Discussion in 'Business & Economics' started by Billy T, Aug 10, 2008.
They think 7.5% GDP growth too small so are stimulating again.
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China´s retail market is already larger than the US´s "replacement market" for many high value added items, like refrigerators, air conditioners, cars, cell phone, digital computers and cameras, etc. and luxury items, like Coach´s purses, French wines, and top of line Swiss watches, etc. but in less than 5.5 years even the current reduced 13.1% growth will double its size. I.e. China is making good progress on it "balancing plan" to become more of a domestic market than an exporter; however despite shrinking exports to impoverished / debt ridden / belt-tightening EU & US, China´s exports are growing because to other Asian nations they are up annually 25% + or - 5% and to many in S. America, nearly the same, but to Africa it is more like 40% + or - 10% on a smaller prior year base.
* Read Citi´s full "wealth report" at: http://www.thewealthreport.net/The-Wealth-Report-2012.pdf but be warned it is 68 pages long.
In some markets trade will double in less than 2.5 years! See blue insert below:
This from post at: http://www.sciforums.com/showthread...uture-issues&p=2976203&viewfull=1#post2976203 where you can read other "Billy T extracted" economic "high lights" from Wen´s 5 page long address that opened the China-Eurasia Expo of 120 nations. Note this expo is really Number 21 but was re-named last year so this is the 2nd with the new name.
Not only does the rapid rise in the purchasing power of the mid & lower class in China attract affordable consumer goods makers, but Brazil is second only to China in the mass lifted up into the middle class. (Perhaps ahead in terms of the percent of the population with greatly improved purchasing power.) The very anti-communistic doctrine of letting Chinese peasant lease to large agri-corporations their ancestoral farm land (right of use not actually owned) and Brazil´s "Bolsa Familia" (transfer of wealth to the very poor who agree to keep their kids in school until age 18 and get their vaccinations) have produced huge social revolutions peacefully with very rapid growth in the domestic markets.
A quick lesson on the US´s currency war and its effects on Brazil (or others):
Brazil has a tax, IOF which is about 0.5% on “financial operations” and that even includes putting money in the bank and then taking it out in less than 30 days. It certainly hits transfer of large amounts of dollar into Brazilian Real, but I duck it by bringing back only the legal amount of dollars in cash with each return from the USA and sell it for Real with no records.
Because of US Fed´s misguided* belief that printing more money will cure the US´s economic problems, especially the employment problem (3 million fewer jobs than 2008 for population that is 10 million larger than then) and its slightly more valid idea that historically lowest interest rates will aid job creation, the US is making a “currency war” on all countries which do not also want their currency to lose value in the long run. US currency has been losing value more slowly than it normally would have with these policies of the Fed because for many with money the US dollar is the least ugly whore in the international whorehouse of finance.
I.e. the wealthy (both people and corporations with cash) in troubled Euro zone are selling Euros, and buying dollars to invest, mainly in US stocks but in rental property etc. too. – IMHO main reason there has been slight recovery in home and apartment prices. Thus the more pronounced effect of false low interest rates is the Carry Trade, i.e. borrow cheaply in the US and invest in places like Brazil (I have funds applied in a CD like fund of a bank that still grows by 0.68% PER MONTH, but three or four years ago, when Brazil´s basic interest rate was 15% per year, grew at 1% per month.)
This influx of dollars (not all borrowed in carry trade) into Brazil is a problem for Brazil. There is not sufficient demand for them and they are useless in Brazil where the currency is Real. I.e. the dollars must buy Real before they can earn interest in Brazilian bank (as I mainly do) or a factory etc. Thus there is a surplus of dollar in supply and shortage of Real. As always happens when supply exceeds demand, the price of that surplus item falls. I.e. it takes less Real to buy a dollar. Or stated the other way round, the Real gets to be stronger. That means a Brazilian can import instead of buy from local manufacture and that local manufacture can not export as much as when the Real was weak. Furthermore, his employees still want to be paid in real but he is earning in say dollars with his exports which no longer buy as many Real. So he closes his factory lays off his workers and they are voters too.
