price cascades: cdo tranches down, inflation up

[c1ue]

Re: price cascades: cdo tranches down, inflation up

Touchring,

Can you post some links or otherwise indicate where you are getting your data regarding China exporting more to Europe than the US?

I know that Chinese exports to Eastern Europe have dramatically increased in the past 4 years, but this is the first that I've heard China increasing export share to Europe.

For one thing, Europe has traditionally kept major import taxes, secondly there are plenty of closer places to manufacture cheap goods: Poland, Turkey, etc. some of which are part of the EU.

As another piece of confirmation: what is the balance of trade for China vs. Europe? I.e. is China now accumulating a giant pile of Euros?

[touchring]

Re: price cascades: cdo tranches down, inflation up

Can you post some links or otherwise indicate where you are getting your data regarding China exporting more to Europe than the US?

I heard that the Europe is taking up the slack from the US. Don't really have figures but China's trade with Europe is rising many times faster than with the US. If it has not overtaken, it would overtake by 2008.

http://www.iht.com/articles/2007/06/...wbmarket16.php

With the credit meltdown, I think the point has come in which the US is as dependent on China as China is dependent on the US. Only early this year, China is more dependent on the US than the other way round.

[c1ue]

Re: price cascades: cdo tranches down, inflation up

Touchring,

I looked a little into the numbers.

EU trade deficit with China for 2006 (up until November) was a shade under 117B Euros, or around -10B Euro/month

http://www.delchn.cec.eu.int/en/eu_c....2006.EU25.xls

2005 numbers up until August show a little under -65B Euro, or around -8B Euro/month, thus a significant increase.

However, the increases are occurring primarily in the margins: Spain, Italy, etc. The core EU nations are fairly steady: Germany, etc.

Honestly, is there so much difference between Italy and Eastern Europe from a governmental (or lack of governmental) and societal perspective?

As for the US deficit: $201B in 2005, $190B in 2006 up to October.

Or put another way: $17B/month in 2005, $19B/month in 2006.

http://www.fas.org/sgp/crs/row/RL31403.pdf

So your assertion does seem correct, and in fact EU trade deficits with China are approaching dollar parity with the US' - although a lot of it has been the Euro rise vs. the dollar.

One word of caution though: While Italy, Eastern Europe, etc do have some money, I don't believe they have the same amount of stored wealth as the US, thus the sustainability of these recent trade deficits is probably much lower than here.

Furthermore by isolating the respective trade deficits vs. GDPs in home currencies, the EU is running a 2006 deficit of around -120B Euro vs. ~11T Euro GDP (1.09%) while the US is running a 2006 deficit of around -$228B vs. a GDP of $13.1T (1.74%).

Them's pretty ugly numbers.

As for this statement:

With the credit meltdown, I think the point has come in which the US is as dependent on China as China is dependent on the US. Only early this year, China is more dependent on the US than the other way round.

I think the answer depends on what China wants to do.

If China wants to continue to drain jobs and production out of the US, then the US is absolutely more dependent.

If China wants to preserve the monetary value of what has been drained out of the US already, then China is more dependent.

The $1T+ in US dollar holdings that China officially has, plus the private dollars, are very much subject to dollar devaluation.

If China doubled its current account surplus with the US, but the dollar drops in half, China loses a lot. But this would never happen.

In fact I would argue that the falling dollar will also cut the US' current account deficit as relative labor in the US regains some absolute value, thus it is more likely that both China's existing dollar holdings and trade surplus with the US experience significant drops. In this scenario China is absolutely more dependent on the US, thus the frantic drive to find new export outlets.

But like Peak Oil ;) the big gusher (US) era is likely over.

Also note that if there are indeed $6T outside of the US, China cannot even unload what they have without the unloading itself tanking the dollar.

See my previous

6 Trillion Hot Potatoes

thread (click on the >)

[GRG55]

Re: price cascades: cdo tranches down, inflation up

Touchring,

I looked a little into the numbers.

