I am beginning to feel as if I am being gaslighted. For those not familiar with the reference. Gas Light was a 1930s play in which a scheming husband keeps turning the gas lights in his house up and down, then keeps telling his wife that she is crazy when she comments on the changes. He eventually succeeds in driving her nuts.
The continuing efforts to find the most positive spin in any data release and put it in headlines continues. I just looked at the New York Times and saw “US Recovery Could Outstrip Europe’s Pace.” The article is admittedly more measured, but the headline implies a recovery is on in both the US and EU, which is not yet a foregone conclusion.
However, to show that the picture is a tad more complicated, DoctoRX passed along the fact that the World Bank has downgraded its 2009 global growth forecast, from a 1.7% contraction to negative 3%. This is a big change, and from what I can tell, has NOT been picked up by the major media, when past World Bank forecast changes have been. It feels as if we have controlled media.
From the World Bank:
The world economy is set to contract this year by more than previously estimated, and poor countries will continue to be hit hard by multiple waves of economic stress, said World Bank Group President Robert B. Zoellick today.
Even with the stabilization of financial markets in many developed economies, unemployment and under-utilization of capacity continue to rise, putting downward pressure on the global economy.
According to the latest Bank estimates, the global economy will decline this year by close to 3 percent, a significant revision from a previous estimate of 1.7 percent. Most developing country economies will contract this year and face increasingly bleak prospects unless the slump in their exports, remittances, and foreign direct investment is reversed by the end of 2010.
“Although growth is expected to revive during the course of 2010, the pace of the recovery is uncertain and the poor in many developing countries will continue to be buffeted by the aftershocks,” Zoellick said ahead of the Group of Eight finance ministers meeting in Italy.
Separate but related is that some of the cheery data coming out of China does not bear close scrutiny. Yesterday, Bloomberg noted that car sales in China spiked. Today we learn that the definition of a “sale” is a shipmment from the factory, whether the car has a buyer or not. And the number of registrations, a much better measure of end purchases, is much lower that the supposed sales figures.
From MetalMiner (hat tip reader Michael):
There are some apparently contradictory numbers coming out of China at the moment. Take those car sales as an example. Our man on the ground tells us BYD, a noted Chinese car maker, reported 30,000 car sales of one model by end of last year, but the number plate agency recorded only 10,000 new cars of that model registered for use on the road. What happened to the other 20,000 are they running around without number plates? In a police state, I don’t think so. Our understanding is auto sales are recorded in China when they leave the factory, not when they are registered on the road, so dealers can build up inventory while car “sales” are rising.
Coming back to Mr. [Brad] Setser in a fine analysis on the impact of a fall in China’s exports he explores the apparent dichotomy of falling electricity consumption, falling industrial production and yet rising GDP. Even Mr. Setser wasn’t able to conclusively get to the bottom of that one although his overall conclusion was that the economy was growing and it must largely be on the back of domestic consumption as exports and employment remain depressed.
These disconnects call into question our tendency to take official proclamations at face value, and we should also be careful about taking one or two months data and extrapolating that to a longer term trend. In a market so heavily influenced by state controls, a short term trend can be the distorted result of government actions rather than the more reliable measure of a sum of company actions taken over an unfettered economy. Growing China certainly is a trend, but how comprehensively across the economy and how sustainably remains to be seen.
If Setser can’t reconcile the data, I’d say it needs to be taken with a handful of salt.
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Yves,
Maybe there is no conspiracy theory here (MSM manipulated by FIRE sector to prop up confidence in the system). It may be more direct : MSM business model relies on advertising, which itself is dependent of the consuming part of the economy.
Charles,
I know the tone was a bit paranoid, but the Bush Administration was obsessive in staging the President's speeches, and Team Obama is if anything, more image conscious, and it has been reported that Obama believes it crucial to restore "confidence", that that alone will go a long way to fixing the economy.
I have also been told (specific, credible source) that the word was put out to everyone at the Fed to either cheerlead or shut up. That sort of thing captures my attention. If it is being done at the Fed, where else is this taking place?