This makes the government leaders worry they may be voted out of office. “Something must be done” they tell Finance Minister Mantega, the director of “Brazilian Fed” etc. all of whom understand the cheap money (low interest) in the US is the root cause of this “currency war.” against Brazil and other countries. What to do? One obvious answer to save their elected jobs, is buy up much of the flood of dollars so there is no surplus of dollars and the Real will not be so strong that Brazilian factories close. How to do that?, is obvious too: Just print more Real to buy dollars with but that makes inflation.** So there must be a better way they think. Oh yes, there is the IOF, lets jack it up so no longer is it so attractive for dollars to come to Brazil. Also as the dollars are coming to take advantage of Brazil´s high interest rate, lets reduce them (they are now only 7,5 %, not the 15% of a few yeas ago).
These lower interest rates are making too much demand with so many once dirt poor Brazilain now in the lower middle class wanting to buy their first refrigerator or car. The factories making these products for the domestic market are at capacity and these newly middle class are will to pay higher prices for the supply that is available – I.e. this “solution” to the US´s currency war makes inflation too.
• For more on the uselessness of QE3, see this post: http://www.sciforums.com/showthread...ly-recovered&p=2985547&viewfull=1#post2985547
** To avoid that Brazil usually does what “super Mario” is planning to do with the newly printed Euros he is giving to the weak “Club Med” government or their banks. – It is called “sterilization” i.e. to remove the newly printed currency from circulation, they issue (sell) bonds. In Brazil´s case this is very expensive as to sell them they must pay at least what the banks do on deposits.
Embraer, world´s third largest maker of airplanes, has just opened a 60,000 square meter factory in the industrial park near Portuguese town of Evora. It will make carbon fiber tails and wings* for assembly in Brazil, mainly. Embraer invested 177 million euros to build and equip the factory. Last year, Embraer open is first US factory in Flordia, but for several years has had a maintaince and training center there. (Fact that pilots speak English almost all over the globe may be partly why they put the center there. I.e. some of their training is free in the grocery store, etc.)
Brazil´s government did a little "QE tiny" last week. I.e. gave the two banks it controls (13 +8.1) billion Reais to increase their loans with - the 8.1 "earmarked" for agriculture, which always has cost before the harvest to finance. They have ordered these two to lower the interest they charge as a way to pressure the private banks to charge less also. Also other measures are planned to stimulate the slowed economy - things like reduction of taxes on exports and an increase in the IOF (See start of post 684) to make the destructive flood of cheap dollars coming to Brazil in a "currency war" less and possibly still more reductions in the basic interest rate for the same effect plus making marginal domestic investments by Brazilian firms more viable.
Individuals are making jobs for themselves in troubled Club Med countries too: CNN had story about Moroccan man, resident of Span, who lost his job but now spend ~15 days there, buying goods at very depressed prices (merchants have few customers) to pack in (or tied on top of) his van. Then he takes the 15km ferry ride back to his native land and sells them in about 15 days too. That is a lot better than the Greeks going to Scandinavia with their brooms and toilet brushes to get jobs cleaning toilets or sweeping street and parking lots etc.
* Probably for their very popular corporate jets - one of which collided with big Boeing and killed the ~300 people on board as it broke into two pieces, but the little Embraer jet with 6 on board (crew of 2 included) flew on to safely land about a half hour later with tip of a wing missing and part of tail destroyed! After that the order back log climbed to a three year delivery delay but if you had a used one available for immediate sale you could sell for thousands of dollars more than buying new from Embraer delivered three years later. (No one knows for sure but the big jet breaking into the two pieces found on the ground many miles apart probably was not an immediate effect of the collision. Perhaps control wires were cut and then aerodynamic forces tore the Boeing apart. The south bound Boeing did not make the 1000 foot altitude change needed to get into the south bound lane when "handed off" to a new ground control station. It is not clear if this was a ground control or pilot error, but few blame the little jet´s pilots although it is almost certain they had accidently turned off the collision avoidance system/ warning.)
It is not just in IT software etc. that India is taking jobs from the US. Face it (you must eventually), the US lives "high on the hog" only because it can pay for much of it needed imports with green paper but only so long as the dollar is the international reserve currency. Four oil selling nations now prefer gold instead of dollars for their oil.
China has been a slight net seller of US treasury bonds for two years now. How long before others don´t buy new equal to their maturing also?
Here is nice graph showing the Yuan is 19% more valuable than ~5 years ago:
Please Register or Log in to view the hidden image! and Dollar has lost about the same.
