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

[Woodsman]

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

The issue is fairly easy to assess. I think Eisenhower was the first to warn about this.

Ike gave a tepid warning, yes, but took pains not to seem too alarmed lest the bags of cash and sweetheart land deals stop and threaten his time on the links.

Akin to, and largely responsible for the sweeping changes in our industrial-military posture, has been the technological revolution during recent decades.

In this revolution, research has become central; it also becomes more formalized, complex, and costly. A steadily increasing share is conducted for, by, or at the direction of, the Federal government.

Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers.

The prospect of domination of the nation's scholars by Federal employment, project allocations, and the power of money is ever present and is gravely to be regarded. Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific technological elite.

[lektrode]

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

...we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific technological elite.

could become?
this quote must be from the pre-facebook era
(seems downright hilarious, now - how 'the left' got all up in arms about the patriot act?)

[GRG55]

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

Are Chinese authorities finally about to end "the dilemma"? Will they stay the course and replace ballooning off-balance-sheet debt with structured municipal bonds? Or will they once again get cold feet in the face of a potential drop in property markets and reverse course "temporarily"? Only time will tell.

China Tightening Curbs on Opaque Local Debt Spurs Market Tumble

Dec 9, 2014 6:46 AM MT

Bloomberg News


China stepped up efforts to curb the expansion of opaque local-government debt, sparking a tumble in riskier bonds and fueling the stock market’s biggest retreat in five years...

Rinse and repeat. Rinse and repeat. These things seem to go on forever.

http://www.telegraph.co.uk/business/...debt-hits-lim/

[Southernguy]

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

"Yet this year the China bears may get their revenge, if they have any money left to play with."
LOL

[GRG55]

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

IMF Urges China to Tackle ‘High’ Corporate Debt Immediately

June 10, 2016 — 8:00 PM MDT

The International Monetary Fund’s No. 2 official urged China to take immediate steps to tackle rising corporate debt or risk “dangerous detours” during the country’s transition to a consumption-oriented economy.

“Corporate debt remains a serious -- and growing -- problem that must be addressed immediately and with a commitment to serious reforms,” David Lipton, the IMF’s first deputy managing director, said in a speech to an economics conference on Saturday in Shenzhen, China.

The comments build on other recent warnings from the global crisis lender about China’s debt, including an estimate of a possible $1.3 trillion in loans extended to borrowers that don’t have sufficient income to cover interest payments. China has accumulated debt faster than any Group of 20 nation over the past decade, climbing to 247 percent of gross domestic product, according to Tom Orlik, an economist for Bloomberg Intelligence...

[jk]

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

just read a piece by gary shilling saying that china climbed the developmental S curve and has come to the end of its period of rapid development - i.e. it's nearing a plateau for gdp/capita. meanwhile the whole commodities bubble was predicated on endless high consumption of commodities by china for capital investment - now it's over. all the manufacturing outsourcing and globalization that could be done has been done. the chinese miracle of accelerated growth in the 1990's-2000's will go the way of the japanese miracle of the 1950's-1980's.

The next chart indicates the average growth rates of real GDP during those same periods.

[GRG55]

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

just read a piece by gary shilling saying that china climbed the developmental S curve and has come to the end of its period of rapid development - i.e. it's nearing a plateau for gdp/capita. meanwhile the whole commodities bubble was predicated on endless high consumption of commodities by china for capital investment - now it's over. all the manufacturing outsourcing and globalization that could be done has been done. the chinese miracle of accelerated growth in the 1990's-2000's will go the way of the japanese miracle of the 1950's-1980's....

China appears to have done the same thing the Japanese did using much the same techniques (export mercantilism and enormous credit) in "one-half" the time.

Between these two Asian "economic miracles" was sandwiched South Korea. I wonder why we do not hear about similar growth and debt issues in that economy? What did/are they doing differently from their two Asian peers?

[jk]

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

China appears to have done the same thing the Japanese did using much the same techniques (export mercantilism and enormous credit) in "one-half" the time.

