[Peace-discuss] Economic crisis and China

Mon May 11 13:01:32 CDT 2009

 Roubini's analysis about China, as well as that of Brad Setser from CFR is instructive on this point.  I don't think that China is doing nearly as well as people may think.

 -------------- Original message from "LAURIE SOLOMON" <LAURIE at ADVANCENET.NET>: --------------

> China has been hurt actually quite badly by thecrisis. 

That is not what I have heard.  According to the reportsthat I have come across, China has been seeing a growth in their economy duringthe crises coming mostly from domestic consumption, which has taken up much ofthe slack in exports and then some.  As to the near future if the globaleconomic crises persist, that is a new and different question.  It may be thatthis growth may stall in the near future and the recent growth may be a “deadcat” bounce.

From:peace-discuss-bounces at lists.chambana.net[mailto:peace-discuss-bounces at lists.chambana.net] On Behalf Of n.dahlheim at mchsi.com
Sent: Monday, May 11, 2009 11:00 AM
To: unionyes
Cc: Peace-discuss at anti-war.net
Subject: [Norton AntiSpam] Re: [Peace-discuss] Economic crisis and China

China has been hurt actuallyquite badly by the crisis.  It's economic model had been totally dependentupon export-led manufacturing growth, and its economy is not structured tofavor a large enough or fast enough increase in domestic consumpion to offsetthe falling demand in the rest of the global economy.  Furthermore, theloss of tens of millions of manufacturing jobs in the  last two quartersin China has left a flood of unemployed people concentrated in thecities---something that greatly worries the government in Beijing.  Also,the unemployed factory workers no longer have the money to pay remittances totheir villages and farmer families residing in the rural areas---this willgreatly exacerbate rural poverty and the growing inequality and tension betweencity and country that has been growing throughout the last decade in China.

Do I think China is well-positioned in the long-run to do OK from aconventional economics perspective? Yes.  Do I think their long-termposition is better than that of the United States?  Yes.  But, theirshort-term position is definitely worse vis-a-vis the United States.

-------------- Original message from "unionyes"<unionyes at ameritech.net>: -------------- 

I alsodisagree with the articles over emphasis on stock market performance, aswell as the over emphasis on hyper inflation.

I alsodisagrre with the analysis of the stimulus. The problem with the stimulus isnot the size, it should be TEN TIMES as large, BUT the poblem is that it hasnot been used strategicly. IE. the money has been " Thrown down abottomless rat hole" . The bank's depositers and pension funds shouldhave been protected, but the rest should have been allowed to fail !

HOWEVER, Ialso disagree with your analysis. What you state has traditionally been thecase, but the times are a changing.

China hashardly been effected by the recent downturn and Brazil ( as well as themajority of the South American Economies ) have been slowly but systematicallyfocusing more of their trade amongst themselves, ie. regional independence fromthe U.S. in particular and the world markets in general.

What I seehappening soon, that will cause major shifts in past assumptions and fallbacks, will be a re-negotiation of the 60 - year old Bretton Woods agreement,which will end the role of the U.S. dollar as the world reserve currency, andreplace it with a new international currency based on a " basket " ofthe current major currencies ( U.S. Dollar, Chineese YUAN, The Euro, BritishPound, Swiss  Franc, etc. ).

When thathappens, here in the U.S., our standard of living is going to have a downwardpush. 

It won't bepretty !

Major economic suffering, and subsequentsocial / political turmoil.

Unlike theFrench, who will fight back at the slightest assualt on their standard ofliving, Ameican's typically will accept and endure and ignore until their backsare pushed so far to the wall that they will explode into an uncontrollablerage.

This will bevery bad news for the ruling class and the phoney Obama, but unfortunatelythere will be a great danger that instead of a populist revolution, there willbe a fascist / racist assualt that will be very ugly and harmful for allof us.

David Johnson

-----Original Message ----- 

From: n.dahlheim at mchsi.com 

To: E. Wayne Johnson 

Cc: Peace-discuss at anti-war.net

Sent: Sunday, May 10, 20097:36 PM

Subject: Re: [Peace-discuss]Don’t Be Fooled by Inflation

Schiff is largely correct, but his analysis fails to capture the politicaldynamic of the current financial crisis---and why I don't see hyperinflation asa near-term risk much less even significant inflation such like that seen in the1970s.  The reason: the world will invest in US T-bills for the forseeablefuture.  Why?  As Niall Ferguson notes, the US, as badly as thisdepression has hammered its economy, is hurt far less when compared to the EUnations (especially those in Central and Eastern Europe), China, Russia, Japan,and Taiwan.  Other emerging market countries such as Brazil will alsobegin to feel the effects of the crisis very acutely because of the heavilyexport-driven economic model that drives their economy.  The US is alsomore politically stable than these other economies, so it is likely that the USwill be looked to for the political solution to the current economicdownturn.  Therefore, expect continued investments in US debt because ofthe political dynamics alive and well in the world economy today.

