Comments on: There is currently a shortfall in Chinese demand for the world’s goods, not Chinese demand for the world’s bonds http://blogs.cfr.org/setser/2009/01/27/there-is-currently-a-shortfall-in-chinese-demand-for-the-world%e2%80%99s-goods-not-chinese-demand-for-the-world%e2%80%99s-bonds/ Thu, 14 Oct 2010 13:09:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: The foreign twist to complaints about the stimulus http://blogs.cfr.org/setser/2009/01/27/there-is-currently-a-shortfall-in-chinese-demand-for-the-world%e2%80%99s-goods-not-chinese-demand-for-the-world%e2%80%99s-bonds/#comment-124815 The foreign twist to complaints about the stimulus Sat, 07 Feb 2009 20:25:53 +0000 http://blogs.cfr.org/setser/?p=4566#comment-124815 [...] to pick up the slack, or this recession will last a long time. Indeed, count me in the Martin Wolf/Brad Setser camp of those who would love to see other countries — *cough* China, *cough* — starting [...] [...] to pick up the slack, or this recession will last a long time. Indeed, count me in the Martin Wolf/Brad Setser camp of those who would love to see other countries — *cough* China, *cough* — starting [...]

]]> By: leftymn http://blogs.cfr.org/setser/2009/01/27/there-is-currently-a-shortfall-in-chinese-demand-for-the-world%e2%80%99s-goods-not-chinese-demand-for-the-world%e2%80%99s-bonds/#comment-123667 leftymn Wed, 28 Jan 2009 20:45:42 +0000 http://blogs.cfr.org/setser/?p=4566#comment-123667 I am not at the level of macro or micro sophistication as most of the commenters here, but the Chinese are buying USA soybeans and soybeans from the world market like drunken sailors. On the other hand you only need look at world freight rate values to see that their demand for almost all other commodities in plummeting... freight values on soybean parcels of 70,000 tons from USA gulf to China may make USA soybeans cheaper delivered to South china than Chinese origin soybeans grown in NE china. my export ag business was weak from April to october 2008, since late November it has actually picked up to everywhere but Europe. I am not sure what that means other than inventory replacement is probably taking place. With the exception of Chinese soybean buying most buyers worldwide are living in a 60-90 day window and with credit tight and leverage low... speculative positions even by actual inventory takers is nil. I am not at the level of macro or micro sophistication as most of the commenters here, but the Chinese are buying USA soybeans and soybeans from the world market like drunken sailors. On the other hand you only need look at world freight rate values to see that their demand for almost all other commodities in plummeting… freight values on soybean parcels of 70,000 tons from USA gulf to China may make USA soybeans cheaper delivered to South china than Chinese origin soybeans grown in NE china.

my export ag business was weak from April to october 2008, since late November it has actually picked up to everywhere but Europe. I am not sure what that means other than inventory replacement is probably taking place. With the exception of Chinese soybean buying most buyers worldwide are living in a 60-90 day window and with credit tight and leverage low… speculative positions even by actual inventory takers is nil.

]]> By: Emmanuel http://blogs.cfr.org/setser/2009/01/27/there-is-currently-a-shortfall-in-chinese-demand-for-the-world%e2%80%99s-goods-not-chinese-demand-for-the-world%e2%80%99s-bonds/#comment-123660 Emmanuel Wed, 28 Jan 2009 19:30:51 +0000 http://blogs.cfr.org/setser/?p=4566#comment-123660 Your old boss is of the <a href="http://www.rgemonitor.com/roubini-monitor/255264/expect_the_world_economy_to_suffer_through_2009" rel="nofollow">same opinion</a> as Buiter that America's CAD will increase, not decrease. Your old boss is of the same opinion as Buiter that America’s CAD will increase, not decrease.