Employment and capacity utilization are highly likely to continue to decline, including in 'developed' countries, perhaps especially there. That is the conclusion drawn from Zoellick's remarks out of World Bank analysis. (I agree with it.) How can one speak of 'recovery' if employment and capex _continues to decline_? The semantics are nonesense. There is no 'recovery.' Now, if what is meant by that term is that the Decline and Fall of Western Financial Capitalism as we have known it is halted, perhaps there is some validity. It's amazing the kind of cosmetics for the corpse of The Way Things Were one can buy for a couple of trillion quid per quarter in guarantees, loans, and direct grants. Until the fisc melts down, but that's tomorrow's care, what? For those sitting in control rooms, and corner offices in front of many decimal places, this state of being IS recovery: their status and position has recovered. It is in this, piggishly centered formulation that I believe the usage is shaded. For those used to wealth and power, for the most part they have recovered their footing by getting the public to foot the bill.
For the other 97%, no recovery. But the fact of the matter is the rest of us don't count to the political class, the executive class, and the imperial class. They only talk to each other about each other. And for them, we have recovery, so 'the country' is in a recovery. You follow the logic. And, as should be obvious, the media only talks about them. Yes, yes, Joe Schmoe the plummer is trotted out before the cameras as needed, but the real _narrative_ is all about those who really count, forget the working class bunting around the rim of the image and soundbites. We have had 'managed media' in the US for at least a dozen years. What is interesting is that now the kinds of total unreality which has hitherto been applied to US foreign policy for a generation is bleeding over, so to speak, into usage about domestic policy. Bodyguard of lies and all that. And yes, perhaps a Depressionis the monetary equivalent of war, so that those in the MSM and inside the Beltway feel no scruple whatsoever about gassing the public with nitrous on the state of affairs. But we have willful disinformation whenever there is verbiage of 'recovery.' [Cont.]
For the other 97% of US, there is no recovery. Show me that hiring is _significantly_ increasing; or just show me that it is increasing at all, since nothing of the sort is in view. Show me that the decline in consumer demand is even leveling off. Show me that job losses are _significantly_ declining. Show me that home prices have reached a stable lower plateau; at last sighting they continued to decline, and financing for mortgages is climbing due to structural pressures on interest rates which are _NOT_ going to abate anytime soon. Certainly not by, say, 2010. Show me that more losses aren't coming down the pike in CRE, where baked in losses are going to be served our dear zombie banks that far outweigh all of the el stupido capital they managed to raise in the first half of this year. Show me that upticks in domestic production are anything more than an inventory bounce. Show me _why_ they should be anything more than an inventory bounce since a) purchasing managers say that they are looking to continue their _build down_ through the next two quarters at least (and who knows anything beyond that?), and b) US exports continue to decline so where are the sales. Show me that _profits_ have increased ANYWHERE meaningful in the US, and I don't mean funny paper follies at the shyster money center banks whose accounting rosters wouldn't even serve as functional toilet paper (the ink's too wet).
It anyone can shoe me that even a plurality of those necessary conditions for any real recovery are in evidence, we have a debate. For now, we didn't even get a _rebate_, 'cause the banksters ate it all, for breakfast, and are tucking in their napkins now for lunch. If someone thinks there is a 'recovery,' that is to me ipso facto evidence that a zombie has eaten their brain.
A non-collapse does not equal a recovery. Especially when the non-collapse applies to the 3% while the non-recovery applies to the 97%. That's 'uncens' according to word verification.
Hi Yves,
I have no special insight into China. But, a have a friend who does. He is one of the biggest private investors in China. He knows all the players. He just back and I spoke with him for 4 hours.
His view:
-The growth rate of 6%+ for the year is in the bag.
-He described a discussion with one of the biggest electronic manufactures. Exports are down but domestic demand is soaring.
-The domestic demand for autos is unlimited. It will outstrip their ability to produce them.
-The commodities story is real. They are buying raw materials from everyone. There are currently 100 ships in Chinese harbors waiting to unload iron ore. They have bought so much that it is now clogging the ports. They do not have the capacity to unload their purchases quickly enough.
-The infrastructure build out story is real. This is happening all over the country.
-They are NOT selling any dollar reserves. But as maturities come due they are not always renewing US assets. They are buying stuff they need/want.
-They are spending very big money in expanding the health care system,transportation and big infrastructure.
-They are very aware of their dependence on 'the rest of the world' for their exports. They want to fix that. The domestic demand is there to propel the economy.
-They are aware that their dependence on the US economy creates a systemic risk for them. They are working to minimize that dependence.
