Comments on: Buy Bonds! Chinese Rock Meets Economic Hard Place

By: montymarket

montymarket — Tue, 12 May 2009 17:25:15 +0000

Excellent point above about escalating shipping costs. The “China price” has gone up with greater increases in future, thereby making American homegrown a better bargain.

Add to that a whole extra “welfare class” layer of Communist Party members and cadres that the economy must support, including armies of internet censors and secret police–and the guanxi requirements that must be greased. Then there’s the environmental cost of poisoning water, air, food, etc., and concomitant health issues. (Not to mention the expense here of recalling adulterated baby formula, lead painted toys, etc.; the lost opportunity of transferring technology and appropriation of patents and trademarks without royalties; and lack of a just and transparent legal system to resolve disputes.)

America was able to go through growing pains while expanding into our manifest destiny, but we had a relatively unpopulated continent to absorb our mistakes and over indulgence–the PRC (and India) is packed with people already. While there is a great upside for PRC domestic markets, you have to wonder if the lack of an open political system will prevent the PRC from ever becoming a great superpower in the long run.

By: Bobster33

Bobster33 — Tue, 12 May 2009 15:50:59 +0000

If the Chinese stop buying US dollars, there are only so many other places that they can put their money, such as commodities, investing in their own economy. If short this is a tight rope for both economies.

By: Bobster33

Bobster33 — Tue, 12 May 2009 15:49:44 +0000

OT Loo Hoo, I recommend that you call the credit card compay and use the zero percent card to pay off your balances on any higher interest rate balances you carry. Just make sure to get the details of the transaction via the phone so that you do not exceed your credit limit (i.e. if you limit is 15K, you can only take out about $14.5K because of the fee to conduct the transaction). I used this to pay off one of my vaation bills. I had a year to pay off the bill at zero percent interest plus the $75 transaction fee.

By: eggroll

eggroll — Tue, 12 May 2009 14:30:41 +0000

There’s a larger institutional memory at work here. China was traumatized in 1841 when it learned that the old ways of the past 3,000 years could not stand up to Western approaches. With the disaster of 1900, and a large portion of humble pie, the Chinese decided if you can’t beat the West, it would be best to adopt and adapt their ways and ideas. Even with the split of governments in 1949, there was no diminishing of enthusiasm for Western ideas (even though some were now coming from a guy named Karl Marx). In contrast, Westerners have been less eager to embrace Chinese ideas. Being on the short end of the economic stick, it would seem, has provided a good motivation.

By: BooRadley

BooRadley — Tue, 12 May 2009 13:47:04 +0000

Thanks PW.

By: Knut

Knut — Tue, 12 May 2009 09:26:54 +0000

Why don’t they, and all the boomers who lost 401K monies last fall, jump back in with both feet and put their money to work instead of just sitting on T-bills?

For the same reason that investors in 1932 didn’t jump back in. They would have waited to the early 50s to get their money back.

By: Knut

Knut — Tue, 12 May 2009 09:25:34 +0000

I wouldn’t make too much of the quarterly figures on Chinese dollar accumulations. The short-term numbers are extremely sensitive to fluctuations in the US balance of trade, which is improving because the new Great Depression is cutting our demand for imports, and the fall in the price of oil is reducing the dollar price of our most important import. So in the short-run it would not be surprising to see some endogenous disinvestment by the Chinese authorities. The long run is another issue altogether. The US has got to gets its aggregate saving rate up to the point where at full employment we don’t spend more than we produce. Right now that’s not a problem, but if and when there is a recovery (I’m not holding my breath on this one), the Chinese will have to make a big choice whether to finance it or put their saving in some other venue, like Africa.

A person could make a lot of money sorting this all out and getting it right. I’m not that person.

By: Ian Welsh

Ian Welsh — Tue, 12 May 2009 08:05:48 +0000

good to see people coming onside with the Japanfication scenario as likely. Something myself, Oldman and Stirling were talking about 5 years ago. Yes, “I told you so” is tiresome, but, well, we told you so.

By: eggroll

eggroll — Tue, 12 May 2009 07:44:13 +0000

Yuan-denominated lending and yuan convertablity is still quite limited (mainly to Hong Kong). In the future, however, we can expect a lot of bilateral contracts in yuan. Also the yuan’s de facto peg to the dollar could fade away as the significance of the US in China’s foreign trade diminishes. For example, China and Australia have a flourishing trade that defies the global recession. It could well be that a struggling dollar would encourage Aussie commodities suppliers to accept delinking of the yuan and dollar.

By: wmd1961

wmd1961 — Tue, 12 May 2009 05:37:41 +0000

The Federal reserve is monetizing debt. At some point that likely leads to inflation.