Digby's Hullabaloo
2801 Ocean Park Blvd.
Box 157
Santa Monica, Ca 90405

Facebook: Digby Parton

@BloggersRUs (Tom Sullivan)

thedigbyblog at gmail
satniteflix at gmail
publius.gaius at gmail
tpostsully at gmail
Spockosbrain at gmail
Richardein at me.com


Mother Jones
Raw Story
Huffington Post
Crooks and Liars
American Prospect
New Republic

Denofcinema.com: Saturday Night at the Movies by Dennis Hartley review archive

January 2003 February 2003 March 2003 April 2003 May 2003 June 2003 July 2003 August 2003 September 2003 October 2003 November 2003 December 2003 January 2004 February 2004 March 2004 April 2004 May 2004 June 2004 July 2004 August 2004 September 2004 October 2004 November 2004 December 2004 January 2005 February 2005 March 2005 April 2005 May 2005 June 2005 July 2005 August 2005 September 2005 October 2005 November 2005 December 2005 January 2006 February 2006 March 2006 April 2006 May 2006 June 2006 July 2006 August 2006 September 2006 October 2006 November 2006 December 2006 January 2007 February 2007 March 2007 April 2007 May 2007 June 2007 July 2007 August 2007 September 2007 October 2007 November 2007 December 2007 January 2008 February 2008 March 2008 April 2008 May 2008 June 2008 July 2008 August 2008 September 2008 October 2008 November 2008 December 2008 January 2009 February 2009 March 2009 April 2009 May 2009 June 2009 July 2009 August 2009 September 2009 October 2009 November 2009 December 2009 January 2010 February 2010 March 2010 April 2010 May 2010 June 2010 July 2010 August 2010 September 2010 October 2010 November 2010 December 2010 January 2011 February 2011 March 2011 April 2011 May 2011 June 2011 July 2011 August 2011 September 2011 October 2011 November 2011 December 2011 January 2012 February 2012 March 2012 April 2012 May 2012 June 2012 July 2012 August 2012 September 2012 October 2012 November 2012 December 2012 January 2013 February 2013 March 2013 April 2013 May 2013 June 2013 July 2013 August 2013 September 2013 October 2013 November 2013 December 2013 January 2014 February 2014 March 2014 April 2014 May 2014 June 2014 July 2014 August 2014 September 2014 October 2014 November 2014 December 2014 January 2015 February 2015 March 2015 April 2015 May 2015 June 2015 July 2015 August 2015 September 2015 October 2015 November 2015 December 2015 January 2016 February 2016 March 2016 April 2016 May 2016 June 2016 July 2016 August 2016 September 2016 October 2016 November 2016 December 2016 January 2017 February 2017 March 2017 April 2017 May 2017 June 2017 July 2017 August 2017 September 2017 October 2017 November 2017 December 2017 January 2018 February 2018 March 2018 April 2018 May 2018 June 2018 July 2018 August 2018 September 2018 October 2018 November 2018 December 2018 January 2019 February 2019 March 2019 April 2019 May 2019 June 2019 July 2019


This page is powered by Blogger. Isn't yours?


Monday, August 29, 2011

Meanwhile, in China...
by David Atkins ("thereisnospoon")

The problem hasn't received as much press attention as the domestic or Eurozone troubles, but China is in its own world of hurt right now, too. The Chinese economy has grown too much, too fast and is currently suffering both from a real estate bubble and from having purchased too many foreign treasuries and having allowed its currency to depreciate too far to aid its manufacturing sector. The result? Massive inflation:

In the first seven months, the CPI gained 5.5 percent from a year earlier, well above the government's target ceiling of 4 percent for this year.

In July, CPI even jumped 6.5 percent year-on-year, reaching its highest level in 37 months, placing the government in a tough position with worsening global liquidity in sight.

The Producer Price Index, which is used to calculate inflation at the wholesale level, jumped 7.5 percent year-on-year in July.

The stubbornly high inflation rate has been driven by rising food costs, which jumped by 14.8 percent in July from a year ago.

The price of pork, a staple food in China, soared by nearly 57 percent in July.

Addressing a Forum on China's Macroeconomic Conditions and Macro Policies in Singapore, Zhang Liqun, an economist from the Development Research Center, said he expected the inflation pressure resulting from surging food prices to start easing as supply increases.