EU trade deficit with China for 2006 (up until November) was a shade under 117B Euros, or around -10B Euro/month

http://www.delchn.cec.eu.int/en/eu_c....2006.EU25.xls

2005 numbers up until August show a little under -65B Euro, or around -8B Euro/month, thus a significant increase.

However, the increases are occurring primarily in the margins: Spain, Italy, etc. The core EU nations are fairly steady: Germany, etc.

Honestly, is there so much difference between Italy and Eastern Europe from a governmental (or lack of governmental) and societal perspective?

As for the US deficit: $201B in 2005, $190B in 2006 up to October.

Or put another way: $17B/month in 2005, $19B/month in 2006.

http://www.fas.org/sgp/crs/row/RL31403.pdf

So your assertion does seem correct, and in fact EU trade deficits with China are approaching dollar parity with the US' - although a lot of it has been the Euro rise vs. the dollar.

One word of caution though: While Italy, Eastern Europe, etc do have some money, I don't believe they have the same amount of stored wealth as the US, thus the sustainability of these recent trade deficits is probably much lower than here.

Furthermore by isolating the respective trade deficits vs. GDPs in home currencies, the EU is running a 2006 deficit of around -120B Euro vs. ~11T Euro GDP (1.09%) while the US is running a 2006 deficit of around -$228B vs. a GDP of $13.1T (1.74%).

Them's pretty ugly numbers.

C1ue: Not sure if this is correct, but if core countries such as Germany are raising their exports to China and raising their imports from China, could there be materially greater trade over time, without any change in that country's deficit/surplus?

e.g. the less competitive economies in the EU such as Spain and Italy are not able to increase their exports, while they continue to import more and more?

[c1ue]

Re: price cascades: cdo tranches down, inflation up

Not sure if this is correct, but if core countries such as Germany are raising their exports to China and raising their imports from China, could there be materially greater trade over time, without any change in that country's deficit/surplus?

From what I see in the 2005 data, the overall rate of trade seems fairly consistent with the China impact.

Note that I am not saying that China's trade surpluses with Germany, etc are not growing, just that they are not growing like the "non-core" nations.

Total trade 2005: 12.2B/month import, 4.1B/month export

Total trade 2006: 15.8B/month import, 5.2B/month export

The top 3 trading economies: Germany, UK, Netherlands contribute 8.4B/2.9B per month respectively, with Germany itself being 3.5B/2.25B per month(all 2006 numbers)

Note that Germany actually increased exports percentage wise more than imports, but its overall balance (deficit) went up. France in turn had the lowest overall rate of growth in trade deficit in the core nations: 11%.

Spain actually had a negative deficit growth, but then again their ratio of imports vs. exports to China is 10:1, plus their economy is crashing.

[touchring]

Re: price cascades: cdo tranches down, inflation up

If China wants to continue to drain jobs and production out of the US, then the US is absolutely more dependent

Before you can solve a problem, you must identify the problem.

China doesn't drain 1/10th as much American jobs as Japan and West Europe does, at least at this stage of economic development. You are talking about labor intensive manufacturing. America will have to downgrade to developing country status to take over much of the Chinese jobs.

If America were to gain high value factory jobs, it must be able to compete with the likes of Mercedes Benz, Toyota, BMW, etc.

Also, you will notice that China has a trade deficit with Japan. There might be many reasons, but i suspect that a big part is because Japan produces the stuff that China wants. Japanese cars are popular in China, and also factory equipment, electronics, industrial goods, etc.

[c1ue]

Re: price cascades: cdo tranches down, inflation up

Before you can solve a problem, you must identify the problem.

China doesn't drain 1/10th as much American jobs as Japan and West Europe does, at least at this stage of economic development. You are talking about labor intensive manufacturing. America will have to downgrade to developing country status to take over much of the Chinese jobs.

I'm not looking to solve anything - not my job nor am I empowered to do so.

As for your statement - it just isn't true.

Yes, Japan's car industry is killing the US manufacturers, but China has been killing the furniture makers, the toy makers, the specialty chemical makers, assembly plants, etc etc.

