This morning, there were poor trade numbers from China. Chinese exports fell 26.4 percent in May from a year earlier while imports dropped 25.2 percent, the customs agency said. Some observers say this suggests a global economic recovery could be slower that some investors were expecting.
On the other hand, Chinese fixed-asset investment — spending on factories, properties and roads — jumped by the most in five years. At the same time, Chinese car sales jumped the most since 2006. Some Chinese car buyers are waiting 2 weeks to get the cars they want.
Meanwhile, GM has pulled the plug on the hybrid-electric version of the Chevy Malibu, due to slow sales. Go back and read my “Giant Stone Head Economics” mini-report. Isn’t this just what I was saying — GM will have a tough time competing with Toyota and Honda in the small-car and hybrid markets.
With all this in mind, let me point you to another piece of analysis from Econbrowser.com …
How Important Is China to World Growth?
Nominal GDP in millions of current US dollars. Shaded area for 2009-11 indicate forecasts. Source: IMF, World Economic Outlook database, April 2009 version.
Menzie Chinn at Econbrowser writes: “We tend to focus on China because of its size and dynamism. And while this focus is not misplaced, I do think we tend to forget that when thinking about the engines of world growth, we need to keep in mind that China, while growing faster than G-7 economies, is still only about the same size as Japan.
“So, while it’s good news that China seems to be rebounding in terms of growth, due in part to the implementation of a substantial stimulus package, one has to keep in mind how big the Chinese economy is (in USD, 8.8% of world GDP, compared to 12.4% in International dollars).”
Here are some other stories I’m reading …
Oil near $72 on economic recovery hopes
The Energy Department’s Energy Information Administration said Wednesday that crude inventories fell 1.6 million barrels in the week ended June 5. Analysts had expected a build of 800,000 barrels.
Investors have also sought crude as a hedge against inflation on fears massive fiscal stimulus spending could weaken the U.S. dollar. The euro gained to $1.4029 on Thursday from 1.3990 the previous day.
Slump in 2009 global oil demand seen moderating
The International Energy Agency on Thursday forecast that the slump in global oil demand in 2009 would be slightly less severe than previously expected, the organization’s first upward revision to its estimates in 10 months as economic indicators suggest the recession may be past its peak.
The Paris-based agency said in its closely watched monthly survey that global oil demand would fall by 2.9 percent to 83.3 million barrels a day this year, or 2.5 million barrels a day less than in 2008. That’s an upward revisions of 120,000 barrels a day from the IEA’s previous forecast.
In May, the IEA was expecting a 3 percent annual fall in demand, the sharpest rate of decline since 1981.
Fed Would Be Shut Down If It Were Audited, Expert Says
With $45 billion in capital and $2.1 trillion in assets, the central bank would not withstand the scrutiny normally afforded other institutions, Jim Grant, editor of Grant’s Interest Rate Observer, told CNBC.
“If the Fed examiners were set upon the Fed’s own documents—unlabeled documents—to pass judgment on the Fed’s capacity to survive the difficulties it faces in credit, it would shut this institution down,” he said. “The Fed is undercapitalized in a way that Citicorp is undercapitalized.”
Related Posts
- Gold Chart and China News (07/16/09)
- Big News in Gold — China Doubles Reserves (04/24/09)
- China Sovereign Fund Dumps Dollars for Gold and Oil (09/11/09)
- China, Post-American World, Global Warming & … (05/12/08)
- Gas Lines in China? (05/29/08)
{ 2 comments… read them below or add one }
Declining Dollar Makes a Bad Debt Problem Even Worse and the revenge of communism …
(Some points below taken from Safe Money)
At the end of last year, there were $10.7 trillion in U.S. Treasury debts outstanding. Of those, $4.8 trillion were held at the Federal Reserve or in other government accounts, leaving $5.9 trillion in private hands.
The big problem: Foreign investors held $3.13 trillion, or 53.1 percent, a dramatic increase from only 38 percent a decade earlier. In other words, for the first time since Benjamin Franklin traveled to France to get financing for our Revolutionary War, the majority of America’s creditors are overseas.
If you live in the U.S. and you invest in U.S. Treasury bonds, the only immediate reason you might have to reject them is the expectation that their market value will fall. Why buy now if you can purchase them later at a lower price — and a better yield?
But if you live overseas and you invest in those same U.S. bonds, you have a second powerful reason to shun or dump U.S. bond holdings: a sinking dollar.
Fed Chairman Ben Bernanke knows this. So does Treasury Secretary Tim Geithner. Yet even as they beg China and other U.S. creditors to continue investing in America, they have inadvertently or perhaps deliberately declared war on the U.S. dollar.
Look at the facts: For the first time in its 95-year history, the Federal Reserve is literally printing money out of thin air and using it to buy debt issued by the U.S. government and its agencies.
The technical term for this massive operation is “quantitative easing.” But the jargon does little to disguise the true nature of the beast: a stealth debasement of the U.S. currency; an outright devaluation of the U.S. dollar.
No wonder the broad-based Dollar Index recently sank to 78.3, down nearly 10 percent in just the past 7 weeks! No wonder all of the world’s major currencies are surging!
And no wonder foreign investors in U.S. Treasury securities are madder than hell! The great fear is that they will dump U.S. bonds. But they don’t have to go that far to cause havoc. Just the act of avoiding U.S. bonds is enough to drive their prices into a swan dive. And even if they do buy, just the act of shifting from long-term to short-term Treasuries is enough to precipitate a sharp price decline in long-term prices, which can promptly spill over into virtually all other credit markets.
My original points –>
So let’s examine this in more detail: Here is a list of MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES: (in billions of dollars) –> http://www.treas.gov/tic/mfh.txt
China and Japan holding the most. Late last year the Chinese government passed its own stimulus package of about $600 billion, to meet its target of 8 percent GDP growth. That’s right, 8 percent. That would be outlandish growth here, where the economy is now shrinking, not expanding.
But in China, that’s barely enough to keep a restless workforce employed. And the government might not be able to make its 8 percent target. Unemployment is soaring, and there’s even a possibility that economic woes could lead to angry public protests like those that preceded the 1989 Tiananmen Square massacre.
Since Tiananmen, America and China have become deeply linked to each other. Americans, obviously, buy a huge amount of imported Chinese goods—about $340 billion worth in 2008. Much of the cash that flows back to China gets invested in U.S. government securities, which helps keep U.S. interest rates low.
Here’s the lowdown: China will have to find a way to de-link itslef from being dependant on America for its exports … The big problem in China is that their consumers usually save first and then spend … and they are SMART … if they see their economy in a bubble … there is no way they are going to spend ..
So, how will China deal with this? They either print more money for investment or they will be forced to sell it’s Dollar reserves and invest in it’s own economy to create services and infrastructure to provide jobs IN CHINA in addition to building up it’s army and reserves … this is what happend in Desert Storm and Iraq … whenever their is a WAR … the economy of that nation comes back to life somehow but who the hell are the Chinese going to have a WAR with?? Russia … no … Japan … no … maybe N.Korea … that will give everyone a job and keep them consuming internally … as I said 6 months ago … this is a black hole that we are entering into … the revenge of communism …
In the interm .. China is a bubble and investors should exit …. (Tony Sagami: Please note)
Addendum to above:
China is a bubble and investors should exit …. but when the World Marlets bottom later this year or next, Asia is the place to be make a lot of money, in particular, Chinese stocks concentrating in building Infrastructure … those stocks that are NEEDS … not luxuries …