Yes Virginia...It's a Bubble...

[Milton Kuo]

Re: Yes Virginia...It's a Bubble...

if you've got no medical insurance, no retirement plan and only [on average] a quarter of a descendant per person, you'd better have a high savings rate.

Chinese behavior is very different from American behavior, even here in the U.S. I have never forgotten what I was warned as a child: Americans earn a dollar and spend a dollar (Americans seemed to earn a dollar and spend two dollars during the last two asset bubbles); Chinese people (referring to U.S. citizens of Chinese descent) earn a dollar and spend seventy-five cents. And despite the lesser spending, there is a reasonable amount of consumption; it is not as if every Chinese person in the U.S. is a variant of Ebenezer Scrooge.

The extra twenty-five cents (or more) that Americans spend is for things that I do not believe really help a productive economy: silly services (gym memberships that are never used, cable television, expensive phone plans, etc.), accumulation of goods to keep up with the Joneses, and interest on loans.

Medical care in China is also inexpensive so massive quantities of savings are not required except for serious illnesses such as cancer where treatments can run in to the millions of dollars. If the Chinese government cared about making those expensive treatments available to its citizens, it could always choose to violate IP laws and manufacture and sell the drugs at a nominal cost. Furthermore, traditional Chinese medicine is still in practice in China and some of it works while being inexpensive. This is an option that most Americans and Westerners do not consider. China's savings rate is not something that I believe would be destructive to GDP growth

If China can get out of the being the low cost manufacturer of junk (again, very tall order) and make decent inroads into moving up the value chain, resulting higher wages should juice GDP as Chinese will willingly spend more for certain things. GDP can further be boosted IF China is able to reduce the rampant corruption in its government and society. No, I'm not holding my breath.

My tack is that Shilling seems to have some sort of numerical limit for deciding that China's GDP has hit a plateau as Japan's did. However, Japan really didn't have anywhere else to go having reached the top tier of development. I remember reading an article some years ago of how what a nation exports is indicative of its economic development. At the highest level is culture, which Japan has done a reasonably good job of exporting. China really has not exported culture and they're not even on the second highest tier of economic development. I'm saying that numbers aside, there are qualitative things China can do to wring quite a bit more out of their GDP growth story. Whether they will attempt those things or succeed is a different story.

It's not guaranteed by a long shot that China's GDP growth flatlines as Japan's has for the past twenty years.

[jk]

Re: Yes Virginia...It's a Bubble...

there's a limit to how many cement factories and steel plants they want to build [already much more than they need] and the number of ghost cities [same]. aside from these capital "investments" they need to be able to export production if they're not consuming much themselves.

of course they'd like to consume more and better food, but their very low and very polluted water supply limits domestic production, so they're stuck importing agricultural products. [these products are notably indirectly imports of the fresh water it took to grow them.]

i think the current limitation on chinese growth is that their export markets are moribund. china can't keep growing as rapidly as it was unless it quickly ramps up domestic consumption, which isn't happening, or they have healthy export markets, which they don't.

[Southernguy]

Re: Yes Virginia...It's a Bubble...

Peter Coy petercoy
Reprints



June 15, 2016 — 5:00 AM UYT

Share on FacebookShare on Twitter
Share on LinkedInShare on RedditShare on Google+E-mail






Despite a crying need for better infrastructure, investment in it has fallen in 10 major economies, including the U.S., since the financial crisis, according to a new study by the McKinsey Global Institute. Meanwhile, China is still going gangbusters on roads, bridges, sewers, and everything else that makes a country run.

"China spends more on economic infrastructure annually than North America and Western Europe combined," according to the report published on Wednesday.

Economists around the world have been arguing that now is a great time to invest in infrastructure because interest rates are super-low and the global economy could use the spending jolt. "Is anyone proud of Kennedy airport?" Harvard University economist Lawrence Summers likes to ask.
The MGI report cites 10 countries in which infrastructure spending fell as a share of gross domestic product from 2008 to 2013: the U.S., U.K., Italy, Australia, South Korea, Brazil, India, Russia, Mexico, and Saudi Arabia. (The study counts 11 economies, but that's because it lists the European Union as a separate entity.) In contrast to the widespread declines, the institute says, infrastructure spending grew as a share of GDP in Japan, Germany, France, Canada, Turkey, South Africa, and China.
The chart below from the MGI report shows China's strength in infrastructure spending. Its bar is the highest. The colored slices represent different kinds of infrastructure, while the width of the bars signifies the size of the economy. The U.S. bar is wide and short because it represents a big economy with low spending.