Labor intensity is also a misnomer - the problem is that the factories themselves have been moved out.

It is true that the labor of each individual Chinese is lower, but it is also true that China is heavily subsidizing energy, construction of buildings, property taxes, etc while simultaneously ignoring (or lacking) pollution control, health care, education, quality control, etc etc.

I'm not saying what China is doing is bad - it is fully understandable that this is occurring so that China can grow.

My point was simply that the Chinese system of mercantilism has been ignoring one fundamental structural flaw: that China is so much bigger than any one or even 10 of their customers.

In addition, the over-representation of US assets collected in China now is creating a decision point for the Chinese government: follow the US dollar down per normal mercantile policy with the effect of destroying much of what has been saved, or lose a lot of competitiveness with the (still) largest market in the world.

Either way someone is going to lose.

[GRG55]

Re: price cascades: cdo tranches down, inflation up

i recalled that there was a recent release on inventories, so i googled "oil inventories" and came up with this, dated nov 1:
http://www.businessweek.com/ap/finan.../D8SKT14O7.htm


this doesn't seem to fit with your scenario. are there stores not counted in these reports?

This pricing information may be closer to what you were expecting jk?

Triple whammy: Heating oil, gasoline, diesel all top $3

WASHINGTON (Reuters) — Even though the coldest winter weather has yet to arrive, the U.S. residential heating oil price soared 15.7 cents over the last week to a record $3.11 a gallon, the government said Wednesday.

Thanks to rising crude oil costs, it also marks the first time that the average price paid by consumers for heating oil, gasoline and diesel fuel topped $3 a gallon at the same time, according to the U.S. Energy Information Administration.

The average price U.S. drivers paid this week for gasoline reached $3.01 a gallon and diesel hit a record $3.30 a gallon, the EIA said.

High petroleum product prices reflect soaring crude oil costs, which hit a record $98.62 a barrel on Wednesday, and worries about tight fuel supplies this winter.

The national heating oil price is up 73 cents from a year ago, the Energy Department's analytical arm said in its weekly survey of heating fuel costs around the country.


Residents in the District of Columbia paid the most for home heating oil at $3.41 a gallon, up 26 cents from the prior week. The next highest prices were in New York at $3.22, New Jersey at $3.21 and Connecticut at $3.18.

The lowest price for heating oil was in Nebraska at $2.93 a gallon, up 15 cents, followed by Iowa at $2.97, North Carolina at $2.98 and Virginia at $2.99.

Households in the Northeast that use heating oil will take a big financial hit this winter, paying a record $3.06 a gallon on average for the fuel during the season, 66 cents more than last winter, according to the EIA's monthly forecast out Tuesday.

Heating oil costs in the region, where one out of three households burn the fuel, are expected to average $1,879 for the winter, up 25% from last year and $79 more than the agency previously thought.

The White House reiterated on Wednesday that oil prices "are too high."
Rep. Edward Markey of Massachusetts asked the Bush administration last week to release supplies from the government's heating oil reserve to help bring down fuel prices in the Northeast. However, the administration said the 2-million-barrel emergency stockpile should be saved in case of a big supply disruption and not to manage prices.

While total U.S. heating oil inventories rose 600,000 barrels last week to 48 million, they are down 15.3 million barrels from a year ago, according to the EIA.

[touchring]

Re: price cascades: cdo tranches down, inflation up

Yes, Japan's car industry is killing the US manufacturers, but China has been killing the furniture makers, the toy makers, the specialty chemical makers, assembly plants, etc etc.

I'm not sure if that is so simple. The wages, benefits and taxes in Japan and West Europe are higher than in the US on the average, and yet they are still heavily into manufacturing.

Stuff toys and furnitures are low end goods that Americans should not be making. Not to talk about America, even middle income countries like Korea, Taiwan and Spain cannot compete effectively in these industries.

[touchring]

Re: price cascades: cdo tranches down, inflation up

Repeat, pls delete.

