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  • Janet Yellen on China

    Via Zero Hedge

    Zero Hedge interpretation

    Yellen then highlights some of the critical flaws in the economic model and makes a full circle to what Hugh Hendry was discussing yesterday about substantial Chinese overcapacity (and why he took some not so friendly jabs at Jim O'Neill):
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    Bottom line - China is screwed, and every false move performed by the Fed, whose actions by implication reflect in China's broader monetary policy, will be amplified and make the bubble increasingly worse, as the right move here, which is for China to cut down on its stimulus and to focus on the growth of its own economy, will likely not occur before it is far too late. One should just look to the US to see how eager politicians are to step away from a tenuous and ultimately destructive status quo and proceed to do the right things needed to fix a broken system, which however would result in significant popular revolt and most likely a near-certain loss in any future political elections/referendum. This is precisely why the economic system, from a physical system perspective, is teetering on the balance and is about to break.

  • #2
    Re: Janet Yellen on China

    Except for several problems:

    1) China isn't buying US Treasury crap any more
    2) China is tightening
    3) China can always 'allow' the yuan to rise if they so choose

    If China goes either inflationary or deflationary, it will be by choice.

    The US, on the other hand, has no choice.

    Another "Look! Over There!" article

    Comment


    • #3
      Re: Janet Yellen on China

      Originally posted by c1ue View Post
      Except for several problems:

      1) China isn't buying US Treasury crap any more
      2) China is tightening
      3) China can always 'allow' the yuan to rise if they so choose

      If China goes either inflationary or deflationary, it will be by choice.

      The US, on the other hand, has no choice.

      Another "Look! Over There!" article

      The US doesn't have 20 million new job seekers every year.

      Comment


      • #4
        Re: Janet Yellen on China

        Originally posted by touchring View Post
        The US doesn't have 20 million new job seekers every year.
        And Chinese politicians don't have to run perpetual election campaigns...in fact they don't have to run any election campaigns...

        Comment


        • #5
          Re: Janet Yellen on China

          Originally posted by GRG55 View Post
          And Chinese politicians don't have to run perpetual election campaigns...in fact they don't have to run any election campaigns...

          Up to a certain stage, you may just lose control.

          http://shanghaiist.com/2010/01/21/xi...ally_resto.php


          Xinjiang's internet not really restored

          You might have heard that the "restrictions" on media and communications in Xinjiang are slowly but surely being "restored." Well, it seems like that's a bit too optimistic: First, the ban on SMS services was lifted, but according to Far West China, you can only send twenty messages a day. In addition, you can also make international calls as of today, and access to the internet is slowly being unblocked: as of now, there's a grand total of four websites you can access, and it seems even those are fairly censored.

          In their latest blog post, Far West China has a very interesting juxtaposition of the two major internet portals that just reopened, Sohu and Sina, in Xinjiang and outside of it. It's pretty confusing to see the apparent censorship in effect, especially since the graphic design of the Xinjiang versions differs so much from the regular mainland versions. Here's the breakdown in Josh's own words:

          From Far West China:

          It’s a completely different website hosting the exact same material. I notice a couple things right off the bat:

          * There are no ads
          * There is no place to “sign in”
          * There is no Search capability
          * The option for different languages is absent in Xinjiang

          In a way I’m thankful for the simplicity, a stark contrast to the somewhat wild Chinese web design I am used to. The absence of ads feels odd, albeit in a nice sort of way. After looking over these changes multiple times, though, I am left with two very puzzling questions:

          1. Why is this renovation necessary?
          2. Why is all media, including western media, calling this a “restoration”?

          We guess that the term "restored" works in the sense that the internet and texting isn't completely blocked anymore, but since the services are a mere shell of what they were before the Xinjiang riots, we'd probably use the term "severely regulated," or "partially resurrected." Still, it's confounding that something like advertisements would be banned from a censored site, or that content (and the ability to access it) seems very cautiously selected. We wonder what site will be unblocked and severely regulated next: maybe a Youku with no access to copyrighted content?
          http://shanghaiist.com/2010/01/21/xi...ally_resto.php

          Comment


          • #6
            Re: Janet Yellen on China

            GRG,

            As you well know, it is very difficult for people unfamiliar to India and China to understand the vast problems that having a total of half the world's population brings to the table.

            The store of FOREX may yet be insufficient to prevent the almost intractable problems that these countries face as "Peak Everything" emerges from the shadows!

            Comment


            • #7
              Re: Janet Yellen on China

              The economic model China is pursuing is a farce. Hendry is right - you cannot run a high trade surplus and be a creditor nation, while simultaneously not be producing profits. They have created GDP growth, not wealth. It will end badly.

              All the desperate signs of the terminal credit bubble phase do seem to be there and now a slow awakening that all that liquidity and foreign capital has been flowing directly into asset prices.