Between these two Asian "economic miracles" was sandwiched South Korea. I wonder why we do not hear about similar growth and debt issues in that economy? What did/are they doing differently from their two Asian peers?

first i thought demographics, but that's not so good. they got a lot richer than china has, but then again never quite as rich as japan. the only other thought i have is that no one ever said south korea was going to take over the world. maybe they were protected from themselves by virtue of being a smaller economy than either japan or china. and they didn't buy either rockefeller center or the waldorf astoria.

[Milton Kuo]

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

first i thought demographics, but that's not so good. they got a lot richer than china has, but then again never quite as rich as japan. the only other thought i have is that no one ever said south korea was going to take over the world. maybe they were protected from themselves by virtue of being a smaller economy than either japan or china. and they didn't buy either rockefeller center or the waldorf astoria.

Yes, the export-mercantile strategy of getting rich off the U.S. was, I believe, "invented" by Japan. As Japan was successful, other countries copied its blueprint: Taiwan, Korea, and Singapore. All of those countries are now relatively wealthy, too, and you won't find nearly as many foreign students at U.S. universities from those countries as you did a few decades ago.

Also, for whatever reason, the quality of Korean manufactured good have not reached the heights that the Japanese products did. They are trying, though, and Korea even has the same corporate landscape as Japan: chaebol = zaibatsu. The chaebol dominate Korean business. Not surprising, I guess, considering the cultural similarity between Koreans and Japanese.

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. Then China joins the party with approximately 600 million workers with the U.S. deeply in hock and American consumers spent out and blown out by the dot-com bubble and housing bubble. I think the U.S. is going to have a problem sustainably absorbing that output long enough for China to become as wealthy as Korea or Taiwan.

But this is also where I disagree with Shilling. China is still an exporter of junk whereas Japan, Korea, and Taiwan eventually got to a point where the quality of the exported product ranged from excellent (Japan) to pretty good (Korea) to acceptable (Taiwan). If China can actually adapt its economy into producer higher value goods with much better quality--a tall order for any Communist society--they're still going to have substantial GDP growth. Not as much as the past two decades, though, from a percentage perspective because they had nowhere to go up but back then other than descend into utter barbarism.

But China now has all the means of production in the country and, if they do things correctly (let's not hold our breaths), they have the infrastructure and capital to grow their economy tremendously. What's missing from China that was present in Japan and Korea are the large, dominant family enterprises (caifa). In its place are state-owned enterprises that impress nobody.

[GRG55]

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

...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. Then China joins the party with approximately 600 million workers with the U.S. deeply in hock and American consumers spent out and blown out by the dot-com bubble and housing bubble. I think the U.S. is going to have a problem sustainably absorbing that output long enough for China to become as wealthy as Korea or Taiwan.

...

LOL. You incorrectly make it sound as though the USA was the sole export market for these EM economies in the day. And further you state the USA was "all the while becoming poorer". Unless one is willing to swallow Trump's Tweets unquestioningly, I doubt you'll find a way to statistically support that the USA is poorer today than it was when Japan's export economy started to grow in the early 1950s. But I am certainly open to be proven wrong on that.

[Milton Kuo]

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

LOL. You incorrectly make it sound as though the USA was the sole export market for these EM economies in the day. And further you state the USA was "all the while becoming poorer". Unless one is willing to swallow Trump's Tweets unquestioningly, I doubt you'll find a way to statistically support that the USA is poorer today than it was when Japan's export economy started to grow in the early 1950s. But I am certainly open to be proven wrong on that.

The timeframe I am speaking of is 1970 until now because Japan in the 1950s and 1960s was kind of a joke. [I view the Trinitron and the much-improved Japanese automobiles of the 1970s as Japan's coming-out party into the first world.] Since that time, American living standards have increased from a certain perspective: Houses are bigger, cars last longer, everyone has a smart phone, everyone has a large flat-panel television, etc. However, I do not think that the average American is truly better off than he was then. Most people no longer have a defined-benefit pension, many households have both parents working and yet have very little financial buffer in the event of a layoff, and minimum wage is no longer a living wage. Nominally speaking, the U.S. has become wealthier and, in real terms, the wealthy have become wealthier, too. However, it is my opinion that the average American is not wealthier.