]]> By: don http://blogs.cfr.org/setser/2009/01/27/there-is-currently-a-shortfall-in-chinese-demand-for-the-world%e2%80%99s-goods-not-chinese-demand-for-the-world%e2%80%99s-bonds/#comment-123638 don Wed, 28 Jan 2009 18:18:40 +0000 http://blogs.cfr.org/setser/?p=4566#comment-123638 Brad: You are eactly right. Too bad others who advocate expansionary fiscal policy with no attention to the external balance don't pay more attention to these points. Especially PK when he argues that overstimulus is not an issue - you can err only on the down side. We don't need foreign demand for U.S. Treasury bonds to keep down the interest rate, because the problem is insufficient demand. Another way to make the point is to say that you don't have to worry about the fiscal deficit 'crowding out' private demand when demand is deficient. Brad:
You are eactly right. Too bad others who advocate expansionary fiscal policy with no attention to the external balance don’t pay more attention to these points. Especially PK when he argues that overstimulus is not an issue – you can err only on the down side.
We don’t need foreign demand for U.S. Treasury bonds to keep down the interest rate, because the problem is insufficient demand. Another way to make the point is to say that you don’t have to worry about the fiscal deficit ‘crowding out’ private demand when demand is deficient.

]]> By: Rien Huizer http://blogs.cfr.org/setser/2009/01/27/there-is-currently-a-shortfall-in-chinese-demand-for-the-world%e2%80%99s-goods-not-chinese-demand-for-the-world%e2%80%99s-bonds/#comment-123601 Rien Huizer Wed, 28 Jan 2009 12:19:57 +0000 http://blogs.cfr.org/setser/?p=4566#comment-123601 Twofish, Lots of things can cause stagflation but only strong trade restrictions can stop cyclical aggregate labor abundance in the West. And that is what is required to turn the present policies (and who knows what may be still on the drawing boards-desperate politicians always gamble for resurrection- in the US and some stupid EU countries not to mention our friends from the British Museum)into something poisonous. I know people may think I am an idiot worrying about stagflation while millions of people in the west worry about their future employment, but those people have the wrong skills and the right sentiments for trade conflicts, whilst living in a world that has become a lot more capitalist than 25 years ago.. Chinese do not have to worry though, trade friction usually hurts the protector. Twofish,

Lots of things can cause stagflation but only strong trade restrictions can stop cyclical aggregate labor abundance in the West. And that is what is required to turn the present policies (and who knows what may be still on the drawing boards-desperate politicians always gamble for resurrection- in the US and some stupid EU countries not to mention our friends from the British Museum)into something poisonous. I know people may think I am an idiot worrying about stagflation while millions of people in the west worry about their future employment, but those people have the wrong skills and the right sentiments for trade conflicts, whilst living in a world that has become a lot more capitalist than 25 years ago.. Chinese do not have to worry though, trade friction usually hurts the protector.

]]> By: Indian Investor http://blogs.cfr.org/setser/2009/01/27/there-is-currently-a-shortfall-in-chinese-demand-for-the-world%e2%80%99s-goods-not-chinese-demand-for-the-world%e2%80%99s-bonds/#comment-123600 Indian Investor Wed, 28 Jan 2009 11:46:11 +0000 http://blogs.cfr.org/setser/?p=4566#comment-123600 As King, So Subjects. ("Yatha Raja, Thatha Praja"), an ancient political scientist from India, Chanakya, wrote, cautioning the sovereigns that their behavior will be reflected amongst the population. While the US Government has high levels of Debt, the Chinese Govt has accumulated a lot of savings in the form of forex reserves. I managed to notice that India has a fiscal deficit and a trade deficit, both of which don't seem to me to be at dangerous levels. This appears to me mirrored in the private sector "savings", "investments" and consumption level as well in those countries. The common behavior of private entrepreneurs is to produce wherever it is cheapest to produce and sell wherever it is most profitable to sell. That isn't going to change. The root cause of the "global imbalance" isn't just in the level of imports and exports of merchandise.The fiscal policies of different governments can also be viewed as being largely independent of the levels of international trade, at least in theory. And given the unique role of the US dollar in international trade, the US is more advantageously positioned to follow a fiscal policy independent of international trade levels if it so chooses. As King, So Subjects. (“Yatha Raja, Thatha Praja”), an ancient political scientist from India, Chanakya, wrote, cautioning the sovereigns that their behavior will be reflected amongst the population.
While the US Government has high levels of Debt, the Chinese Govt has accumulated a lot of savings in the form of forex reserves. I managed to notice that India has a fiscal deficit and a trade deficit, both of which don’t seem to me to be at dangerous levels. This appears to me mirrored in the private sector “savings”, “investments” and consumption level as well in those countries.
The common behavior of private entrepreneurs is to produce wherever it is cheapest to produce and sell wherever it is most profitable to sell. That isn’t going to change. The root cause of the “global imbalance” isn’t just in the level of imports and exports of merchandise.The fiscal policies of different governments can also be viewed as being largely independent of the levels of international trade, at least in theory. And given the unique role of the US dollar in international trade, the US is more advantageously positioned to follow a fiscal policy independent of international trade levels if it so chooses.

