Thursday 9 August 2007

US business blogging.

Understanding the US economy is very important right now, as it will determine when our recession will come and how deep it will get.

Currently my two fave US blogs are Discursive Monologue and The Mess that Greenspan made. The Big Picture is the most well known, but not as accessible.


Steven_L said...

I'll get a bit more sober this weekend and have a read about the US then.

I found all that stuff about the Chinese threatening to dump their currency on the market quite amusing.

You have to understand the oriental sense of humour and take that with a pinch of salt I think.

I mean, if you were the USA and I was China and you kept harping on about revaluing my currency I wouldn't be able to resist saying 'Hang on a minute, if we're going to talk about revaluing currencies, who's got the most foreign currency reserves sitting about again?' and laughing at you.

CityUnslicker said...

Yup - just the Chinese way of stating they have a stake in the game.

However, counterintuitively the yanks are much better placed. A US collapse would waste all the hoarding of china and the US would carry on as before. it happened to Japan in hte late 80's and early 90's.

We are all really afraid of people who owe us lots of money; the more you owe to one person the more leverage you have!

Canny yanks.

Anonymous said...

It's certainly true that, after a certain amount, debt becomes the lender's problem as well as the debtor's problem. On the other hand, the gross global imbalances have left the Chinese with a strong industrial infrastructure and large reserves that are increasingly becoming diversified away from U.S. dollar denominated assets (albeit still extremely exposed). China has a long way to develop, especially in the way of transparency and maturity of the capital markets, but no matter how you look at it, China is speeding down the track while the United States spins its wheels.

I would say that the big difference this time around vis-a-vis your 1980s Japan comment is that in the late 1980s, the U.S. had just become a net debtor to the rest of the world. Now, the U.S. is the largest debtor in the history of the world (as far as we know). It's hard to imagine this ending well for the United States.

Thanks for the link. And don't mind the respite in posting from me (early next week). I'm moving to a new place and I'm going to be dealing with all sorts of moving chores over the next 5 days or so.

Steven_L said...

I'm not big on cityspeak, but how does borrowing a lot of money to buy cool fighter jets and stuff give you 'leverage' financially? It gives you air superiority, but how are the USA gaining from all this borrowing?

Ritholtz said...

Not as accessible?

Most of the time, I keep it pretty simple. Only when necessary will I let it get complex -- but I never dumb it down . . . The readers oiut there are pretty sharp

Sackerson said...

Thanks for these tips, Nick.

Sackerson said...

Matt, I think you're right. A crash would cause problems all round, but when the show re-starts, the Far East will have the tools and materials it's been gathering in from around the world. So in a way, the sooner a correction comes, the better.

Anonymous said...

I think that you have to remember that being a debtor nation is not like being a debtor individual. Money is printed - being printed in fact. Spending the last 20 years building up reserves of US currency may not have been the best idea for the Chinese. Furthermore they risk getting the treatment the Japanese got during the 80s when the US realised that the Japs were not buying US consumer products but were buying US assets instead and undermining the Keynsian macro-economic model. The Chinese are currently buying USTreasury bonds which could turn out to be worth rather less than they had hoped, relative to what should be an appreciating Yuan so now they are turning to US assets. The US is now feverishly protecting its assets as "strategic" - after all they don't want the commies getting their hands on US blue-chip companies do they? (Should have thought about that before letting them into the WTO, but we have a monkey in the white house).

In the end the Chinese will be the ones that suffer. They have nothing that the West actually NEEDS. In fact the West has only really tolerated Chinese growth at the expense of their own industry. If China had created an internal market as big as the one it has taken from the West it would be a different matter - but that would mean kissing goodbye to any vestigial belief in communism. No doubt the US had believed that would happen - but it hasn't so my guess is that tough economic times will see China kicked into touch. India consumes as well as produces so India may be a different story.

Old BE said...

But China does make lots of things we WANT!

True, we could mostly do without a new mobile every year etc. but to cut down on Chinese imports we would have to cut down on our standard of living too.

I would rather not pay more than a couple of quid for a Primark quality t-shirt, for example.

Anonymous said...

I think you are wrong about cutting back on our standard of living. Take mobile phones. Sure, you can make them in China for less - but would you sell them for less? A price has been established in the market place and the price of mobile phones is unlikely to ever rise above it. In any case production could easily be shifted to other low cost countries like India which actually have a stronger belief in the principles of free trade and can be encouraged to import as well as export.

China is very likely to find itself paying a price for its recent sabre rattling, Russia too. The West is itching to find excuses to protect itself from Chinese expansion and the excuses are lining up nicely.

Old BE said...

Ah yes good point. It's too easy to assume that China is the only cheap manufacturing place which of course it is not.

CityUnslicker said...

matt - Good luck with the move. The difficult task for china is to diversify without devaluing their current holding.

That will be a very tricky task and may be bad for Europe as it could create its own little bubble here.

The world does have a problem in that the producers have most of the cash and the consumer have little. There needs to be a rebalance to stop a global slow down.

CityUnslicker said...

Steven_L - Because the debt can be devalued, either through default or market forces. China won't want this to happen, as they have worked so hard to acquite these assets.

Think of it like a mortage company. They make more money if they do not have to repossess your home. You have leverage over them, particularly if say you had a mortgage of £10 million that would bankrupt the company if not repaid....

CityUnslicker said...

Barry - thanks for your comment. To be more specific I think I get more lost in the comments section; which I fully agree is full of sharp, if not lucid, people.

CityUnslicker said...

sackerson - This post was by CU, this is a joint blogging effort between me and Nick.

Who appears missing in action this week...

CityUnslicker said...

Anon - I broadly agree here. I liek to try and use simple ideas as many of my readers (and me!) are not economists by background.

