.” But the credit crunch is wreaking havoc on both sides of the Atlantic. Recent data suggest that European export demand is slowing.
Many claim that Chinese domestic consumption will take up the slack. This is unrealistic. As Walker points out, the UK alone consumes more than China and India combined. China’s economy has been driven by investment and exports, not by domestic consumption. In fact, consumption in China has failed to keep pace with economic growth, which is why the trade surplus has continued rising.
Joined: Oct 25, 2004 Posts: 1343 Location: Stalag 13
Posted: Mon Jul 07, 2008 8:23 am Post subject: Re: Leading Economic Indicators Warn of China Downturn
Chinese Premier calls for price controls
Quote:
Chinese Premier Wen Jiabao says his country will increase economic development despite some challenges.
Wen said China's economy was developing as expected, and called on government officials at all levels to improve economic controls to avoid serious fluctuations, Xinhua reported Sunday. He said they should try to make price increases acceptable for both industry and the public.
Wen also called for efforts to protect farmland to ensure grain security, and to boost efforts to create jobs for low-income families and recent college graduates.
Booming China Suddenly Worries That a Slowdown Is Taking Hold
By KEITH BRADSHER
Published: August 5, 2008
HONG KONG — Many Chinese have been expecting a post-Olympics economic slowdown, but it has already started and the Games have not even begun.
Chinese factories reported a plunge in new orders last month. Exports are barely growing. The real estate market is weakening, with apartment prices sinking in southeastern China, the region hardest hit by economic troubles.
The trends, which actually have little to do with the Olympics (the Games themselves, which open Friday, are small compared with the size of the economy), are being felt worldwide.
China’s slowing growth is one reason that gasoline prices have fallen in the United States, for example. Similarly, world prices for metals like copper, tin, zinc and aluminum have tumbled in the last several weeks, as voracious Chinese factories have closed, or cut back their consumption.
But while China’s difficulties may reduce inflationary pressures around the world, they threaten to slow further the already tenuous global economic growth.
“China has slowed down a lot already, but it’s going to slow down more,” said Hong Liang, the senior China economist at Goldman Sachs.
Posted: Tue Aug 05, 2008 2:29 am Post subject: Re: Leading Economic Indicators Warn of China Downturn
DantesPeak wrote:
This may sound surprising, but the average price the US paid for oil was only $64.26 in 2007 (and yes, I have proof, check out page 27 of this government report).
When the US price for imports gets about $140, the US balance of trade will worsen by $400 billion per year. I don't think foreigners will let the US charge an unlimited amount for oil on our (figurative) national credit card. If they do, they will not only be left with having dollars falling in value, but they will have less oil - not more.
We are going to live in some interesting times soon.
Not surprising, if we with short memories would bother to remember that oil was at 60-70 year ago.
Let's assume that the median price for 2008 will be 120-140 (100% increase year to year). This does not, however, directly amount to worsening US trade balance, but will be offset by the factor of (huge) demand destruction and decreased US imports. Year to year DD is now down about billion barrels per day, 5% of total consumption. Let's round that up and say that means about 10% drop in US imports:
2007: 5 billion barrels imported * 65 dollars = 325 billion
2008: 4,5 billion barres imported * 130 dollars = 585 billion
"Only" 260 billion worse trade balance.
Without demand destruction happening, trade imbalance for oil would double (325 billion increase); 5% drop in total US consumption thus "saves" only about 65 billion in import costs.
PS: US trade deficit for 2007 was about 800 billion, so no matter what, import costs of oil doubling is going to leave an ugly mark, bringing trade deficit close to 10% of GDP which is certainly not sustainable in the long run. Conclusion? Current year to year DD of 5% in US is just the beginning...
Posted: Tue Aug 05, 2008 8:37 am Post subject: Re: Leading Economic Indicators Warn of China Downturn
MrBean said:
Quote:
Without demand destruction happening, trade imbalance for oil would double (325 billion increase); 5% drop in total US consumption thus "saves" only about 65 billion in import costs.
Also remember that every dollar spend on foreign oil is leveraged throughout the economy by a factor of at least 7. $325 billion will be reflected as a decline of $2.3 trillion in the general economy (less energy purchases) as the US runs out of credit.
Demand destruction will result in general economic destruction. As China’s main oil fields deteriorate , and higher oil prices strike its economy, it will succumb to the same forces. With 33% of its GDP dependent on exports, China is undoubtedly in serious long term trouble.
Quote:
Larry Rohter: "Many see evidence that companies looking to keep prices low will have to move some production closer to consumers. Globe-spanning supply chains — Brazilian iron ore turned into Chinese steel used to make washing machines shipped to Long Beach, Calif., and then trucked to appliance stores in Chicago — make less sense today than they did a few years ago.
To avoid having to ship all its products from abroad, the Swedish furniture manufacturer Ikea opened its first factory in the United States in May. Some electronics companies that left Mexico in recent years for the lower wages in China are now returning to Mexico, because they can lower costs by trucking their output overland to American consumers."
Quote:
“If we think about the Wal-Mart model, it is incredibly fuel-intensive at every stage, and at every one of those stages we are now seeing an inflation of the costs for boats, trucks, cars,” said Naomi Klein, the author of “The Shock Doctrine: The Rise of Disaster Capitalism.”
“That is necessarily leading to a rethinking of this emissions-intensive model, whether the increased interest in growing foods locally, producing locally or shopping locally, and I think that’s great.”
Posted: Tue Aug 05, 2008 9:00 am Post subject: Re: Leading Economic Indicators Warn of China Downturn
I never bought the China would decouple from the US story. But, I also do not buy into the US can decouple from a China story either. If China's economy fails, who will buy all our bonds? What would we do if they sell the bonds they do have to raise cash?
Joined: Aug 30, 2005 Posts: 277 Location: Second Vermont Republic
Posted: Tue Aug 05, 2008 12:13 pm Post subject: Re: Leading Economic Indicators Warn of China Downturn
seahorse2 wrote:
I never bought the China would decouple from the US story. But, I also do not buy into the US can decouple from a China story either. If China's economy fails, who will buy all our bonds? What would we do if they sell the bonds they do have to raise cash?
The Japanese. They never get tired of making 0% investments.
Posted: Tue Aug 05, 2008 1:16 pm Post subject: Re: Leading Economic Indicators Warn of China Downturn
seahorse2 said:
Quote:
I never bought the China would decouple from the US story. But, I also do not buy into the US can decouple from a China story either. If China's economy fails, who will buy all our bonds? What would we do if they sell the bonds they do have to raise cash?
China is now holding $1.7 trillion in US Treasuries. If they start selling them they will soon be worth a lot less than $1.7 trillion. If they don’t sell them they will decline in value as inflation is now higher than the return on the bonds. It doesn’t appear that China can supply itself with oil for long by converting its US paper.
This huge ponzi scheme is dependent on everyone playing by the rules, when the first one breaks the rules - the lights go out.
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