              My concern is that we may see a scarcity for dollars which lasts much, much longer than EJ thinks and drives the dollar much further up than we think possible. You have to remain open to the slight possibility that perhaps the Fed does know what it's doing after all and may not risk a highly stagflationary environment, but rather let some signficant pain be taken, in lieu of supporting asset prices.
              --ST (aka steveaustin2006)

              Comment


              • #8
                Re: Janet Yellen on China

                Originally posted by 6000000
                My concern is that we may see a scarcity for dollars which lasts much, much longer than EJ thinks and drives the dollar much further up than we think possible.
                Perhaps you can expand on this.

                I don't see a scarcity of dollars anywhere.

                Comment


                • #9
                  Re: Janet Yellen on China

                  Originally posted by c1ue View Post
                  Perhaps you can expand on this.

                  I don't see a scarcity of dollars anywhere.
                  When equity markets start declining rapidly (as EJ expects) and we again see the same huge scarcity in dollars all over the globe brought on by further deleveraging. I can hear you say that we have already deleveraged considerably, but what about the new dollar carry trade everyone speaks of? Surely those dollars have to return home.

                  What, additionally, would be the safe haven if everyone's saviour, China, turns out to be a mirage?

                  What if Hendry is right in his speculation that demand for treasuries may just be met domestically:

                  "However, where will the demand for all of this additional government debt come from? Let us review the Fed's Z1 numbers. The US has household wealth of some $67trn. Of that, $20trn is accounted for by real estate and is perhaps out of bounds for our purposes. But $8trn is held in the form of private pensions and insurance funds. And yet, remarkably, these institutions presently allocate just $630bn to Treasuries et al. Households have a further $22trn in time deposits and other financial assets. But again they own just $500bn of Treasuries, and commercial banks own a tiny $130bn or, 1% of their total asset base of $12trn.

                  Consider that in 1952, at the very end of the supernova bond bull market formed from the ashes of the Great Depression and the Liberty Bonds that financed the Second World War, US banks held 40% of their gross assets in Treasuries. That is a potential $5trn of demand from this one source alone, albeit spread out over a number of years. And again, the Japan experience lends support. Japanese financial institutions have quadrupled the percentage of their assets held in JGBs. Furthermore, their households have lifted their government bond weightings five-fold over the last ten years. Should the same pattern repeat itself stateside, American households would need to buy another $2.5trn, but again,over ten years.

                  And let us not forget that a trend of rising prices allied to the most basic human emotion of avarice encouraged commercial banks and other financial institutions to buy $3.2trn of questionable mortgage backed securities in 2004, $1.9trn in 2005, $2.2trn in 2006 and $2.1trn in 2007. So it is not inconceivable, at least in my mind, that financial institutions, and notable amongst them the nation’s pension and endowment schemes, could be motivated by another basic human emotion, namely fear for their own survival, to snap up all these new government bonds. Perhaps in the end supply will create its own demand."
                  --ST (aka steveaustin2006)

                  Comment


                  • #10
                    Re: Janet Yellen on China

                    Originally posted by Rajiv View Post
                    GRG,

                    As you well know, it is very difficult for people unfamiliar to India and China to understand the vast problems that having a total of half the world's population brings to the table.

                    The store of FOREX may yet be insufficient to prevent the almost intractable problems that these countries face as "Peak Everything" emerges from the shadows!
                    I am a long term bull on both India and China [assuming the world doesn't come to an end], but in the near to medium term I think China in particular is storing up a whole lotta problems for itself. And you are correct, neither country's current economic model works very well in the absence of relatively cheap hydrocarbon and coal energy.

                    The idea that somehow China can, or will, escape the fallout from this financial crisis, and merrily grow at an alleged 10% per annum ad infinitum, is delusional. Every country somehow thinks it is "different". Dubai and the GCC also thought they were immune, and that little fairy tale ended badly with the GCC financial institutions today at stress levels comparable to the USA and European banks a full year ago [I've met with a number of them this past week and it is not a pretty picture As expected, here's an example of what's happened to one of the most prominent Islamic investment banks in the region:
                    PARIS (Standard & Poor's): Standard & Poor's Ratings Services said today it lowered its long- and short-term counterparty credit ratings on Bahrain-based Gulf Finance House G.S.C. (GFH) to 'SD/SD' (selective default) from 'CC/C'.

                    "The downgrade to 'SD/SD' follows GFH's completion of the extension of maturity of $100 million of its $300 million syndicated loan facility due Feb. 10, 2010," said Standard & Poor's credit analyst Emmanuel Volland.

                    We understand that GFH has obtained consent for the partial extension from all facility lenders. We understand that GFH achieved the partial extension by executing the facility's "deed of extension" clause. The new maturity of the extended portion is six months from Feb. 10, 2010.

                    "Under our criteria, we consider GFH's maturity extension to be a 'distressed exchange' and therefore tantamount to a default, because the new maturity represents a change to the facility's originally scheduled payment terms," said Mr. Volland...]
                    As explained in the link above, Islamic banking was basically a rigged game. China's economy, to a far too great extent, is also a rigged game...

