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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: pogohere who wrote (75217)	12/10/2006 9:15:31 PM
From: GST	Read Replies (2) \| Respond to of 110194

There is no issue that credit expansion is running ahead of productive investment in the United States. Credit comes from Japan and increasingly from places like China and the middle east that run huge trade surpluses. However, within China there has not only been an astonishing rise in money supply, but also an astonishing mobilization of resources -- notably human resources and capital investment to put that labor to productive use. The enormous trade surplus of China and its massive US dollar reserves are the result of China increasing the supply of available labor and openning their economy to foreign capital investment. This labor pool has been globally disinflationary and there is constant upward pressure on the RMB -- a currency that only a few years ago had no value on international markets. You might not have been around, but the initial financing of the three gorges dam was going to be entirely based on counter trade because nobody thought foreigners would accept the RMB. Now it is hard to keep people from buying RMB as a hedge against further dollar weakness. We are now at a point where the Chinese labor pool is showing strong signs of running out of near term growth potential -- this is clearly the case now in southern China. Ditto for commodities. Soaring commodity prices are well known and the causes are complex, but nobody who looks at commodities can seriously doubt that the shifting demand and supply balance has played a role in prices -- it is certainly a factor as important as credit and money supply. What is less obvious is that China can no longer keep up with demand as factories in the south cannot attract and retain enough workers. We are on the cusp of increased inflation, RMB appreciation and tighter terms of credit, even as our economy slows -- indeed in part because our economy is slowing. You can stand back and wonder at why anybody would bother to debate the definition of inflation -- it is silly really as there is little serious dispute as to what is meant by inflation outside of a few fringe elements. But admit it or not, this thread is dominated by people who define inflation in a way so silly that it makes a mockery of the concept of a grown up conversation of the bond bubble ans its consequences.

To: pogohere who wrote (75217)	12/10/2006 10:37:04 PM
From: mishedlo	Respond to of 110194

Thanks. It would seem that official CPI measures leave out many financial components that absorbed quite a bit of money supply/credit and include the rise in housing prices, for example, as "owner equivalent rent" and the like, thereby falsely portraying the effects of credit creation. I am persuaded that John Williams has a good handle on this at shadowstats.com and that Richebacher at richebacher.com has accurately analysed the failure in the US over the last 5+ years to create wealth through savings and capital investment and properly focused on the fact that credit creation has outpaced savings by leaps and bounds. You are welcome pogo. Yes OER did hide in a huge way the effects of housing on the way up. CPI was enormously understated between 2000 and 2005 because of OER. Oddly enough, however it is probably overstating CPI for the last year. I have maintained for something like forever that most govt numbers are hugely distorted. One of the reasons is that it is simply impossible to pick a representative basket of goods and services in the first place. The second reason is the govt has every reason to lie about them. CPI, GDP, unemployment numbers are all not believable. If 4th q GDP is under 2% we are probably in recession already. Mish