Global decoupling? Then answer this conundrum

[c1ue]

http://www.nytimes.com/2007/12/16/opinion/16roach.html

American consumers spent close to $9.5 trillion over the last year. Chinese consumers spent around $1 trillion and Indians spent $650 billion. It is almost mathematically impossible for China and India to offset a pullback in American consumption.

From Stephen S. Roach

[touchring]

Re: Global decoupling? Then answer this conundrum

The sharp housing slowdown throughout the world the recent 2 months - with the exception of Canada :p - has proven that decoupling is a myth.

[renewable]

Re: Global decoupling? Then answer this conundrum

American consumers spent close to $9.5 trillion over the last year. Chinese consumers spent around $1 trillion and Indians spent $650 billion. It is almost mathematically impossible for China and India to offset a pullback in American consumption.

A significant devaluation of the dollar and appreciation of the yuan could make some difference; it would also be interesting to know how much of this $9.5 trillion is taken by the FIRE US economy, the importers, shippers in the chain, etc. - I would imagine that only a minority of the $9.5T ends up in India and China.

Not saying that a recession in the US will not hurt the developing countries, but perhaps the amount Chindian consumers need to step up their consumption isn't quite as large as the figures in the article suggest.

[touchring]

Re: Global decoupling? Then answer this conundrum

A significant devaluation of the dollar and appreciation of the yuan could make some difference; it would also be interesting to know how much of this $9.5 trillion is taken by the FIRE US economy, the importers, shippers in the chain, etc. - I would imagine that only a minority of the $9.5T ends up in India and China.

Not saying that a recession in the US will not hurt the developing countries, but perhaps the amount Chindian consumers need to step up their consumption isn't quite as large as the figures in the article suggest.

$9.5 tr works out to $31,666 per american. That $31,666 can't possibly be totally made up of $2 stuff toys, $50 electronic gadgets. Most of the money would have gone to education, transport, and healthcare.

[c1ue]

Re: Global decoupling? Then answer this conundrum

Roach's numbers are based on the percentage of the US economy which depends on consumer spending.

GDP is around $13.3T - hence the $9.5T number.

As for FIRE percentage, what is the FIRE economy as a percentage of GDP?

Of course this number doesn't mean that $9.5T per year is departing the US, but it does mean that if spending drops 10%, that this amount of consumption is difficult to replace.

As when I talk about the real economic impact of offshoring, so the same principle applies here:

Each $1 of American consumer spending generally travels through several layers of intermediaries before coming to 'rest'.

As per the economic term "velocity", this $1 has considerably larger effects than its individual value.

As consumption drops, each $1 less spent by an American will then leave a consumption 'hole' equal to this velocity times $1.

The $9.5T is thus composed of parts whose sizes depend not just on the initial expenditure in them, but also on the velocity times 'spent money'.

Calculating the specific component of each - even if possible - would be a fascinating exercise, but for the purposes of this thought discussion the point is that it is a big number not easily replicable in any other nation - doubly so for China and India.

To borrow from a well known saying:

For wont of a dinner bought a week, a restaurant closed down. For wont of the demand from the restaurant, a food distributor closed down. For wont of a job in said distributor, a home was foreclosed on. For wont of equity in home, the neighbor of the foreclosed home also lost his home. For wont of tax base, a neighborhood turned into West Oakland :rolleyes:. Too many Oaklands, you get Detroit!

[renewable]

Re: Global decoupling? Then answer this conundrum

imo, it depends what you mean by decoupling.

Will Chindia make up for a recession in the west, keeping the west in clover? Of course not - they can't support that many fat middlemen, agents, scalpers, etc.

Will Chindia decouple from the west with their billions of internal consumers (who want a western lifestyle) making up for the demise of the tapped out western consumers? In time, quite probably, because only a small fraction of that $9.5T ends up in Chindia. Thus only a small fraction actually needs to be replaced.