                    Comment


                    • #11
                      Re: Janet Yellen on China

                      Originally posted by c1ue View Post
                      Perhaps you can expand on this.

                      I don't see a scarcity of dollars anywhere.
                      ???? The whole country and parts of the world are starving for dollars! Companies are shutting down because their customers have no DOLLARS! My whole community is starving for dollars. Homeowners are starving for dollars, states are starving for dollars. Business is starving for dollars. Countries are starving for dollars. Most banks are starving for dollars. Yeah yeah they are printing dollars and some jive turkeys have them all...
                      so what.

                      Dollars are damn scarce in the real world.

                      Comment


                      • #12
                        Re: Janet Yellen on China

                        Originally posted by 6000000
                        What, additionally, would be the safe haven if everyone's saviour, China, turns out to be a mirage?
                        Since China has so many dollars, a collapse in the Chinese economy would actually free up a large number of the dollars held there to return home.

                        Thus again, where's the shortage?

                        This is exactly what iTulip/EJ have spoken to previously.

                        The same can be said for Japan. Between the two of them, there are $1.5T in Treasuries and around $5T total of dollar denominated financial instruments available.

                        Then we have the 0% to 0.25% Fed funds rate. Hardly a contractionary monetary environment.

                        Originally posted by Hendry via 6000000
                        And let us not forget that a trend of rising prices allied to the most basic human emotion of avarice encouraged commercial banks and other financial institutions to buy $3.2trn of questionable mortgage backed securities in 2004, $1.9trn in 2005, $2.2trn in 2006 and $2.1trn in 2007. So it is not inconceivable, at least in my mind, that financial institutions, and notable amongst them the nation’s pension and endowment schemes, could be motivated by another basic human emotion, namely fear for their own survival, to snap up all these new government bonds. Perhaps in the end supply will create its own demand."
                        This sounds nice, but the problem is if the banks dump out of existing MBS', someone else must buy them. If that someone else is the US government, then in turn more Treasuries must be issued.

                        The inconsistency with this statement is the assumption that the MBS' can be sold without any impact on the overall financial system or on the Treasury issuance. Note how this was different in 2004-2007: the MBS' sold then were sold to Europe for cash - new money other words. Unless Europe, Japan, China, or some other magical entity buys up the existing MBS' remaining on bank balance sheets, the only other entity is Uncle Sam.

                        Originally posted by Crazyfingers
                        ???? The whole country and parts of the world are starving for dollars! Companies are shutting down because their customers have no DOLLARS! My whole community is starving for dollars. Homeowners are starving for dollars, states are starving for dollars. Business is starving for dollars. Countries are starving for dollars. Most banks are starving for dollars. Yeah yeah they are printing dollars and some jive turkeys have them all...
                        so what.

                        Dollars are damn scarce in the real world.
                        The whole country is starved for credit. It isn't starved for dollars per se. This credit could come in via yuan, or euro, or rubles, or whatever and it would be just fine. Or it could come via banks actually lending in the US with their RECORD reserves.

                        As for dollars being scarce in the real world - see China and Japan above.

                        Comment


                        • #13
                          Re: Janet Yellen on China

                          Originally posted by c1ue View Post


                          The whole country is starved for credit. It isn't starved for dollars per se. This credit could come in via yuan, or euro, or rubles, or whatever and it would be just fine. Or it could come via banks actually lending in the US with their RECORD reserves.

                          As for dollars being scarce in the real world - see China and Japan above.
                          WRONG, I have plenty of credit. I dont want more credit. I want dollars. My company has plenty of credit. We want customers that have dollars. We need cash! People need cash so they can pay back their debt and buy goods and service.

                          Comment


                          • #14
                            Re: Janet Yellen on China

                            Originally posted by Crazyfingers
                            WRONG, I have plenty of credit. I dont want more credit. I want dollars. My company has plenty of credit. We want customers that have dollars. We need cash! People need cash so they can pay back their debt and buy goods and service.
                            Well, clearly your ample credit isn't replicated by your customers.

                            Ultimately what's the difference?

                            Well, in 2004-2007 - the customers thought they had plenty of credit and dollars...credit cards, mortgage loans, 2nd loans, HELOCs and house valuation for the dollars. And they bought and bought.

                            Now they don't have either the credit or the house valuation dollars.

                            Comment


                            • #15
                              Re: Janet Yellen on China

                              The county is staved for Dollars, Dollars, that is without an interest rate(Debt Obligation) other than inflation attached to them. Remember Deflation and unemployment are the bridesmaids of hyper-inflation in a debtor county. You'll get your POOM, but not without a lot of deflation first, Being the reserve currency bought us a lot of time, which I'm guessing will run out in 2011, but then again I am usually wrong, always been about a year early when I try to forecast things.
                              We are all little cockroaches running around guessing when the FED will turn OFF the Lights.

                              Comment

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