[jk]

Re: price cascades: cdo tranches down, inflation up

This pricing information may be closer to what you were expecting jk?

Triple whammy: Heating oil, gasoline, diesel all top $3

WASHINGTON (Reuters) — Even though the coldest winter weather has yet to arrive, the U.S. residential heating oil price soared 15.7 cents over the last week to a record $3.11 a gallon, the government said Wednesday.

Thanks to rising crude oil costs, it also marks the first time that the average price paid by consumers for heating oil, gasoline and diesel fuel topped $3 a gallon at the same time, according to the U.S. Energy Information Administration.

The average price U.S. drivers paid this week for gasoline reached $3.01 a gallon and diesel hit a record $3.30 a gallon, the EIA said.

High petroleum product prices reflect soaring crude oil costs, which hit a record $98.62 a barrel on Wednesday, and worries about tight fuel supplies this winter.

The national heating oil price is up 73 cents from a year ago, the Energy Department's analytical arm said in its weekly survey of heating fuel costs around the country.


Residents in the District of Columbia paid the most for home heating oil at $3.41 a gallon, up 26 cents from the prior week. The next highest prices were in New York at $3.22, New Jersey at $3.21 and Connecticut at $3.18.

The lowest price for heating oil was in Nebraska at $2.93 a gallon, up 15 cents, followed by Iowa at $2.97, North Carolina at $2.98 and Virginia at $2.99.

Households in the Northeast that use heating oil will take a big financial hit this winter, paying a record $3.06 a gallon on average for the fuel during the season, 66 cents more than last winter, according to the EIA's monthly forecast out Tuesday.

Heating oil costs in the region, where one out of three households burn the fuel, are expected to average $1,879 for the winter, up 25% from last year and $79 more than the agency previously thought.

The White House reiterated on Wednesday that oil prices "are too high."
Rep. Edward Markey of Massachusetts asked the Bush administration last week to release supplies from the government's heating oil reserve to help bring down fuel prices in the Northeast. However, the administration said the 2-million-barrel emergency stockpile should be saved in case of a big supply disruption and not to manage prices.

While total U.S. heating oil inventories rose 600,000 barrels last week to 48 million, they are down 15.3 million barrels from a year ago, according to the EIA.

yes, that's what i was waiting for, grg55. i filled up yesterday and premium was $3.55/gal. the only time i've ever paid more [in this country] was the day after katrina.

[c1ue]

Re: price cascades: cdo tranches down, inflation up

The wages, benefits and taxes in Japan and West Europe are higher than in the US on the average, and yet they are still heavily into manufacturing.

There are many ways to subsidize manufacturing besides currency intervention and lack of environmental/health/safety regulatory protection.

Europe and Japan do it by subsidizing health care and retirement. Japan adds on currency manipulation.

GM and Ford's problems are certainly starting with their relative lack of innovation, but I would point out that the majority of their losses are due to carrying costs on retirement and health care.

Thus it is a self-reinforcing spiral of less investment in R & D due to less money left over after paying retirement/health care costs, resulting in poorer products, repeat.

Admittedly their respective managements have been more interested in self protection than trying to change the game, but nonetheless the blame in this case is not all management's.

Stuff toys and furnitures are low end goods that Americans should not be making. Not to talk about America, even middle income countries like Korea, Taiwan and Spain cannot compete effectively in these industries.

Once again, I question just how much cheaper manufacturing is in China were the subsidies to be removed.

Don't forget that transportation for low cost goods is a significant factor - only because the goods are SO cheap that it is worthwhile.

Secondly I used to talk a lot (before your iTulip joining) about how offshoring is really a corporation stealing pass-through money from a government and community.

While $10 in US labor is more than $2 in labor in China, the $10 in the US circulates through at least 2 or 3 layers of service/retail. The local community gets taxes, US states get taxes, US government gets corporate and income taxes.

In China, the $2 goes primarily to Chinese food. Neither a local US community, nor most US states, nor the US government get any whack at this already small amount outside of whatever little onshore US tax the corporation chooses to declare.