]]> By: Twofish http://blogs.cfr.org/setser/2009/01/27/there-is-currently-a-shortfall-in-chinese-demand-for-the-world%e2%80%99s-goods-not-chinese-demand-for-the-world%e2%80%99s-bonds/#comment-123594 Twofish Wed, 28 Jan 2009 09:23:21 +0000 http://blogs.cfr.org/setser/?p=4566#comment-123594 Huizer: That (and only that) would realize the risk that current stimulus policies imply): the potential for stagflation. There are lots of things that could cause stagflation. This is why I'm so concerned about political/economic risks since if you have stimulus policies followed by a supply shock (i.e. asteroid hits Saudi oil fields), then you get stagflation. Right now the only thing that is changing is the demand curve. If you have a political crisis then you start hitting the supply curve at which point very bad things happen. Huizer: That (and only that) would realize the risk that current stimulus policies imply): the potential for stagflation.

There are lots of things that could cause stagflation. This is why I’m so concerned about political/economic risks since if you have stimulus policies followed by a supply shock (i.e. asteroid hits Saudi oil fields), then you get stagflation.

Right now the only thing that is changing is the demand curve. If you have a political crisis then you start hitting the supply curve at which point very bad things happen.

]]> By: Twofish http://blogs.cfr.org/setser/2009/01/27/there-is-currently-a-shortfall-in-chinese-demand-for-the-world%e2%80%99s-goods-not-chinese-demand-for-the-world%e2%80%99s-bonds/#comment-123593 Twofish Wed, 28 Jan 2009 09:19:05 +0000 http://blogs.cfr.org/setser/?p=4566#comment-123593 bsetser: china’s export subsididy via its fx policy has neen a bad jobs policy (Strong growth has produced weak employment and compensation growth) and it will leave china’s future taxpayers with large costs. I disagree with this one. If you look at the rate of growth of incomes and employment, you could come to this conclusion, but this ignores two important facts. 1) during the 1990's and early-2000's, the state owned enterprises were shedding massive numbers of jobs, so it wasn't that export industries weren't creating jobs. It was that new jobs were created as quickly as old ones were being lost. At the time the movement of jobs from the state-sector to the non state-sector was considered a good thing. 2) as far as income stagnation. The problem was that Chinese SOE incomes in the early 1990's were economically unsustainable. The SOE's were paying out far more in wages than they were making in revenue, and this was the basic source of the NPL problem. If China had continued to keep the wage/GDP growth constant, it would now have busted banks. The other point is that the jobs created by the export sector were low wage, low skill jobs which is exactly what the rural countryside needed. The flip side was that because the export industry produced massive numbers of low wage jobs, people are now very seriously worried that it is gone. bsetser: it will leave china’s future taxpayers with large costs. at ists peak, the annual subsidiy associated with chinese intervention was as large as the TARP. And that is the estimated loss; True, but when you have to pay something is as important as how much you have to pay. In an economy that is growing, it makes sense to pay later, since future Chinese taxpayers will (hopefully) be much more wealthy than current ones. bsetser: china’s export subsididy via its fx policy has neen a bad jobs policy (Strong growth has produced weak employment and compensation growth) and it will leave china’s future taxpayers with large costs.