[metalman]

Re: Global decoupling? Then answer this conundrum

imo, it depends what you mean by decoupling.

Will Chindia make up for a recession in the west, keeping the west in clover? Of course not - they can't support that many fat middlemen, agents, scalpers, etc.

Will Chindia decouple from the west with their billions of internal consumers (who want a western lifestyle) making up for the demise of the tapped out western consumers? In time, quite probably, because only a small fraction of that $9.5T ends up in Chindia. Thus only a small fraction actually needs to be replaced.

an even smaller fraction than we thought...

China's economic muscle 'shrinks'



China's economy, the world's second largest, is not as big as was thought, a report by the World Bank has claimed.

According to the bank, previous calculations have overestimated the size of China's economy by about 40%.

[c1ue]

Re: Global decoupling? Then answer this conundrum

In time, quite probably, because only a small fraction of that $9.5T ends up in Chindia. Thus only a small fraction actually needs to be replaced

True, the actual amount of imports into the US from China is only $287.1B in 2006.

http://www.usitc.gov/tradeshifts/200...ifts_china.htm

But unfortunately a large component of the $9.5T is revenue and profit from the middlemen in this trade: the multinational companies.

Thus should China replace the $287.1B with internal consumption - a mere US$280 per person, it would likely mean serious profit declines for a lot of people and companies.

And then where would the $60B+ in FDI (2006) come from?

[DemonD]

Re: Global decoupling? Then answer this conundrum

global decoupling? lol... i read a whole bunch of stuff on the housing bubble blog today about banks in australia, europe, and japan all being affected by what's being termed the "US subprime mess."

I wonder what will happen should the RE markets in europe start to tank. (or should i say when they will?)

[touchring]

Re: Global decoupling? Then answer this conundrum

global decoupling? lol... i read a whole bunch of stuff on the housing bubble blog today about banks in australia, europe, and japan all being affected by what's being termed the "US subprime mess."

I wonder what will happen should the RE markets in europe start to tank. (or should i say when they will?)

Australia and Europe are badly affected by subprime because most of the money that went into high risk MBS and REITs came from there.

[Spartacus]

Re: Global decoupling? Then answer this conundrum

an even smaller fraction than we thought...

I'm extremely skeptical.

If a chinese person pays 1/10 the cost of a Brit for daycare, these statistics say the Chinese day care should be counted as 1/10th the value for GDP calculations?

(aside from the fact that I bet a lot of Chinese work is still done for free (like child care) but in the West is commercialized, so it gets counted as zero in western-style "GDP" calculations.

[Jim Nickerson]

Re: Global decoupling? Then answer this conundrum

Because of some bulletin board limitation on size of posts, the tables are in several consecutive posts.

Perhaps this is the place to post the following table, which shows the indices of the regions of the world.

LOW is the 52 week low, HIGH-52 week high, IN RANGE-where the index was 1/11/08 between high and low--if it were on the low the value would be zero--on the high the value would be 100, INDEX-last value, Change-last change, %CHANGE-percentage of last change, and %Off HIGH--self-explanatory.

These data are from online.wsj.com. I believe they are very close to correct. http://online.wsj.com/mdc/public/pag..._topnav_2_3000 [subscription]

In the right-hand column the boxes denote the values that went into the calculation of the averages.

The BRIC or CRIB are denoted by horizontal lines.

These data suggest as of 1/11/08 that China, India, Russia, and Brazil are marching to the beats of different drummers compared to the rest of the world.

I have read that the real estate debacles were supposedly bad in Ireland and Spain. If that is correct, Ireland's market seems to be affected and Spain's much less so far.