So Yuan is a currency of relatively stable or increasing value (purchasing power) but if Chinese bought dollars at start of graph they would have lost about 1/3 of their buying power by end of the graph. China did buy a lot of dollars (US Treasury bonds) back then. So it is easy to understand why they have not been net buyers of US bonds for two years now.
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That is a graph of the exchange rate between Chinese Yuan and US dollars. Are you defining "value" as "US dollars?" Because if you are, then you have defined out the possibility that the US dollar could "lose value." If you are not, then your statement as written is wrong and you should admit your error in conflating exchange rate with "value."
The statement "the yuan is up 19% against the dollar" is equivalent to the statement "the dollar is down 19% against the yuan." It does not, however, imply that the yuan has gained "value" by 19% and that the dollar has simultaneously lost "value" by the same amount. "Value" is a third variable, not captured by exchange rate fluctuations. For all we can see from the data you provide, both currencies could have gained in value over that time, or both could have lost value over that time. We have no way of knowing, and you have not provided any visible definition of "value." Instead, you seem to be conflating it with exchange rate in a way that makes a total hash of the situation.
The data you provide tells us absolutely nothing at all about purchasing power. It only shows the exchange rate between the US dollar and Chinese yuan.
No, that does not follow. In the first place, you seem to be double-counting the 19% exchange rate fluctation to get to your "1/3" figure there. In the second place, exchange rate is not purchasing power. It is perfectly possible for one currency to appreciate against another even as they both gain in purchasing power, for example.
Your analysis is exactly backwards there. The reason that the yuan has appreciated against the dollar is exactly that China has loosened its currency peg policy, which consisted of buying lots of dollar bonds. I.e.: the reduced bond purchases caused the rise in exchange rate, and not the other way around. Had China continued to purchase bonds at the previous rate, the rise in exchange rate would not have occurred.
Anyone with even a passing familiarity with the basic outlines of Chinese monetary policy knows that, and would not have made such a silly, elementary error as you commit here. Likewise, anyone with a working grasp of basic economics would not have committed the silly errors conflating exchange rate and purchasing power which you made here. You need to get a clue and stop talking out of your ass.
No. I said "purchasing power" was the "value." to quote myself from post 687: "Yuan is a currency of relatively stable or increasing value (purchasing power)" that makes it very clear I was not defining the dollar as "value" so don´t understand how you could be confused.
That is true. I did not document the dollar´s loss or the yuan´s gain of purchasing power. Few, and certainly not you who seldom agree with me even when I just quote some other source, would agree on any documentation I supplied on purchasing power.
I was just vaguely referring to fact that for many items like the Dow Jones stocks or gold or corn etc. it now takes significantly more dollars to buy X of them than 5 years ago when the graph stated but some what less for China to buy many of the items it imports, like iron ore, grains, etc. with its Yuan. Yes exchange rates with Yuan increasing value wrt the dollar by 19% are part of why this is true, but not identical with the changes in purchasing power I agree.
You provided no data whatsoever on purchasing power. The graph you provided only describes exchange rate. So, you have entirely failed to support your assertions.
That statement is totally unsupported, and also false. China is exhibiting higher inflation than the USA, and has for a long time. You seem to be laboring under some severe misconceptions about how any of that does (or does not) relate to the exchange rate between the dollar and yuan.
It's because you go on to confuse exchange rate with purchasing power, make a bunch of unsupported, false assertions about purchasing power of various currencies, etc.
Not only did you not provide any support, you continue to traffic in false assertions. The yuan is losing purchasing power, and at a faster rate than the dollar.
Valid data does not brook "disagreement," although it will not support your assertions (inflation in China is positive and greater than in the USA, in opposition to what you claim). And that's true even of the official Chinese bullshit statistics which understate inflation there.
Regardless, if it is your position that there is no scientific consensus available on what the purchasing power of the yuan is, then what you have produced is not a justification for making assertions about such without substantiation. You are arguing that such is simply unknowable.
The fact that gold, corn and the Dow are up in dollars, and that iron and grain are down in yuan, is not a valid analysis of changes in purchasing power. You aren't even comparing comparable baskets of goods, nor are the baskets representative of general consumption in those two countries. In the case of China you are only looking at the cost of imports, which is to say that you're only capturing exchange rate fluctuations (and the massive drop in demand for iron ore due to China's economic slowdown).
You seem to be more or less admitting that you haven't done any real analysis of purchasing power, and that you aren't going to bother trying. Which is fine so far as it goes, but it also means that you have to stop trafficking in unsubstantiated - not to mention, false - assertions about such.