Nonetheless, there's such a thing as too much infrastructure spending. At current rates of investment, China, Japan, and Australia are likely to exceed their needs between now and 2030, the McKinsey & Company-affiliated think tank says.
To fund more public infrastructure, the report favors raising user charges such as highway tolls, among other measures. To encourage more private investment in infrastructure, MGI argues for increasing "regulatory certainty" and giving investors "the ability to charge prices that produce an acceptable risk-adjusted return."

[GRG55]

Re: Yes Virginia...It's a Bubble...

Peter Coy petercoy
Reprints



June 15, 2016 — 5:00 AM UYT

Share on FacebookShare on Twitter
Share on LinkedInShare on RedditShare on Google+E-mail






Despite a crying need for better infrastructure, investment in it has fallen in 10 major economies, including the U.S., since the financial crisis, according to a new study by the McKinsey Global Institute. Meanwhile, China is still going gangbusters on roads, bridges, sewers, and everything else that makes a country run.

"China spends more on economic infrastructure annually than North America and Western Europe combined," according to the report published on Wednesday.

Economists around the world have been arguing that now is a great time to invest in infrastructure because interest rates are super-low and the global economy could use the spending jolt. "Is anyone proud of Kennedy airport?" Harvard University economist Lawrence Summers likes to ask.
The MGI report cites 10 countries in which infrastructure spending fell as a share of gross domestic product from 2008 to 2013: the U.S., U.K., Italy, Australia, South Korea, Brazil, India, Russia, Mexico, and Saudi Arabia. (The study counts 11 economies, but that's because it lists the European Union as a separate entity.) In contrast to the widespread declines, the institute says, infrastructure spending grew as a share of GDP in Japan, Germany, France, Canada, Turkey, South Africa, and China.
The chart below from the MGI report shows China's strength in infrastructure spending. Its bar is the highest. The colored slices represent different kinds of infrastructure, while the width of the bars signifies the size of the economy. The U.S. bar is wide and short because it represents a big economy with low spending.

Nonetheless, there's such a thing as too much infrastructure spending. At current rates of investment, China, Japan, and Australia are likely to exceed their needs between now and 2030, the McKinsey & Company-affiliated think tank says.
To fund more public infrastructure, the report favors raising user charges such as highway tolls, among other measures. To encourage more private investment in infrastructure, MGI argues for increasing "regulatory certainty" and giving investors "the ability to charge prices that produce an acceptable risk-adjusted return."

Yes indeed, a sound model to emulate. Bridges to nowhere in Japan, empty cities in China, and waaaaay to much resource extraction railway and port capacity in Australia. And then the nonsense of "free money" interest rates to compound the problem everywhere else - who cares about investing capital with a requirement to earn a return on it when it's free? Every nation globally should float 50 year, 100 year, 1000 year bonds at today's interest rates, build baby build, and let's see what happens. Can't be any worse than Japan or China or the bombed out mining towns in Oz today, can it?

[jk]

Re: Yes Virginia...It's a Bubble...

Yes indeed, a sound model to emulate. Bridges to nowhere in Japan, empty cities in China, and waaaaay to much resource extraction railway and port capacity in Australia. And then the nonsense of "free money" interest rates to compound the problem everywhere else - who cares about investing capital with a requirement to earn a return on it when it's free? Every nation globally should float 50 year, 100 year, 1000 year bonds at today's interest rates, build baby build, and let's see what happens. Can't be any worse than Japan or China or the bombed out mining towns in Oz today, can it?

the u.s. has bridges falling down with people dying in consequence, poor railroad service with relatively slow trains, a creaky electrical grid, 3rd world level airports and some of the slowest internet service in the world. we've got quite a list before we get to the bridges to nowhere [save the one in alaska that someone attempted to ram through congress].