The guy convinced me. Don't bet against China.
bk
So Bruce re: China, that was the program, yes. The only question is execution. Your guy says it's happening, so I'll take that conversation as a data point. I've been in the 'bet on China' camp for some long time. To me, the question has been would the resistance of the powers that be there to stimulating real domestic demand be overcome, particularly since the growth outcomes at home did not appear to be sufficiently desirable in and of themselves to accomplish this? But that fear of 'systemic dependence' upon both the $ and the US market seems to have been enough to overcome said resistance. China has had the means to stimulate domestic growth: they more than any country could achieve this of their own resources. Korea does _not_ have such means. Japan does not have such means. Neither of the latter are 'leading the recovery,' nor should the be expected to do so. China won't 'recover' by boosting exports; that's a boat to Nowhere. —But that's not the one they bought a ticket for.
Right place; right time; doing most of the right things. Yeah, they're rightists, but the kids'll come awright. Their formerly rich uncle? Not so much: he reads his own press, and believes it. That's the middle of the road to Rearviewmirrorland.
Why does the concept of American Pravda mystify some people? Of course MSM is now carefully controlled. I thought that from the moment I saw the Time article several months ago stating the Recession Was Over. MSM has completely jumped the shark. I don't mean to be rude, but how many Bloomberg Orwellian headlines do you need to see?
Also, the USA did not everything to manipulate the 30 year Treasury auction yesterday short of sending Obama out to moonwalk and do The Robot complete with swinging arms. Why haven't ZH and this blog even covered that? The whole Barclays thing is practically an invite.
Oh and by the way I have seen newspper headlines critical of the Obama administration change practically before my eyes. For example, Reuters published an articlke about the Chinese students laughing at Geithner. A few hours later, the headline was completely changed and the laughter reference watered down and interpreted as not at Geithner, but at some other reason.
Yves, you are very smart and its a surprise to see this is just dawning on you. I thought you already knew that. You can't reinflate a bubble without that sort of complicity.
Sadly, it won't work. We see it already.
Lil,
It is one thing to suspect something, another to declare it.
Bruce,
6% growth in China is still not enough to absorb the annual increase in the workforce. I have read repeatedly that anything less than 8% is tantamount to a recession, will result in higher unemployment.
The MSM is owned by big and bigger money, its record regarding war,environmental issues,big business,are skewed in one direction.
The myth making regarding China has been endless and clearly reflects the multi-national corporation influence and the need to save their investments.
I do not really trust anyone's National Income Accounting. But,
1st Q numbers:
US -6
Japan -14!!
China +6
We know that the US is coming back and will be positive on a quarterly basis in Q4. Japan too will revert to trend of zero growth.
Those big bounce backs by themselves will help boost China. Then you have this growing domestic demand. I think the real story is that they were able to remain positive at all in Q1 given what their trading partners were doing.
My bet: 4th Q China GDP at 10% on annualized rate.
Richard Kline:
Great rant, you told a whole lotta truth in a small space.
I agree with all of it, but couldn't articulate it like that.
Thank you.
(and many thanks to all here who make this site possible and share their wealth of knowledge with those of us, like me, totally unschooled in these areas).
Bruce…your source didn't bring up anything materially new and those points actually seem to be just a bunch of generalities gleaned from headlines. But i guess the fact that he "knows all of the players" means we're supposed to have more conviction in your quote, "don't bet against china"?
for instance,
"-He described a discussion with one of the biggest electronic manufactures. Exports are down but domestic demand is soaring. "
bloomberg reported that – But we're all still wondering how imports can fall 25% but investments grow some 30 odd percent. does your source have any insight into that?
"The domestic demand for autos is unlimited. It will outstrip their ability to produce them."
bloomberg reported that – again, can your source verify if/how sales (according to say, IASB/GAAP) are being booked?
"There are currently 100 ships in Chinese harbors waiting to unload iron ore. They have bought so much that it is now clogging the ports."
NY Times – ran that story yesterday…what a coincidence. I guess the fact that the "commodities story is real" from your guy on the ground is supposed to refute the obvious unsustainability of their record buying spree.
"The infrastructure build out story is real. This is happening all over the country."
See the same bloomberg article above regarding exports – here's a quote: "Since the stimulus was announced in November, the nation has built 20,000 kilometers (12,430 miles) of rural roads, 445 kilometers of highway and 100,000 square meters (1.08 million square feet) of airport buildings…China’s infrastructure drive is helping China Railway Group Ltd., the nation’s biggest construction company by assets."