I don´t have much faith in either US or Chinese published data on inflation, which you base this claim on. Certainly some aspects domestic buying, especial purchasing food, now require significantly more of both country´s local currency than than they did a few years ago. And China´s percentage increase is greater than the US´s but one also must consider that real wages are at best static in the US and increasing by double digits in China!
Other aspects like housing have come down in their nominal cost in both countries. I just know price of many things China buys from Brazil have lower prices now. - Part of why Brazil is in a slump. Vale, world´s largest producer of iron ore, is not doing nearly as well as when I bought its stock a few years ago (ADRs at little more than $22/sh) as China pays LESS for Vale´s iron ore now. I.e. for imports, in most cases, the yuan has increasing purchasing power even for those items for which the dollar price has slightly risen as each yuan buys more dollars now. For another example: price of gold in dollars has gone up more than it has in yuan. It is really IMPOSSIBLE to not consider exchange rates as you seem to want me to do. i.e. the graph of post 687 IS relevant to purchasing power, but not the same as relative purchasing power.
China and Brazil getting increasing ties:
Also at that link:
".. According to the World Gold Council, Putin has doubled his gold reserves in the past five years ... making the Russian gold pile the fifth-largest in the world. Why? Because Putin sees what’s dead ahead: The demise of the dollar and the potential collapse of the American empire. And he’s not alone. Countries like China, Turkey, South Korea, India, Venezuela, Slovakia, and Ecuador are also hoarding the yellow metal. .."
I predicted this would happen, years ago in this thread:
I also predicted many years ago the Yuan would gain on the dollar (up ~11% under Obama) as China needed to control inflation (more valuable currency helps that) and would want less of an export economy as US and EU, would eventually go broke and already needed back then loans from China with which to buy Chinese products. (How China amassed about 3 trillion dollars.)
Please Register or Log in to view the hidden image! US railroads are museum pieces.
About twice the total high speed track the rest of the world has. The longer term plan, shown below, has Chinese high speed rail, reaching both Moscow & London!Please Register or Log in to view the hidden image!
Brazil working to become colony of China:
But still the domestic market, while fastest growing is only 1/3 of the Chinese economy and the rich are getting richer faster than the poor (as in USA) so the gap between is increasing even with the above great gains of the poor.
To conquer quickly you need rail lines.
Hell, that bold text is "small potatoes" vs the US´s progress in the last decade, where the richest top 10%´s earning power is up 400%. Please Register or Log in to view the hidden image!
*Billy T has many (more than 60 hits with search on "Bolsa") posts about Bolsa Familia - Here is one from early 2008: http://www.sciforums.com/showthread...amp-comments&p=1969667&viewfull=1#post1969667 Which also tells a pregnant maid (et al with low wages) in Brazil gets 6 months off from work with the government paying her regular salary. (As well as essentially free education thur college and free medical care for all but admittedly in poor areas, like the NE of Brazil especially, both leave a lot to be desired, still, but are improving everywhere too as more funds are made available.)**
Here is one from Nov 2012: http://www.sciforums.com/showthread...ear-old-girl&p=3010048&viewfull=1#post3010048 It tells that after Malala was shot, Pakistan is adopting at least the educational incentives of Brazil´s Bolsa Familia. Many of the world´s poor would be greatly helped by doing the same, and several poor nations are as the costs of Bolsa Familia are nearly recovered immediately (as explained in some of my posts) with huge economic gains in one generations (greater than the US´s WWII GI education bill made as those helped are often even illiterate when first getting the aid!)
**IMHO, the US is far from a civilized country - the worst "advanced country" in the world by the Gini index too, which measure the gap between rich and poor.
Please Register or Log in to view the hidden image! One factory with > half a million Chinese make many J-15s.
Above link also states:
"The Pentagon report said another carrier, one made from components made in China, may already be under construction and ready to sail in 2015.
"China likely will build multiple aircraft carriers and associated support ships over the next decade," the U.S. assessment said."
* With England´s financial troubles, I wonder if they will (or have?) tried to buy all or part of Rolls-Royce airplane engine division, which is the world´s second largest manufacturer of turbofans and is most noted for their RB211 and Trent series, as well as their joint venture engines for the Airbus A320 and McDonnell Douglas MD-90 families. Such an offer might be accepted when England is back in recession.
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