America's Infrastructure Ranks... 25th In The World

The World Economic Forum’s Global Competitiveness Report for 2012-2013 exposes that U.S. infrastructure compares unfavorably with that of most advanced countries and even some developing nations.
The report investigated the quality and availability of roads, railroads, ports, air transport, electricity, and telephones.
In terms of overall infrastructure, the U.S. ranks 25th, behind nations such as Oman and Barbados, and only one spot ahead of Qatar.
America’s position is buoyed by finishing first in one category: the number of available airline seats. In other words, it's easy for Americans to get a plane ticket to wherever they need to go.
Other areas hold the United States’ ranking down. For instance, the quality of air transport infrastructure is ranked 30th in the world, while quality of the electricity supply ranks 33rd. etc.

(slightly dated - 2013)


---------
the american society of civil engineers grades the u.s. infrastructure as a D+. of course they may have some self-interest involved, but i don't think anyone would argue against the proposition that there's a lot of infrastructure work to be done here that would add materially to national productivity, safety and convenience.

[Southernguy]

Re: Yes Virginia...It's a Bubble...

In the end investment in inrastructure is not a credit-monetary matter. You must divest-defer consumption to be able to invest.
Of course the Chinese are investing too much, particularly in infrastructure. The other way round, there is not such thing as economic development without a sound infrastrucure creation policy.

[jk]

Re: Yes Virginia...It's a Bubble...

In the end investment in inrastructure is not a credit-monetary matter. You must divest-defer consumption to be able to invest.

if there are underutilized resources available, such as people looking for work or too discouraged to look for work, underutilized steel capacity, factories running 1 shift instead of 2 or 3, construction equipment sitting unused, and so on, all it takes is printing money to put them all in motion.

[GRG55]

Re: Yes Virginia...It's a Bubble...

In the end investment in inrastructure is not a credit-monetary matter. You must divest-defer consumption to be able to invest.
Of course the Chinese are investing too much, particularly in infrastructure. The other way round, there is not such thing as economic development without a sound infrastrucure creation policy.

More pablum and nonsense from the same cohort that gave us QE, NIRP, ZIRP, Credit Easing, and a rigged bond market. None of that worked to create sustainable economic growth, so why does anybody believe that emulating the "helicopter money" infrastructure overinvestment thesis that failed in Japan, China and Australia (to use the examples from the prior post) will work anywhere else?

Nobody disagrees that society needs public infrastructure, or that the nature of that infrastructure changes with time and technology (fiberoptic replacing copper wires, rapid transit instead of more arterial routes, etc.). But suggesting other nations should match the imprudent capital misallocations of Japan and now China is ridiculous.

[Polish_Silver]

Re: Yes Virginia...It's a Bubble...

That may be the perception, but the data do not support it. Although there has been a measurable increase in the past 35 years, the USA remains one of the absolute least trade (imports + exports) dependent nations on earth. That means a large part of what is consumed in the USA is made in the USA, and a large part of what is made in the USA is consumed in the USA.

I was born and raised in Canada, a country that has a trade dependence at ~60% that is roughly double the USA's trade dependence.

Here's a link to some comparative data that may be of interest in that regard:

http://data.worldbank.org/indicator/NE.TRD.GNFS.ZS

In canada, are many consumer level items manufactured in China? If not, then where do they come from. A friend in Germany told me that
they also get many items from the far east.

[Polish_Silver]

Re: Yes Virginia...It's a Bubble...

More pablum and nonsense from the same cohort that gave us QE, NIRP, ZIRP, Credit Easing, and a rigged bond market. None of that worked to create sustainable economic growth, so why does anybody believe that emulating the "helicopter money" infrastructure overinvestment thesis that failed in Japan, China and Australia (to use the examples from the prior post) will work anywhere else?

Nobody disagrees that society needs public infrastructure, or that the nature of that infrastructure changes with time and technology (fiberoptic replacing copper wires, rapid transit instead of more arterial routes, etc.). But suggesting other nations should match the imprudent capital misallocations of Japan and now China is ridiculous.

What did Japan waste money on ?