Best,
Nick
-------------- Original message from "E. WayneJohnson" <ewj at pigs.ag>: -------------- 

Peter Schiff is one of the Austrian school (which is not the "ChicagoSchool") economists who predicted this current economic collapse.

He writes for lewrockwell.com today:

Don’t Be Fooled by Inflation
by Peter Schiff

Strike up the band, boys, happy days are here again! Recently releasedshort-term economic data, including unemployment claims, non-farm payrolls, homesales, and business spending, which had been so unambiguously horrific inFebruary and March, are now just garden-variety awful. With the Wicked Witch ofDepression now apparently crushed under the house of Obamanomics, the Munchkinsof Wall Street have sounded the all clear, pushing the Dow Jones up 25% fromits lows. But the premature conclusion of their Lollipop Guild economists, thatthe crash of 2008/2009 is now a fading memory, is just as delusional as theirfailure to see it coming in the first place.
Once again, the facts do not support the euphoria. Over the past few months,the government has literally blasted the economy with trillions of new dollarsconjured from the ether. The fact that this “stimulus” has blown some air backinto our deflating consumer-based bubble economy, and given a boost to anoversold stock market, is hardly evidence that the problems have been solved.It is simply an illusion, and not a very good one at that. By throwing money atthe problem, all the government is creating is inflation. Although this canoften look like growth, it is no more capable of creating wealth than a hall ofmirrors is capable of creating people.
We are currently suffering from an overdose of past stimulus. A larger dosenow will only worsen the condition. The Greenspan/Bush stimulus of 2001prevented a much-needed recession and bought us seven years of artificialgrowth. The multi-trillion dollar tab for that episode of federally-engineeredeconomic bullet-dodging came due in 2008. The 2001 stimulus had kicked off adebt-fueled consumption binge that resulted in economic weakness, not strength.So now, even though the recent stimulus administered a much larger dose, wewill likely experience a much smaller bounce. One can only speculate as to howmuch time this stimulus will buy and what it will cost when the bill arrives.
My guess is that, at most, the Bernanke/Obama stimulus will buy two yearsbefore the hangover sets in. However, since this dose is so massive, thecomedown will be equally horrific. My fear is that when the drug wears off, wewill reach for that monetary syringe one last time. At that point, the dosagemay be lethal, and the economy will die of hyperinflation.
As always, the bulls fail to understand that investors can lose wealth evenas nominal stock prices rise. As a corollary, the bearish case is notdiscredited by rising stock prices. While there are some bears that mistakenlycling to the idea that deflation will cause the dollar to rise, those of us inthe inflation camp understand that the opposite will occur.
In the meantime, stocks are not rising because the long-term fundamentals ofour economy are improving. If anything, the rise in global stock prices is dueto investors realizing that cash is even riskier then stocks. The massiveinflation that is the source of the stimulus is essentially punishment forthose holding cash. To preserve purchasing power, investors must seekalternative stores of value, such as common stock.
It is important to point out that despite an impressive rally, U.S. stockshave substantially underperformed foreign stocks. In the past two months, whilethe Dow Jones has risen 30%, the Hang Seng and the German DAX have risen byover 50% in U.S. dollars. Commodity prices are also rising, with oil hitting afive-month high. And gold is shining as well, with the HUI index of gold stocksup 30% during the past two months, and 2/3 of those gains occurring in the pastmonth. If this rally really were about improving economic fundamentals, gold stockswould not be among the leaders. Further, during those two months, the U.S.dollar index fell by 7%, with commodity-sensitive currencies such as theAustralian and New Zealand dollars surging 20%.
To me, the relative strength of foreign stocks and currencies indicates thatperhaps the global economy is not as impaired as many have feared. It has beenmy view all along that after the initial shock wears off, the world will bebetter off – once it no longer subsidizes the American economy. The shrinking U.S.current account deficit is evidence of this trend in action. Renewed strengthin foreign stocks and weakness in the dollar may indicate that not only is theworld decoupling from the U.S., but benefitting as a result.
So let the Munchkins dance for now. But remember, the Witch is not dead;only temporarily stunned by an avalanche of fake money.
May 10, 2009

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