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China & The Usa

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Shanghai stocks are taking a whoopin’. China's exports are down 23% from a year ago. Direct foreign investment in the country decreased by 35.7% over that same timeframe. Much of the downside has been papered over so far in 2009 by massive amounts of government stimulus and government-ordered lending by the banking system. But those sorts of policies are extremely costly and it looks like they may have already seen their peak. To wit: bank lending in China was down 77% from June to July.

And sure, it is -even- easier for Beijing to nationalize banks then it is for the Oval Office. However, those banks have a longstanding reputation for carrying far too many bad loans on their books, and very few people outside of the Forbidden City would believe that the giant lending wave of the first half of this year was based on substantially sounder principles. In fact, it's far more likely that the 77% decline is due to the highest leaders ordering a halt to -much- more of the same.

The question is justified, therefore, where China can go from here. It needs an estimated 8% growth rate in its GDP just to prevent unemployment from rising. Beijing keeps proudly announcing just such a number, which seems implausible in the face of plummeting exports But even if it is just a little bit true, it can only be for the same reason the US has managed to keep its GDP from tumbling double-digit wise.

That is, by assuming debt. By pumping money, one way or another, into companies that would otherwise fail. By creating and maintaining jobs that provide no realistic contributions to the economy. China has done it for half a year. Now the lending frenzy has been stopped short. So once more, the question is: where can China go from here?

In the end and down the line, Beijing's and Washington's policies are based on the same underlying assumptions, the same hopes and the same faith. The return of growth and the resumption of trade. And both face the same dire consequences if growth and trade don't make a come-back, soon. Like all the other countries, just about every single one, that refuse to prepare for the possibility that trade and growth won't be back, at least for a long time.

And that is not just some remote possibility. no matter how desperate the denials are. These days, all of a sudden, people all over are waking up to the option of deflation. Many don't yet seem to understand what it is, or what it will mean once it grabs a hold of an economy, as evidenced by a Bloomberg pundit, among others, singing the praises of deflation.

For them, it means prices will come down, and that seems a good thing. What they don't see is that what deflation really means is they won't have a penny left in their pockets to buy any of the cheaper goods. Over the past 20 months or so we've had a first glance at the effects of contracting credit, and the job losses and foreclosures it has caused. Deflation will be just like that, only many times faster and stronger, a credit crunch on crack.

Though they're generally not recognized as such, and denied where they are, the first steps of deflation are very much already here, the signs are everywhere. And there's no reason to presume that it will be gentler on China than it will be on the US or any

http://theautomaticearth.blogspot.com/

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I've been arguing deflation the whole way.. and each month we move further into deflation. All the printing money and lowering interest rates has done has slow down the move into deflation, and prevent systemic collapse of the monetary system.

As this author said the bailing out of failing firms is a perfect example of a deflationary policy. As demand shrinks the failing companies are using the bailout money to discount their products. Which will eventually make all the companies in their industry go bankrupt. It creates the need for ever larger bailouts, and each bailout is used mainly to discount product. So falling prices.

Of course this is only one factor in the hand of the deflation. Massive industrial automation, outsourcing to the lowest cost production area, automating white colar functions with IT.... it has to lead to deflation at some point. Unless the authorities are willing to print and spread out money faster than the process is happening. Which they have shown they are not willing to do.

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Unless the authorities are willing to print and spread out money faster than the process is happening. Which they have shown they are not willing to do.

How do you come to that conclusion? They seem to be trying their hardest.

The jury's still out IMO.

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Doublethink people.

The political elites are highly trained in this. It's infecting society everywhere.

Clearly you have not been educated enough.

Noting is adding up, global trade collapsing yet China keeps getting the GDP figure it needs to stay stationary and prevent unemployment. And yet you keep reading stories about people leaving the cities back to rural areas as there are no jobs and factories are shutting.

Clearly something doesn't add up unless you accept doublethink.

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Doublethink people.

The political elites are highly trained in this. It's infecting society everywhere.

Clearly you have not been educated enough.

Noting is adding up, global trade collapsing yet China keeps getting the GDP figure it needs to stay stationary and prevent unemployment. And yet you keep reading stories about people leaving the cities back to rural areas as there are no jobs and factories are shutting.

Clearly something doesn't add up unless you accept doublethink.

If you haven't seen this it's worth a watch, refreshingly honest in a world of illusions. I like his conlusion.

http://www.creditwritedowns.com/2009/07/hu...no-clothes.html

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If you haven't seen this it's worth a watch, refreshingly honest in a world of illusions. I like his conlusion.

http://www.creditwritedowns.com/2009/07/hu...no-clothes.html

Thanks, Williamdb. Unfortunately, I couldn't get the embedded video to work, so I've included the link to the video on youtube. It certainly puts the "impressive" Chinese economic performance in perspective!

http://www.youtube.com/watch?v=ektMQGbW3wk

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Another thing I noticed in the Hugh Hendry video. I don't know what Chinese city he was in, but Hendry said there was no evidence in the locality of a manufacturing base. So empty skyscrapers, bust builders and no manufacturing. Sounds suspiciously like closer to home.

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Thanks, Williamdb. Unfortunately, I couldn't get the embedded video to work, so I've included the link to the video on youtube. It certainly puts the "impressive" Chinese economic performance in perspective!

http://www.youtube.com/watch?v=ektMQGbW3wk

I didn't check the link after posting, thanks for posting a working one. I thought his remark about manufacturing was strange too. It feels like the whole Chinese economy is sitting on a bubble of hot money right now. How long can they keep it up?

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I didn't check the link after posting, thanks for posting a working one. I thought his remark about manufacturing was strange too. It feels like the whole Chinese economy is sitting on a bubble of hot money right now. How long can they keep it up?

For as long as they can keep lending it to America to buy their own (Chinese) goods? :blink:

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