However, China does not have the internal market that it needs yet; although it is well on the way with the massive investment. A slowdown in the West will hit it harder than people think. So investing in Shanghai Shares is still very risky indeed.

In the long term though, China wins through its sheer capacity for expansion and resources (oil excepted). As you rightly point out though, to do this will have to mean more government reform.

CityUnslicker said...

India though has huge problems in that it has a western style bureacary ready to strangle innovation. India too needs reform.

The general point is well made though, other countries can fight back. I even saw today that Malta is reclaiming some IT jobs that it lost to outsourcing.

Anonymous said...

"although it is well on the way with the massive investment."

"Massive investment"? Well, presumably it isn't western investment - if it was then the Yuan would definitely be rising against the dollar.

I do have my doubts about where the Chinese are actually getting their money and where it goes. The whole reason China has grown so fast is that it has sold its labour literally for peanuts, cheaper even than the other Asian tigers. Where is it actually getting its dollars from? Is it Western investment capital headed for China that has just rotated on itself? There are only 50million middle-class people in china out of a population of 1300million. And thats middle-class by Chinese standards. So certainly the Chinese people are not getting their hands on much of the cash. Not a very big internal market - it would be like getting excited about the Italian market.

I think the sudden rise of India into this picture is a deliberate challenge to China sponsored by western governments. India is a democracy, friendly to the West, broadly believing in free markets - and with dirt cheap labour that will work all week for a crust. I don't think India is being brought on stream to make yet more hedge trimmers. I think it is being brought on stream to take China out cleanly safe in the knowledge that Indian labour might buy something we produce in return.

Sackerson said...

James Kynge's book "China shakes the world" observes that there is an unofficial economy that may be worth a third as much as the official one, so demand is growing domestically.

And I agree that India is worth watching, as I've said in my blog more than once.

Nick Drew said...

Yep, Sackers, credit where it's due, & this one's down to the good CU.

I have just staggered in from another hot & dusty round of commercial travelling (peddling advice on complex energy derivatives door-to-door ... but Hatfield Girl wasn't having any of it, slammed the door in my face)

and will post a Gazprom update tomorrow for all our readers of a nervous disposition.


CityUnslicker said...

Anon - Having been to China I disagree, there are advanced economies around beijing, Shanghai, Hong Kong/Shenzen. These have more than 50 million people alone.

My estimate is more like 200 million people living at industiralized standards, with maybe 20 million or more added every year.

Plenty of room for growth internally to go; but of course they would have a big hiccup with a Western recession.

China is no illusion.

Anonymous said...

I have worked with companies selling into China for a long time now - 15 years or so. They are always saying "China is a growing market, Chine is where we want to be focussing on". So we give a lot of focus - and where does it get us? Nowhere. Three different companies that thought China was going to be big for them - but nothing ever came of it. It's always about where the Chinese market is going to be - but all the real money is coming from US, Europe, Japan, just as always. And lets face it, the Chinese are doing the work for peanuts, so they can't be accumulating any money - and what money they do get they immediately trade for US Treasuries. How much money do the ordinary chinese citizens get their hands on? Bear in mind they also protect their own markets. They deliberately avoided getting involved in discussions on the latest mobile phone technology because they created their own Chinese specification - years after the rest of the world had introduced 3G. This enabled their own producers catch-up time so they could push foreign companies out until their own companies were ready. Of course their own companies only produced for the local Chinese market at low cost so no-one else could compete.

The whole China thing started after HongKong was handed over as a prize capitalist jewel. That upset the apple-cart. After that I can say that anytime I had a business discussion with China we also got government involvement encouraging investment there - Swedish government, British government, German government. It was pretty clear the Americans were pushing us to invest there. Why there and not in impoverished but well educated Eastern Europe which was right on our doorstep? Probably no point as Eastern Europe was already so pro-West. It was an exercise in geo-politics with the goal being to tempt the Chinese with the benefits of capitalism. This has already started to change as the Americans are getting their fingers burnt and the strategy hasn't worked. All our latest investment has been into India and Eastern Europe. China has been forgotten. In any case, if you want skilled workers in China they are in short supply and you need to employ twice as many to counteract the employee churn - that means twice as much infrastructure imported to China from the West. I have never seen anything working come out of our Chinese operation anyway. They become impossible to manage but no-one wants to admit it of course. It just goes rather quiet.

The whole thing is a US inspired sham. It was a good try to unseat the CCP but it didn't work and I'm sure we will see the strategy changing, especially with the CCP making these ridiculous threats that belong to the cold-war era. Companies aren't going to fall for it anymore anyway. Nobody makes any real money there so this "if you want to sell to China you must set up a factory here" nonsense won't wash. Cheap labour can be found in somewhat more helpful parts of the world that don't try to copy everything you do.

I could go on and on about China but time to stop ranting!

CityUnslicker said...

Anon- I appreciate your comments and think a lot of what you say makes sense. Espcially about the government backed investment and then strategy change.

However, even if China does not become the billion person market with money of everyones dreams it will still grow to be another financial giant of the world.

300 million middle class is the same size as europe.

Anonymous said...

Can I suggest you do something for me? Can you stop and think to yourself "Hold on a minute, this is a Communist country that has been a basket case for decades, and now all of a sudden it knows how to make money?"

What we do in the West is just soooo easy isn't it? Anybody in the commie world can easily replicate it - and in fact do it better. All the infrastructure is already there. Don't be put off by stories that 8 of the top 10 universities are American and the other 2 are British. The Chinese are really very well educated and are coming out with top notch new inventions all the time aren't they?

Time to stop listening to that propaganda spread by left-wing radicals at the BBC. Next time you are in China get a bit further away from that American hotel you like to stay in.

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