I don't recall knowing any children whose families were on welfare and, for certain, housing was much more affordable than it is today. The number of households on foodstamps today is both shocking and depressing compared to historical averages. And it goes without saying that, in the past, one could be relatively unskilled labor and still earn a decent living without a college degree. Unskilled labor today is doomed to a life of semi-poverty unless one somehow skills up. And we all know how college tuition has skyrocketed. I remember graduates of the University of Texas telling me of days when tuition was $400. (I want to say $50 or $75 but my memory is foggy.) Tuition today is around $10,000+.

As for the U.S. being the sole export market, I did not mean to imply that it was. But I don't recall other countries' markets being nearly as open (tax-free) as U.S. markets. I believe that to be true even today although it's much more difficult for countries to not play the race-to-zero game. But I'm not aware of any first world nation where seemingly every consumer good is made in a developing country. If you go to Wal-Mart, Target, Kohl's, it is nearly impossible to find a product that isn't made in a low-cost country. About a year or so ago, I saw a bunch of interviews with college students in China and what their ambitions were. Astonishingly to me, most spoke of joining a company that would export to the U.S. I do not recall any student talking about exporting to Europe or selling to consumers in China itself. Perhaps those were goals but they were not the most important goal.

I am not some immigrant to the U.S. I was born here, raised here, and have spent the vast majority of my life here. I don't think I am imagining things when I say that there is a lot more poverty than I remember as a child.

[jk]

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.

[Milton Kuo]

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.

Foxconn (Honhai) is kind of a strange company as it's not really a Chinese company. It's a Taiwanese company that chose to offshore to China. As such, my expectation of Foxconn is that the quality of goods would be closer to Taiwan than something coming out of a fully Communist Chinese company.

But I agree with you that for China's GDP to increase noticeably, they must develop their own internal markets, eat their own cooking. I'm not 100% certain that a stronger social safety net is required to achieve that, though.

[jk]

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

I'm not 100% certain that a stronger social safety net is required to achieve that, though.

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.

[GRG55]

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

The timeframe I am speaking of is 1970 until now because Japan in the 1950s and 1960s was kind of a joke. [I view the Trinitron and the much-improved Japanese automobiles of the 1970s as Japan's coming-out party into the first world.] Since that time, American living standards have increased from a certain perspective: Houses are bigger, cars last longer, everyone has a smart phone, everyone has a large flat-panel television, etc. However, I do not think that the average American is truly better off than he was then. Most people no longer have a defined-benefit pension, many households have both parents working and yet have very little financial buffer in the event of a layoff, and minimum wage is no longer a living wage. Nominally speaking, the U.S. has become wealthier and, in real terms, the wealthy have become wealthier, too. However, it is my opinion that the average American is not wealthier.

I don't recall knowing any children whose families were on welfare and, for certain, housing was much more affordable than it is today. The number of households on foodstamps today is both shocking and depressing compared to historical averages. And it goes without saying that, in the past, one could be relatively unskilled labor and still earn a decent living without a college degree. Unskilled labor today is doomed to a life of semi-poverty unless one somehow skills up. And we all know how college tuition has skyrocketed. I remember graduates of the University of Texas telling me of days when tuition was $400. (I want to say $50 or $75 but my memory is foggy.) Tuition today is around $10,000+.

As for the U.S. being the sole export market, I did not mean to imply that it was. But I don't recall other countries' markets being nearly as open (tax-free) as U.S. markets. I believe that to be true even today although it's much more difficult for countries to not play the race-to-zero game. But I'm not aware of any first world nation where seemingly every consumer good is made in a developing country. If you go to Wal-Mart, Target, Kohl's, it is nearly impossible to find a product that isn't made in a low-cost country. About a year or so ago, I saw a bunch of interviews with college students in China and what their ambitions were. Astonishingly to me, most spoke of joining a company that would export to the U.S. I do not recall any student talking about exporting to Europe or selling to consumers in China itself. Perhaps those were goals but they were not the most important goal.

I am not some immigrant to the U.S. I was born here, raised here, and have spent the vast majority of my life here. I don't think I am imagining things when I say that there is a lot more poverty than I remember as a child.

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