I disagree with this one. If you look at the rate of growth of incomes and employment, you could come to this conclusion, but this ignores two important facts.

1) during the 1990′s and early-2000′s, the state owned enterprises were shedding massive numbers of jobs, so it wasn’t that export industries weren’t creating jobs. It was that new jobs were created as quickly as old ones were being lost. At the time the movement of jobs from the state-sector to the non state-sector was considered a good thing.

2) as far as income stagnation. The problem was that Chinese SOE incomes in the early 1990′s were economically unsustainable. The SOE’s were paying out far more in wages than they were making in revenue, and this was the basic source of the NPL problem. If China had continued to keep the wage/GDP growth constant, it would now have busted banks.

The other point is that the jobs created by the export sector were low wage, low skill jobs which is exactly what the rural countryside needed. The flip side was that because the export industry produced massive numbers of low wage jobs, people are now very seriously worried that it is gone.

bsetser: it will leave china’s future taxpayers with large costs. at ists peak, the annual subsidiy associated with chinese intervention was as large as the TARP. And that is the estimated loss;

True, but when you have to pay something is as important as how much you have to pay. In an economy that is growing, it makes sense to pay later, since future Chinese taxpayers will (hopefully) be much more wealthy than current ones.

]]> By: china_stimulus http://blogs.cfr.org/setser/2009/01/27/there-is-currently-a-shortfall-in-chinese-demand-for-the-world%e2%80%99s-goods-not-chinese-demand-for-the-world%e2%80%99s-bonds/#comment-123588 china_stimulus Wed, 28 Jan 2009 05:43:59 +0000 http://blogs.cfr.org/setser/?p=4566#comment-123588 China will do everything to stimulate the U.S. consumer...they're praying the purchase of U.s. gov't bonds will revive america. to date China, cannot survive without U.S. consumption levels. it would be a different story if we were in 2019 instead of 2009... unfortunately, the game maybe a day late and a dollar short. markets may move higher, but once they realize how bad global conditions are (IMF reports upcoming) we're in for a SELL-OFF. China will do everything to stimulate the U.S. consumer…they’re praying the purchase of U.s. gov’t bonds will revive america.

to date China, cannot survive without U.S. consumption levels. it would be a different story if we were in 2019 instead of 2009…

unfortunately, the game maybe a day late and a dollar short. markets may move higher, but once they realize how bad global conditions are (IMF reports upcoming) we’re in for a SELL-OFF.

]]> By: bsetser http://blogs.cfr.org/setser/2009/01/27/there-is-currently-a-shortfall-in-chinese-demand-for-the-world%e2%80%99s-goods-not-chinese-demand-for-the-world%e2%80%99s-bonds/#comment-123577 bsetser Wed, 28 Jan 2009 01:57:27 +0000 http://blogs.cfr.org/setser/?p=4566#comment-123577 gillies -- china is well aware of the plaza. i wish thought they had studied the role nominal appreciation of the yen played in the 70s and 80s in bringing japanese living standards up to first world levels (as their economic performance warranted). the yen didn't stay at 360 to the $ (its BW parity), and real apprecition didn't all come through inflation. me thinks china overgeneralizes from the plaza experience (and i think the real lesson there has more to do with not letting a bubble form in equities/ stocks that the exchange rate, but i digress). suffice to say mckinnon's interpretation of plaza isn't the only one ... gillies — china is well aware of the plaza. i wish thought they had studied the role nominal appreciation of the yen played in the 70s and 80s in bringing japanese living standards up to first world levels (as their economic performance warranted). the yen didn’t stay at 360 to the $ (its BW parity), and real apprecition didn’t all come through inflation. me thinks china overgeneralizes from the plaza experience (and i think the real lesson there has more to do with not letting a bubble form in equities/ stocks that the exchange rate, but i digress).

suffice to say mckinnon’s interpretation of plaza isn’t the only one …

]]>