Skip to comments.World edges closer to deflationary slump as money contracts in China
Posted on 05/14/2012 12:41:11 AM PDT by bruinbirdman
All key indicators of China's money supply are flashing warning signs. The broader measures have slumped to stagnation levels not seen since the late 1990s.
Chinese ghost city
Narrow M1 data for April is the weakest since modern records began. Real M1 deposits a leading indicator of economic growth six months or so ahead have contracted since November.
They are shrinking faster that at any time during the 2008-2009 crisis, and faster than in Spain right now, according to Simon Ward at Henderson Global Investors.
If China were a normal country, it would be hurtling into a brick wall. A "hard-landing" later this year would already be baked into the pie.
Whether this hybrid system of market Leninism with banks run by Party bosses conforms to Western monetary theory is a hotly contested point. The issue will be settled one way or the other soon.
What seems clear is that China's economy did not bottom out as expected in the first quarter. It is flirting with real trouble. Yao Wei from Societe Generale says a blizzard of awful data "screams out for easing".
China's electricity output watched religiously by bears slumped in April. It is up just 0.7pc over the last year. State investment in railways has fallen 44pc, with an accelerating downward lurch over recent months. Highway construction has dropped 2.7pc. "The data shows extreme weakness in the Chinese economy," said Alistair Thornton from IHS Global Insight in Beijing.
The Yangtze shipyards tell the tale. Caixin magazine said eight of the 10 largest builders in the country have not received a single new order this year. "A wave of closures in the shipbuilding industry has yet to begin. A hurricane is approaching," said one official.
Housing sales slumped
(Excerpt) Read more at telegraph.co.uk ...
I’ve read quotes from Chinese officials and generals stating much to the effect that if some economic crash came to China, they would direct the frustrations and energies of their people “into a fist, striking outward.”
Close, but not quite accurate.
We’ll see hyperinflation re necessities (obama is already causing this re energy, and entirely on purpose), but deflation of all non-necessities. Since non-necessities make up the majority of the world’s economies, this will mean few people will be able to afford necessities.
This is a recipe for utter disaster, and it’s almost too late to change paths...
The article overlooks a fundamental difference between China and other countries, that being the savings rates of its citizens. Traditionally the Chinese save 50 percent of their income or more.
Chinese are also far more used to doing without. Pent up consumerism certainly was unleashed in the last 15 years so they have gotten more comfortable but the Chinese are still far more adept at doing without and making do.
This article mentions Chinese rail construction has slowed. But that construction has put in a national system of bullet trains in just 10 years. It is as if the writer thinks that pace should go on forever.
Certainly China’s bankers have been pressured to make loans they would not otherwise prudently make. Perhaps that is going to cause a crash.
If that is the point then fine. But I can’t help think that if China is bad off for that, then what does it say about the U.S. The U.S. financial position seems far, far worse.
“Well see hyperinflation re necessities (obama is already causing this re energy, and entirely on purpose), but deflation of all non-necessities. Since non-necessities make up the majority of the worlds economies, this will mean few people will be able to afford necessities.”
Deflation looks like it is in the cards. China is the clincher.
I knew something was up when gold dealers on TV started advertizing selling at dealer cost with little or no commission. That told me that the smart money was selling their hoard or at least a lot of it.
I know the story about hyperinflation replacing deflation but when? You better have some cash on the side in the meantime.
Maybe Helicopter Ben will given every home owner 100K in cash if the fhit hits the san this time. Maybe that will help get it going.
I think it is inevitable that their economy is going to slow, for a variety of reasons, including the fact that more and more people are starting to avoid the purchase of made in China goods. The ‘fist striking outward’ approach will just hurt them more as it will breed a consumer backlash.
I’ve heard convincing arguments that the core of the problem lies with the repeal of the GlassSteagall Act around 1999. Only 8 years later, we had our inevitable crisis.
All the smart money was in deflation, and is still in deflation. Why do you think Bernanke panicked back in 2009? It was because prices were going down not up, to reflect lowered demand, and that was going to crush Bernanke’s debt positions.
At some point the thing about missing 70,000,000 women has to start to create gigantic grief.
Dropping money out of a helicopter won't fix anything, you have to create money and then spend it INTELLIGENTLY AND PRODUCTIVELY. It's those last two items which are tricky. Also it's best if governments at some level can simply create money rather than borrow it into existence as our government does. At least if a government creates money out of thin air itself we're not sitting here paying interest on it to banks which create it out of thin air.....
See, all those who have insisted the debt was going to result in hyperinflation have been hard pressed to explain why prices have just not been going up much, or fast. Well, if China is experiencing heavy deflation, it would more than offset inflationary tendencies here.
Remember this? Seems growing the economy can’t be done by Stimulus, in the long term. China also had no debt like the USA does.
Chinese economic stimulus program
he 20082009 Chinese economic stimulus plan is a RMB¥ 4 trillion (US$ 586 billion) stimulus package announced by the Central People’s Government of the People’s Republic of China on 9 November 2008 as an attempt to minimize the impact of the global financial crisis on the world’s second largest economy.
I’ve been saying similar for a few years. I bet at some point many of the excess males end up in Africa.
You get inflation from the destruction of the means of production/service of an economy.
Why did Zimbabwe get hyperinflation? They took over their farms and gave the farms to non-farmers.
OK, why do you get deflation? In a credit-based economy, you get deflation when credit availability is destroyed.
Thus, if printing more cash destroys more credit availability, then you get deflation.
Deflation is an economic reaction to a slowing speed of money. Lower prices encourage spending sooner.
On Sale Now, Sale Ends in 24 hours!
You seen some of the editorial work I've been up to?
BTW: I'm SO different than when you knew me.....
The point is, in an integrated worldwide economy, the velocity of money in major countries (I don’t think Zim really counts here) is closely tied to ALL business expectations, not just those of the US or Europe. A Chinese contraction would cause velocity everywhere to slow.
Falling prices over time reward delayed purchases, creating a vicious cycle as sellers become increasingly desperate for buyers, who begin to delay every purchase as much as possible. Credit naturally contracts without deliberate intervention due to bad debt caused by loss of collateral value.
What we’ve seen is massive intervention resulting in commodity bubbles. Stimulus is finding its way into the few areas with reliable demand.
Slumping overall demand is the root cause for deflation.