[Polish_Silver]

Re: Yes Virginia...It's a Bubble...

china is capable of producing high quality goods, but only when they're forced to. e.g. foxconn's work for apple. they won't develop an internal market until and unless they have a much stronger social safety net, which doesn't appear to be anytime soon. they are getting older faster than they are getting rich, and as the dependency ratio rises they will have big problems.

The Atlantic just had an article on that very question--saying that the days of China's grandiose military and economic expansion are over (if they ever had them). They population is aging so rapidly, it's all they can do to figure out what to do with the elderly, many of whom have no personal savings.

[Polish_Silver]

Trade and inequality

Yes, the export-mercantile strategy . . .

The U.S. economy was able to absorb the output of roughly ~50 million people in Japan, ~10 million people in Taiwan, ~3 million people in Singapore, and ~25 million people in Korea; all the while becoming poorer. .

I don't think it made the US as a whole poorer. What it did was increase inequality.

The people formerly employed making shoes, clothing, furniture, toys, cooking pots, and TVs had to do something else. The imports of goods and people affect certain classes of people more than others. I think there are fewer jobs requiring low levels of skill--the kind of positions that young and disadvantaged people need.

Looking at the electronics industry, employment is still fairly good for people who work on product development (technicians, engineers) , but employment is almost non-existent for manufacturing consumer level electronic items. When I was in Taiwan a flat screen TV factory opened, and had trouble finding workers--a sign that the same thing could be happening to them.

California has far more immigrants than South Carolina. I noticed that, in California, almost all the yard work, and a great deal of the construction and retail work is done by immigrants, of various legal status. In South Carolina, many more natives, including WASPS, work in these kinds of positions.

[jk]

Re: Yes Virginia...It's a Bubble...

More pablum and nonsense from the same cohort that gave us QE, NIRP, ZIRP, Credit Easing, and a rigged bond market. None of that worked to create sustainable economic growth, so why does anybody believe that emulating the "helicopter money" infrastructure overinvestment thesis that failed in Japan, China and Australia (to use the examples from the prior post) will work anywhere else?

Nobody disagrees that society needs public infrastructure, or that the nature of that infrastructure changes with time and technology (fiberoptic replacing copper wires, rapid transit instead of more arterial routes, etc.). But suggesting other nations should match the imprudent capital misallocations of Japan and now China is ridiculous.

i don't think a big infrastructure build in the u.s. would necessarily or even likely be the kind of misallocation done in japan and china. i don't see the u.s. building many bridges to nowhere or ghost cities. u.s. infrastructure sucks, and there's a lot of productivity enhancing work to be done before we have people digging holes so that others can fill them in.

[shiny!]

Re: Yes Virginia...It's a Bubble...

i don't think a big infrastructure build in the u.s. would necessarily or even likely be the kind of misallocation done in japan and china. i don't see the u.s. building many bridges to nowhere or ghost cities. u.s. infrastructure sucks, and there's a lot of productivity enhancing work to be done before we have people digging holes so that others can fill them in.

Our bridges, power grid, water and sewer systems are in dire need of work. Phoenix's power grid, for example, has almost no capacity to handle extra loads in hot summers. If even one transformer tower blows we're in serious trouble.

I'd like to see a major national infrastructure program from the next president, along with a resurrection of the Civilian Conservation Corps to give jobs and structure to the unemployed, at-risk youth of America.

[GRG55]

Re: Yes Virginia...It's a Bubble...

In canada, are many consumer level items manufactured in China? If not, then where do they come from. A friend in Germany told me that
they also get many items from the far east.

We have the usual Chinese stuff in Wal-Mart and a lot of the mass market electronics and small appliances are also Chinese or Korean made (my D-Link router, my laser printer, my iPad, my iPhone, my electric tooth brush, my 3 Samsung computer screens, the VIRZoom bike, and so forth) But if you look closely across the spectrum a very large part of what we consume is made in the USA and Mexico (NAFTA zone). The highest end products if not made in Canada come almost exclusively from the USA or western Europe including all 3 vehicles in our family, my airplane and the new avionics in it, most of the cosmetics and pharma products and most everything that went into making the GRG55 bunker.