2. wanderinman said...

Or that should be ... the link is not working it appears.

4. bellwether said...

We are at in impasse. We cannot recover without a recovery in credit, but credit cannot recover until the losses in the system are taken and until underlying activity is sufficeint to justify a renewed extension of credit.

Globally the debts were utterly excessive even in 2007 when activity was running at full tilt and when everyone believed the myths. Even creditor nations were in a form of debt under the guise of massive overcapcity.

If that was the position then, how from here can we hope to generate the necessary activity to work the debts off. And even if we could operate at these levels how could we keep growing to extend credit. Growth has to be cyclical not constant. There has to be periods of contraction and loss to balance periods of expansion and growth. This is elementary surely but we refuse it. Its like everyone in the world wanting to live forever and not caring about the impossible consequences this would have if possible

6. flashman said...

I'd be more worried if I were a creditor nation. The Chinese have sweated blood to give us luxury goods. Now we can't buy much more until a chunk of debt is paid down. They are nowhere near able to replace western demand…..so, do the Chinese shut down their factories and risk a revolution or do they find a face-saving way of forgiving a chunk of debt?

8. uncle tom said...

Flashman,

Don't underestimate Chinese domestic demand, which is growing rapidly; and don't forget that while western demand for Chinese goods has dropped a little, it has not gone away by any means.

My contacts in China report that most of the factories are pretty busy at the moment. One factory I deal with has told me they can't take any new orders for shipment before the end of the year.

There was a marked lull in orders for Chinese goods, as buyers shrank their inventories, but that looks like it's history now. Air fares to China have rocketed, as have hotel prices when there's a trade fair on. - The buyers are back!

10. flashman said...

uncle tom: I’d be a bit nervous of a Chinese pick up. Much of the surge in activity was stimulus/re-stocking based and is already tailing off. It's a bit of a myth that the Chinese can replace a healthy chunk of Western demand. In any case, western demand is set to reduce further when currencies are rebalanced and western domestic production picks up. Additionally, western austerity measures are yet to take a bite out of consumption. Some Chinese industries are doing fine (like you say), whilst others are mothballed. The only measure worth looking at is electricity consumption because Chinese govt stats cannot be trusted

12. bellwether said...

UT I know you are bullish on China and as your comments are usually spot on I'm reluctant to say that I don't agree on this. Will look out a graph I saw recently which showed chinese industrial output M3 and stock market over the past 5 years. Output has fallen hard since 2007 and the fiscal stimlus appeared to have almost no impact on the fall, post stimlus however m3 and equities skyrocketed. I think there are structural and for now unresolvable reasons for this and in my view Flash deals with some these.

14. mountain goat said...

I found these two recent reports changed my mind about the "Chinese Economic Miracle"

Copper, nickel and other base metals stockpiled by speculative Chinese investors including pig farmers - Bloomberg

building after building – all of them massive and all of them empty. - Hendry

16. uncle tom said...

MG,

The Americans are less than gracious when it comes to acknowledging the growth of China's economy. Indeed, they have always treated China like a third class nation.

There seems to be a feeling among American economists that if the US catches a cold, China ought to get pneumonia; and there's been a lot of reportage that attempts to prove the theory.

China's economy has grown with stupendous speed, and that has caused some inevitable growing pains. However, it will not be that long before China is the world's dominant economy, the global #1.

Unsurprisingly, the Yanks don't relish the prospect..

18. mountain goat said...

@UT - There certainly is a vitality to Chinese industry that the West has lost. But aren't you suspicious of the level of state control, whether it be national, provincial or city? We all know how corrupt, rigid and ineffective state controlled organisations become. As you probably know the stimulus package of the Chinese government dwarfs anything done anywhere else, when seen as a percentage of GDP. But how long can that continue? The wealth made from the West's over-indulgence (which is now over) will be squandered on 5-year plans to build highways to no where and empty sky-scrapers. There is restricted flow of information in China and, although this may be changing rapidly, Chinese have had a unhealthy culture of fear, distrust, obedience and deference to authority even to the point of bending the truth or doing things as told rather than what they know to be right. These suggest to me that China is not ready to take over as the super-power economy for some time to come.

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