LOW	HIGH	IN RANGE		1/11/2008	INDEX	CHANGE	% CHANGE	% OFF HIGH
271	321	32		DJ World Index	287	-2.62	-0.91	-10.7%
2597	3302	51		DJ Wilshire Global Total Market	2960	-26.13	-0.88	-10.4%
237	292	41		DJ World exUS	260	-1.45	-0.56	-11.2%
2094	2960	64		DJ Wilshire Global exUS	2651	-13.38	-0.50	-10.4%
2000	2920	69		DJ Wilshire Global exUS Large-Cap	2632	-13.28	-0.50	-9.9%
2476	2873	1		DJ Wilshire Global exUS Mid-Cap	2479	-10.47	-0.42	-13.7%
2543	3110	20		DJ Wilshire Global exUS Small-Cap	2655	-13.41	-0.50	-14.6%
3377	4214	1		DJ Wilshire Global exUS Real Estate	3382	-45.18	-1.32	-19.7%
2863	3220	1		DJ Wilshire Developed Markets	2868	-27.48	-0.95	-10.9%
2437	5584	92		DJ Wilshire Emerging Markets	5341	-7.24	-0.14	-4.3%
		37				AVG	-0.67	-11.6%

[Jim Nickerson]

Re: Global decoupling? Then answer this conundrum

				Asia
LOW	HIGH	IN RANGE		1/11/2008	INDEX	CHANGE	% CHANGE	% OFF HIGH
142	173	31		DJ Asia-Pacific	151.40	-1.67	-1.09	-12.6%
1532	1732	3		DJ Wilshire Asia-Pacific	1538.51	-14.46	-0.93	-11.2%
5491	6873	41		Australia: All Ordinaries*	6054	-92.90	-1.51	-11.9%
5483	6852	36		Australia: S&P/ASX*	5982	-97.10	-1.60	-12.7%
16555	44744	98		China: DJ CBN China 600*	44294	176.75	0.40	-1.0%
220	589	99		China: DJ Shanghai*	583	2.45	0.42	-0.9%
18659	31958	62		Hong Kong: Hang Seng*	26867	-363.85	-1.34	-15.9%
12415	20873	99		India: Bombay Sensex*	20827	245.37	1.19	-0.2%
1678	2830	100		Indonesia: JSX Index*	2830	44.64	1.60	0.0%
14111	18300	0		Japan: Nikkei Average*	14111	-277.32	-1.93	-22.9%
282	363	0		Japan: Nikkei 300*	282	-4.41	-1.54	-22.4%
1378	1824	0		Japan: Topix Index*	1378	-23.78	-1.70	-24.5%
206	295	99		Malaysia: DJ Malaysia*	294	4.64	1.60	-0.4%
10425	14854	79		Pakistan: KSE 100*	13915	-168.02	-1.19	-6.3%
2884	3874	63		Philippines: PSE Index*	3504	49.10	1.42	-9.5%
1360	2065	60		S. Korea: Seoul Composite*	1782	-42.51	-2.33	-13.7%
235	313	43		Singapore: DJ Singapore*	268	-1.84	-0.68	-14.1%
2276	2642	1		Singapore: DJ Wilshire Singapore	2282	-15.59	-0.68	-13.6%
2355	3016	14		Sri Lanka: Colombo All Share*	2446	11.43	0.47	-18.9%
7306	9860	28		Taiwan: Weighted*	8029	-27.96	-0.35	-18.6%
646	915	56		Thailand: SET*	796	-3.71	-0.46	-13.0%
		62				AVG	-0.20	-10.1%

[Jim Nickerson]

