China accuses US of fuelling ‘huge carry trade’

Quote from Debaser82:

Today, in a similar fashion, the seeds of Depression are sown in China. Economists hail the growth of China, many not realizing that China is undergoing an inflationary credit boom that dwarfs that American one during the roaring ‘20s. According to official government statistics, 2002 Chinese GDP growth was 8%, and 2003 growth was 8.5%, and some analysts believe these numbers to be conservative. According to the People’s Bank of China own web site (http://www.pbc.gov.cn/english/baogaoyutongjishuju/), “Money & Quasi Money Supply” for 2001/01 was 11.89 trillion, for 2002/01 was 15.96 trillion, for 2003/01 was 19.05 trillion, and for 2004/01 was 22.51 trillion yuan. In other words, money supply for 2001, 2002, and 2003 grew respectively 34.2%, 19.3%, and 18.1%. Thus, during the last three years, money supply in China grew approximately three times faster than money supply in the U.S. during the 1920s.

No wonder the Chinese stock market has been booming and the Chinese real estate market is on fire. Just like the U.S. in the 20s, China finances today foreign countries, mostly the U.S., by buying U.S. government bonds with their trade surplus dollars. Just like the Fed’s failed attempts of moral suasion during the 20s, the Chinese government today similarly attempts in vain to curtail growth of credit by providing it only to those industries that need it, that is, only to industries that the government endorses for usually political reasons. Also, for most of the current boom, Chinese consumer prices have been mostly tame and even falling, while prices for raw commodities have been skyrocketing, which perfectly fits the Austrian view that prices of higher-order goods, such as raw materials, should rise relative to prices of lower-order goods, such as consumer goods. This indeed confirms that credit expansion has already been in progress for a considerable time, and that inflation now is in an advanced stage, although it has not yet reached a runaway mode. Thus, economic conditions in China today are strikingly similar to those in America during the 1920s, and the multi-year credit expansion implies that a bust is inevitable.

http://www.financialsense.com/editorials/petrov/2004/0902.html

What was wrong with his analysis from 2004 and why has the bust not yet occured?
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The analysis essentially misses that most Chinese did not preticipate in the Chinese economy as end consumers until the 2000s, and the Chinese internal money supply was tiny in relation to it's population.
The US bust of 29 was caused by a burst stock bubble that made a cadre of people suddenly without a large portion of their "wealth", and over indebted consumers not being able to make their loan payments, which caused bank failures.

The threat to China is not consumer indebtedness but that the sudden drop in export revenue may cause China to collapse.

Their only hope against a fall in export demand to maintain production levels and employment is to develop a robust internal economy within China, and I think the Chinese money supply has had to grow substantially for this to occur without internal price deflation for finished goods.
 
Quote from ASusilovic:

Liu Mingkang, China’s chief banking regulator, said ...
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...a whole lot of things to deflect attention away from the fact that his country and its self-professed economic "prowess" cannot support a real currency.
 
But they're fucking right!!

Haven't you noticed that they've been hardly effeced by the recession? Or do you seriously just think they're just bad commies that want to steal your freedoms?
 
Quote from Lethn:

But they're fucking right!!
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Right? While they're distorting the global currency supply/demand with their ridiculous peg and are likely blowing a lending and bad credit bubble of epic proportions in their own backyard.

The Chinese ought to do some housecleaning in their own attic before they start giving advice to the rest of the world.
 
November 14, 2009
Dollar carry trade could herald the next global crisis, analysts warn
Leo Lewis, Asia Business Correspondent


The global economy could be poised for the creation of a potentially explosive dollar carry trade, analysts said yesterday.

The trade allows investors to borrow dollars at near-zero interest rates, which they use to fund asset-buying sprees around the world, and has been possible since the collapse of Lehman Brothers last year and the extreme monetary response to its aftermath.

The warning was issued at the Apec summit of Asia Pacific leaders in Singapore and came after a variety of assets started to display bubble-like patterns of inflation: everything from gold and copper to fine wine and Hong Kong penthouses.

As the carry trade grows more popular it could add more downward pressure to the already falling dollar, particularly if the “carried” — borrowed — dollars are immediately sold to buy non-dollar denominated assets in China or Singapore.



Analysts believe that it was the sudden unwinding of the yen carry trade — immense pockets of investment funded by cheaply borrowed yen — that sent the destructive ripples of the Wall Street crisis around the world last autumn.

Carry trades, which essentially mean borrowing at low rates to fund higher return assets, make sense until markets turn sour and exchange rates shift too violently. At that point, the rush for the exit wildly exacerbates any crash. A collapse of the dollar carry trade has the potential to be particularly harmful because of its scale.

While a few prominent financial figures have already warned of the threat of an emerging dollar carry trade, governments have steered clear of commenting on the issue until now.

But talking on the sidelines of the Asia Pacific summit, Donald Tsang, chief executive of Hong Kong, admitted openly that the dollar carry trade had started to spread and that the prospect “scared” him.

Washington’s response to the recession, he said, ran the risk of emulating the behaviour of Japan after its bubble collapsed in 1989 and allowing overly loose policy and a rock-bottom cost of money to inflate asset bubbles around the world. “Gyrations in financial markets and bubbles in asset markets remain ahead of us,” he added.

Hong Kong is perhaps closer to the new asset bubbles than others: house prices there have risen 28 per cent this year and new records for land price sales have landed with thudding regularity over recent weeks.

Behind Mr Tsang’s concerns is the fixed relationship between the Hong Kong dollar and the “greenback” — the so-called dollar peg that is the cornerstone of Hong Kong financial policy but is forcing its interest rates to be much lower than the monetary authorities would like. Hong Kong’s property inflation is being driven by mortgages that are cheaper than they should be but the authorities are limited in how they can respond.

Observers who have warned of the emerging dollar carry trade include Nouriel Roubini, the American economist.

He believes that the prolonged ability to borrow dollars cheaply risks planting the seeds of the next financial catastrophe. Carry traders feel more comfortable with their positions because of the Federal Reserve’s promise to keep rates “exceptionally low” for an “extended period”, he said recently.

Also attending the Apec meeting in Hong Kong, Robert Zoellick, the World Bank president, noted the risk of allowing liquidity to flow into equity and property markets in the region.

“In East Asia, if you start to get a strong rebound in growth, and you’ve got a lot of liquidity, there is the question of whether one could start to face asset bubbles in particular markets,” he said.
 
speaking of the huge carry trade....



Futures jammed alot higher tonight.


The rally continues....





INDEX VALUE CHANGE OPEN HIGH LOW TIME DJIA INDEX 10,289.00 47.00 10,256.00 10,297.00 10,256.00 19:15
S&P 500 1,097.20 5.80 1,092.00 1,098.20 1,091.30 19:17
NASDAQ 100 1,795.75 7.50 1,790.00 1,797.25 1,790.00 19:15
 
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