Archive | April, 2010

China Crisis ‘A Lot Worse Than People Expect’

6 Apr

Robert J. Brenner, economic historian and professor of history at the University of California, offers a grim forecast of the future for China in a series titled, “Overproduction Not Financial Collapse Is The Heart Of The Crisis: The US, East Asia, and the World”:

I think the Chinese crisis is going to be a lot worse than people expect, and this is for two main reasons. The first is that the American crisis, and the global crisis more generally, is much more serious than people expected, and in the last analysis, the fate of the Chinese economy is inextricably dependent on the fate of the U.S. economy, the global economy. This is not only because China has depended to such a great extent on exports to the U.S. market. It is also because most of the rest of the world is also so dependent on the U.S., and that especially includes Europe. If I’m not mistaken, Europe recently became China’s biggest export market. But, as the crisis originating in the U.S. brings down Europe, Europe’s market for Chinese goods will also contract. So the situation for China is much worse than what people expected, because the economic crisis is much worse than people expected. Secondly, in people’s enthusiasm for what has been China’s truly spectacular economic growth, they have ignored the role of bubbles in driving the Chinese economy. China has grown, basically by way of exports and, particularly, a growing trade surplus with the U.S. Because of this surplus, the Chinese government has had to take political steps to keep the Chinese currency down and Chinese manufacturing competitive.

Specifically, it has bought up U.S. dollar-denominated assets on a titanic scale by printing titanic amounts of the renminbi, the Chinese currency. But the result has been to inject huge amounts of money into the Chinese economy, making for ever easier credit over a long period. On the one hand, enterprises and local governments have used this easy credit to finance massive investment. But this has made for ever greater overcapacity. On the other hand, they have used the easy credit to buy land, houses, shares, and other sorts of financial assets. But this has made for massive asset price bubbles, which have played a part, as in the U.S., in allowing for more borrowing and spending. As the Chinese bubbles bust, the depth of the overcapacity will be made clear. As the Chinese bubbles bust, you will also have, as across much of the rest of the world, a huge hit to consumer demand and disruptive financial crisis So, the bottom line is that the Chinese crisis is very serious, and could make the global crisis much more severe.

Tags: , , , , , , , , , , , ,

‘Boycott Australian Iron Ore’ – China

6 Apr

From The Australian:

A Chinese industrial group has urged domestic steel companies to stop buying iron ore from the world’s top three miners, including Australia’s Rio Tinto and BHP Billiton, in protest of an alleged price monopoly, state media says.

The China Iron and Steel Association has asked domestic steel firms and traders not to import iron ore from Rio Tinto, BHP Billiton and Brazil’s Vale for two months, the China Net, a government news website said.

The association called for the boycott on April 2 as the most effective means to fight the “monopolistic behaviour” of the three iron ore giants, the report said.

The Rudd Government, economically-led by (unelected) Treasury secretary Ken Henry, are banking on another China-fueled mining boom to bring the budget back to surplus.  In fact, Ken Henry has predicted a “period of unprecedented prosperity”, possibly stretching to 2050, thanks to his belief in a continuous 4-decade China Miracle.

Many leading economists believe that China is in a massive bubble. Some believe it will burst within ten years… others believe by 2012.

Whoever is right, this latest event makes it clear that China is flexing its economic muscles.  Barnaby Joyce’s warnings about changes to the Foreign Investment rules by Rudd Labor only appear more prescient in light of these developments.

Tags: , , , , , ,

PIMCO Fears UK ‘Debt Trap’

2 Apr

From the UK’s Telegraph:

The US bond fund PIMCO has warned that Britain risks a vicious circle of rising debt costs as global investors demand a penalty fee on gilts to protect against inflation.

Bill Gross, the fund’s chief and emminence grise of bond vigilantes, said the UK was on its list of “must avoid” countries along with Greece and others in eurozone’s Club Med.

The flood of British debt is likely to “lead to inflationary conditions and a depreciating currency”, lowering the return on bonds. “If that view becomes consensus, then at some point the UK may fail to attain escape velocity from its debt trap,” he wrote in his April monthly note.

Mr Gross said the UK is not yet in crisis but gilts are sitting on a “bed of nitroglycerine” and must be handled delicately.

Michael Saunders from Citigroup said the UK has “no credible medium-term path back to fiscal sustainability”.