It's not just food. Cab drivers in China are striking nationwide despite fears of retribution from the supposedly Communist government:

Woe is the taxi driver in China.

The roads are clogged with about 40,000 new cars a day, the price of gasoline has doubled in the last five years and passenger fares have barely budged even though everything else in the country is getting more expensive.

Fed up with their shrinking profit margins, 1,500 cabbies in the eastern city of Hangzhou went on strike this month demanding higher fares.

“Ten years ago, taxi drivers belonged to the high income group. Now we have become part of the low income group,” a Hangzhou cab driver told the Oriental Daily, explaining how his pay after expenses had dropped from about $730 a month six years ago to $470 today.

It’s no wonder then that taxi drivers have become the poster children of China’s nagging inflation, which grew 6.5% in July from a year ago to reach a 37-month high.

Their struggle to make ends meet underscores the pressure on China’s broader working class population who are most vulnerable to consumer price increases. And when they strike, they remind the central government how inflation can trigger social unrest...

Guo said there have been 60 taxi strikes since 2004, including a violent demonstration by 9,000 drivers in the western city of Chongqing in 2008.

In an article published Thursday in the official Communist Party mouthpiece the People’s Daily, cab drivers in Beijing said they had to work up to 18 hours a day and give half their earnings to lease their cars.

This sort of thing cannot continue. So China may finally allow appreciation of their currency in order to curb inflation and reduce the risk incurred from owning so many foreign currency bonds. The only problem for China is that this will hurt their domestic manufacturing economy at a time when the economy is already slowing worldwide:

China's government may be about to let the yuan-dollar exchange rate rise more rapidly in the coming months than it did during the past year. The exchange rate was frozen during the financial crisis, but has been allowed to increase since the summer of last year. In the past 12 months, the yuan strengthened by 6 per cent against the dollar, its reference currency.

A more rapid increase of the exchange rate would shrink China's exports and increase its imports. It would also allow other Asian countries to let their currencies rise or expand their exports at the expense of Chinese producers. That might please China's neighbours, but it would not appeal to Chinese producers. Why then might the Chinese authorities deliberately allow the yuan to rise more rapidly?

There are two fundamental reasons: reducing the portfolio risk and containing domestic inflation.

Consider first the authorities' concern about the risks implied by its portfolio of foreign securities. China's existing portfolio of some US$3 trillion (Dh11.01tn) worth of dollar bonds and other foreign securities exposes it to two distinct risks: inflation in the US and Europe, and a rapid devaluation of the dollar relative to the euro and other currencies.

Inflation in the US or Europe would reduce the purchasing value of the dollar bonds or euro bonds. The Chinese would still have as many dollars or euros, but those dollars and euros would buy fewer goods on the world market.

Even if there were no increase in inflation rates, a sharp fall in the dollar's value relative to the euro and other foreign currencies would reduce its purchasing value in buying European and other products. The Chinese can reasonably worry about that after seeing the dollar fall 10 per cent relative to the euro in the past year - and substantially more against other currencies.

With the Eurozone in crisis and the future of the Euro itself in question, there is no telling what may befall treasuries and the U.S. dollar. In any case, China would be wise to strengthen the yuan and acquire a little more financial independence--except for the fact that the Chinese economy still depends mostly on its manufacturing sector, which can only be hurt by a stronger yuan.

The other thing a stronger yuan would mean is higher prices for Chinese goods overseas (that's why it would hurt Chinese manufacturing.) It's a dirty secret that one of the reasons Americans haven't complained too badly about a lack of rising domestic wages is that there has been price deflation in cheap manufactured goods from China at the local Target or WalMart. Increase the prices of those goods, and it will have social and economic ripple effects in the American economy as well.

This is all part of why no single nation can truly control its own financial destiny. The world is now a globally interconnected system: one that is far too dependent on elite financial institutions and the rapacious greedheads who run them, and far too little interested in the general welfare of the real people who toil every day to put food on the table all across the planet.

Sooner or later, the sovereign nations of the world will need to come together in a spirit of mutual cooperation, understanding that a slowly rising tide lifts all boats, that massive income inequality is to be avoided, that bubbles need to be popped through government intervention before they grow too big, and that allowing financial institutions to control our collective destinies is a very bad idea.