The remaining $8? some passed to consumer, but the rest taken by the company (and its management in turn) in offshore accounts.

Were I to go back to school and get an economics PhD, that'd by my thesis.

[GRG55]

Re: price cascades: cdo tranches down, inflation up

yes, that's what i was waiting for, grg55. i filled up yesterday and premium was $3.55/gal. the only time i've ever paid more [in this country] was the day after katrina.

Good thing it's not in the core inflation stats...

[Guest]

Re: price cascades: cdo tranches down, inflation up

The Alarm Finally Being Sounded?

By Brian Hicks | Thursday, November 7th, 2007

Yesterday, the media again called attention to a report on the alarming price rise in oil.

... Everybody is starting to wake-up to the idea that we're in real trouble over higher oil prices. ...

A widely-followed industry report on international oil supplies released today suggest that oil prices could move permanently over $100 a barrel very soon.

This gloomy assessment comes from the International Energy Agency (IEA). Let me say upfront, the IEA is well-respected within the industry... and isn't known for alarmist warnings.

However, in today's report, the IEA did a complete 180. In the IEA's 2007 report, it argues that governments need to make urgent, bold decisions on energy policy, or risk massive environmental and energy-supply crises within two decades - crises and shortages that could spark serious global conflicts.

"I am sorry to say this, but we are headed toward really bad days," IEA chief economist Fatih Birol was reported saying.


The reason for the IEA's alarm is its expectation that economic development will raise global energy demands by about 50% in a generation, from today's 85 million barrels a day to about 116 million barrels a day in 2030.

Nearly half that increase in demand will come from just two countries - China and India, which are electrifying hundreds of cities and putting millions of new cars on their roads, most driven by people who once walked, or rode bicycles and buses.

Do the math. In next 23 years, global oil consumption will increase by 31 million barrels PER DAY!

That's the equivalent of about 4 Saudi Arabias. (Lukester's comment : You plan to put a band-aid over that with alt-energy?)

And that doesn't even take into account the declines we're witnessing in current oil fields. Throw in the decline rates, which is hovering around 2% per year (or nearly 1.8 million barrels per day), and the situation grows even more dire.

Need more evidence?

How about the CEO of a major oil company.

Last week, Christophe de Margerie, CEO of the French oil giant Total, told the Financial Times that even the target of 100 million barrels a day is an optimistic one for an industry that currently produces 85 million - far short of the 116 million barrels a day the IEA projects will be needed by 2030 to fuel the global economy.

Want more bad news?

Okay. Former energy advisor to Bush and Cheney, Matt Simmons, recently published a report on the current oil crisis.

I'm not here to scare you, but you need to hear what he said.

Matt says...

• Oil supply peaked in 2006.
• "The most important finder is the steep decline of oil supply after peak."

2006: 81 mmb/d

2020: 58 mmb/d

2030: 39 mmb/d

Source: Energy Watch Group: "Crude Oil the Supply Outlook"

• This crisis leads to war.

And just in case that doesn't sober you up, here are Matt's final parting shots:

• If crisis is ignored, it leads to social chaos.

• If Peaking is past tense, we ran out the clock for easy transition resolutions.

• The wolf is inside the house.

• The 500 pound elephant just sat on our chest.

If you think this is just fear-mongering, then check this out:


11/06/2007 15:57 - CHINA

Beijing fears social instability from higher oil prices

Oil companies want price liberalisation, but government says no, fearing higher inflation, loss of competitiveness and social unrest

If the communists are worried about the fallout of higher oil prices (China is a police-state), imagine what could happen here.



Brian Hicks

[Rajiv]

Re: price cascades: cdo tranches down, inflation up

Demand destruction will occur much earlier as the market prices of oil increase -- the IEA is smoking something if it thinks that 116M b/d will ever be produced!

Alt energy will never come close to replacing that destroyed demand. However, I do believe that there will be more efficient uses of the resources that are there. With the current state of knowledge, I am unable to speculate as to the level of the standards of living that will result when that happens.