Re: Global decoupling? Then answer this conundrum

				Europe
LOW	HIGH	IN RANGE		1/11/2008	INDEX	CHANGE	% CHANGE	% OFF HIGH
3505	4015	7		DJ Stoxx 50*	3539	-15.03	-0.42	-11.9%
343	400	1		DJ Stoxx 600*	344	-1.69	-0.49	-14.1%
390	443	7		DJ Euro Stoxx*	394	-1.00	-0.25	-11.2%
3906	4573	48		DJ Euro Stoxx 50*	4225	-12.31	-0.29	-7.6%
4089	5011	3		Austria: ATX Index*	4119	-43.60	-1.05	-17.8%
3882	4757	16		Belgium: Bel-20*	4023	-28.60	-0.71	-15.4%
1642	1937	5		Czech Republic: Prague*	1657	11.20	0.68	-14.4%
4818	5335	8		Greece: ASE General*	4858	-104.18	-2.10	-8.9%
9509	12657	33		Finland: OMX Helsinki*	10561	-30.05	-0.28	-16.6%
5218	6168	16		France: Paris CAC 40*	5371	-29.02	-0.54	-12.9%
6437	8152	75		Germany: Xetra Dax*	7718	4.86	0.06	-5.3%
6343	9981	9		Ireland: Irish Overall*	6661	35.81	0.54	-33.3%
37293	44364	1		Italy: S&P/MIB*	37364	71.00	0.19	-15.8%
473	562	10		Netherlands: Amsterdam AEX*	482	-2.27	-0.47	-14.2%
488	605	21		Norway: All Share*	512	-11.63	-2.22	-15.4%
11302	13730	33		Portugal: PSI 20*	12095	-232.40	-1.89	-11.9%
5898	7922	87		Russia: DJ Russia Titans*	7664	2.96	0.04	-3.3%
13602	15946	37		Spain: IBEX 35*	14458	-66.00	-0.45	-9.3%
320	427	0		Sweden: SX All Share*	320	-1.21	-0.38	-25.1%
8070	9548	6		Switzerland: Zurich Swiss Market*	8160	-131.10	-1.58	-14.5%
37640	58864	67		Turkey: Istanbul National 100*	51921	-430.42	-0.82	-11.8%
5822	6754	41		UK: FTSE 100*	6202	-20.70	-0.33	-8.2%
9686	12282	6		UK: FTSE 250*	9830	29.20	0.30	-20.0%
1010	1151	17		UK: FTSE AIM All-Share*	1034	0.40	0.04	-10.2%
		26				AVG	-0.63	-14.1%

[Jim Nickerson]

Re: Global decoupling? Then answer this conundrum

				Americas x-US
LOW	HIGH	IN RANGE		1/11/2008	INDEX	CHANGE	% CHANGE	% OFF HIGH
329	401	41		DJ Americas Index	359	-4.79	-1.32	-10.5%
3508	5134	3		DJ Wilshire Americas	3563	-48.65	-1.35	-30.6%
1834	2351	48		Argentina: MerVal*	2083	-1.62	-0.08	-11.4%
41179	65791	84		Brazil: Bovespa	61942	-1573.12	-2.48	-5.8%
12464	14647	54		Canada: S&P/TSX	13633	-10.08	-0.07	-6.9%
2730	3500	12		Chile: Santiago IPSA	2822	0.61	0.02	-19.4%
25788	32836	42		Mexico: I.P.C. All Share	28724	-345.74	-1.19	-12.5%
36221	51794	13		Venezuela: Caracas General	38322	-439.58	-1.13	-26.0%
		41				AVG	-0.92	-13.9%
				Other Countries
				Country: Index	0
LOW	HIGH	IN RANGE		1/11/2008	INDEX	CHANGE	% CHANGE	% OFF HIGH
6545.14	10977	100		Egypt: CASE 30*	10959	-18.33	-0.17	-0.2%
2183	2695	69		DJ Islamic Market Titans	2535	-26.25	-1.02	-5.9%
970	1237	72		Israel: Tel Aviv 25*	1162	-18.56	-1.57	-6.1%
34372	59257	95		Nigeria: Nigeria Stock Indices*	58131	0.00	0	-1.9%
6871	11662	100		Saudi Arabia: SE All Share	11643	46.89	0.4	-0.2%
24677	31728	40		S. Africa: FTSE/JSE All Share*	27509	-394.69	-1.41	-13.3%
4288	6155	96		United Arab Emirates: DFM General*	6082	-73.13	-1.19	-1.2%
		82					-0.71	-4.1%