UPDATE:

From Reuters –

PIMCO Sees UK Downgrade

PIMCO sees Europe’s action on Greece as ineffective in fixing the country’s problems, while Britain’s sovereign debt rating could be downgraded within a year, a top executive of the world’s largest bond fund said.

Scott Mather, head of global portfolio management at Pacific Investment Management Co (PIMCO), told a briefing in Taipei on Thursday that the company was underweighting UK, U.S. and pan-European 10-year sovereign bonds.

“Miracles are needed in the next six months in order to keep economic growth in the developed world,” Mather said.

Last month, PIMCO said it was maintaining its negative stance on British gilts because the amount of debt the country would have to issue in the future should lead to inflation and a depreciating currency.

The country’s record-high debt has caused disquiet among investors, and Standard & Poor’s has put the country’s top-notch triple-A rating on a negative watch.

Tags: , , , , , , , , ,

Default Possible On ‘Stunningly Small’ Debts

1 Apr

Recently Professor Ken Rogoff, former chief economist for the IMF, warned that ballooning debts could cause “a bunch of sovereign defaults”.

He has also warned that China is in a bubble that will burst within 10 years, sparking a regional crisis.

In 2008 he correctly forewarned of the possibility of large bank failures in the USA.

Now his latest research offers very important insights for all Australians who believe the Rudd Labor “spin”, that our national debts are very low, and no cause for concern.

From the New York Times:

Professor Rogoff, who has spent most of his career studying global debt crises, has combed through several centuries’ worth of records with a fellow economist, Carmen M. Reinhart of the University of Maryland, looking for signs that a country was about to default.

One finding was that countries “can default on stunningly small amounts of debt,” he said, perhaps just one-fourth of what stopped Greece in its tracks. “The fact that the states’ debts aren’t as big as Greece’s doesn’t mean it can’t happen.”

Also, officials and their lenders often refused to admit they had a debt problem until too late.

“When an accident is waiting to happen, it eventually does,” the two economists wrote in their book, titled “This Time Is Different” — the words often on the lips of policy makers just before a debt bomb exploded.

Barnaby Joyce has been ridiculed up hill and down dale since late 2009, for daring to raise questions about the unbelievably huge US debt (see chart here), and Australia’s own ever-growing national debts.

Professor Rogoff’s research shows that even a debt that is only one-fourth of Greece’s can be enough to cause a sovereign default.

In December, Greece’s debt was $482bn.

Australia’s public debt is $131.682bn.  And growing at around $2bn per fortnight.

Barnaby is right.

Tags: , , , , , , ,

Barnaby Attacks Journalists

1 Apr

From The Australian:

Barnaby Joyce has lambasted the Canberra press gallery for attacks on his use of language, accusing journalists of unfairness and exhibiting double standards.

The Queensland senator yesterday accused journalists of speaking a language that he dubbed “lingua Canberra” and of marginalising him for spurning their tongue and communicating as an average person.

He also compared Parliament House to a boarding school inhabited by people whose idea of what was important had virtually no relevance to the community.

“I’m not painted in the colours that they like,” Senator Joyce told The Australian yesterday.

On Tuesday, the Queenslander sparked more outrage by joking that, while many farmers read reports of the Productivity Commission, he used them when he ran out of toilet paper.

After a torrid ABC radio interview on the toilet paper comment yesterday morning, Senator Joyce told The Australian he was frustrated that journalists who often complained about “cardboard cut-out pollies” who would not answer questions felt free to attack him for answering their questions in terms “people on the street” could understand.

“Apparently that is more contemptible than giving the cardboard cut-out answer,” he said.

Journalists seemed to ignore anything of substance that he said in their pursuit of short quips or colourful phrases to blow out of proportion. “They want to make the minutiae of one statement the generality of who I am,” he said. “That’s life, I realise that.

Senator Joyce said that, although Kevin Rudd had mastered the art of talking without saying anything, he would never embrace a similar style and would remain authentic.

Barnaby has also spoken out in his usual frank and colourful fashion today, on reports that Opposition Leader Tony Abbott will be receiving acting lessons to help tone down a supposedly ‘too aggressive” image:

“The thing people like about Tony is the real deal,” he told Sky News.

“People on the street want reality but they don’t want pretend.

“They will smell it like dog poo on the shoes if they think it’s not the real deal.”

Barnaby is right.

Tags: , , , , , , , , , ,

Newer Entries →

Design a site like this with WordPress.com
Get started