Date: Wed Dec 17 2003 13:14
trotsky (Pit yorkie) ID#377387:
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1. why would China flop? it will flop when the credit expansion comes to a halt. note in this context that China's internal credit expansion is inextricably linked to the US current account, and with it, to the US credit expansion. in China, a plethora of malinvestments has taken place, as always happens when too much money out of thin air hits an economy. how do we know? look at commodity prices - they are a symptom of the fact that demands on resources are made that those resources can't currently meet. look at the recent reports that China is bulding more steel mills than can't possibly be fed by currently available iron ore production. note also, that the Chinese government, scared that the boom is getting out of control, has belatedly ordered the state owned banks to stop lending to car manufacturers, steel producers and aluminium producers ( all of whom strain the electricity infrastructure close to breaking point at this stage ) . it is a TYPICAL Misesian crack-up boom, and it will end the same way such booms ALWAYS end: a bust as soon as the credit expansion stops. well, the credit expansion IS stopping.
as for the US economy, the statement "That still needs the USA which will only come down when interest rates hike" is imo naive. as a matter of fact, after 3 years of extraordinary 'stimulus' measures ( i.e., an unprecedented rate cutting spree, the biggest expansion in the budget deficit ever, and an unconstrained mortgage credit and housing boom ) the US economy looks incredibly anemic. over 30% of resources are idle - industrial capacity utilization is creeping along at depression levels, personal income has first fallen, and now stagnates. meanwhile, it has taken nearly $7 in ADDITIONAL credit to produce $1 of GDP 'growth', which in turn is largely a statistical mirage anyway ( not only hedonic indexing contributed, but also the fact that what amounts actually to a net negative for the economy is counted as a 'positive' in the GDP accounts, like e.g. the wasteful government spending - esp. on defense - and the rise in oil prices ) .
your 'solution', namely to 'simply print money' obviously is exactly what has happened over the past 3 years already, and it has irrevocable damaged the economy's structural integrity imo...to the point that when the dreaded consumer rescession finally strikes, we could be faced with a bust that exceeds anything seen since the 30's. you are also conveniently forgetting that 'printing' money alone doesn't achieve anything - someone must be willing and able to borrow and spend the money ( i.e. must take actions that further deplete the pool of real funding, putting the economy ever deeper into the hole ) . however, who is left to do that? total US credit market debt is now at nearly 360% of GDP - $36 trillion. even if we assume a low interest expense of say 7% for the entire amount, the economy would need to produce $ 2.5 trillion annually in NET PROFITS to simply pay for the interest on this amount. we're running into mathematical impossibilities here, which is why it has become a "Ponzi economy" where new credit is taken on to pay off old credit & interest.
so instead of fearing rate hikes, you should ask, 'how much potential stimulus is left to avert the collapse?' - and the answer is, not enough. |