Ugh…and you mention infrastructure one more time and then a few more quotes on management of reserves that has been more than covered and covered again by FT BBG WSJ Setser.
My point is you or your source are just repeating what the headlines are saying without bringing any new/convincing details to light.
i sure hope being "one of the biggest private investors" in china, he has more penetrating data than what you were given.
there are half a dozen blogs run by ex-pats currently in china (all roads lead to china, pettis, marks china blog, china law blog, etc.) that don't share near the same optimism that your guy on the ground has.
With that ill just quote bloomberg from last week:
"China’s government said yesterday unemployment is worsening, a quick rebound in trade is becoming less likely, and the nation is yet to feel the full effects of a global slump. The foundations for an economic recovery aren’t solid, the State Council said. "
MXQ
I am looking in a drawer for some cyanide while I type this. For the record I have not read the Times or Bloomberg in a few days. I have been playing golf. You do not like my info, okay by me. You are getting 10 data points that says everything is going to hell in a hand basket in China. It ain't so. I just wanted to provide some contrasting info.
Every economy in the world has been whacked in the 1st half. China no exception. That is old school. How about a wager? 4th Q China GDP. We will do an over under at 10% at (a friendly) $10 a point. If I win you can donate it to charity. If I lose my estate will pay.
bk
Yves,
You are being 'gas-lighted' and you better believe the media is controlled. When Noam Chomsky wrote "Manufacturing Consent" in 1988 he concluded that media control had been effectively usurped by the elite because of the various interlocking directorships between media conglomerates, banks, arms manufacturers etc. Chomsky offered the then shocking revelation that a mere 29 media conglomerates accounted for roughly half of the US media content. By the year 2000 I think the number was something like 6 conglomerates controlled 85% of the world market and now if you're willing to count some of the smaller conglomerates you can attribute about 99% of the media to about 20 corporations. These figures are rough at best due to the fact that these alliances are constantly shifting and in the laissez faire USA figures concerning media ownership and concentration are not kept in the public domain. Also these numbers do not fully reveal the extent of the elite's consolidation of power because there are extensive overlapping ownership stakes and directors even between these behemoth media conglomerates. Thank god for blogs like yours but how effective is a little know blog (no offense) for those already in the know against the bullhorn of General Electric?
Concerning China, I wouldn't believe a word or a data point out of any brainwashed Chinese bureaucrat with a bludgeon dangling over his head, but from the little amount of time I've spent in China I've always been amazed at the consumer growth potential there. The Chinese are incredibly hungry for wealth and ostentatious material goods which seem to be going out of vogue here in the US. (at least among the circles I move in) The Chinese have been deprived/spared the materialistic capitalist orgy the West has been mired in for generations so they are not the jaded burned-out over leveraged post-capitalist consumers we are here in the US. Even if BB and Timmy can engineer a continued supply of easy credit and free flowing money I doubt American's are eager to take on additional debt for material goods. I believe American's may have finally lost their taste for Escaldes and McMansions. The Chinese on the other hand seem ready to buy the old American lies of material happiness purchased on credit. It really is a virgin market. If the government can keep the money flowing to the workers' pockets and put product on the shelves I think the sky is the limit for GDP growth. The much touted 'decoupling' is coming. If not now very soon.
Richard GREAT POST!
Couldnt have articulated it better. Thanks to all for commenting
Is Bruce really Larry Kudlow?
bruce, all due respect, the info you provided isn't in fact "contrasting info." its what every news outlet on the planet has been reporting.
4Q GDP might be through the roof, but the quality of that data isn't worth a darn.
who doesn't agree with the potential of the chinese consumer? but this stuff doesn't happen overnight or even over a few years…the fact that profitability in the country is sorely lacking is a byproduct of a broken economic model. top line growth is meaningless without a concomitant increase in profitability (see grantham from last week). a perpetually weak currency with a net-saving west almost assures this profitability will never materialize in any sustainable fashion.
sorry to keep stinkin' up this thread…but shanghai daily reports:
"urban residents in China are more inclined to save than spend as the urge to consume dropped to a record low, a central bank quarterly survey said today. Only 15.1 percent of respondents said they now preferred to spend, a 14.6 percent drop on a quarter ago, the People's Bank of China said today…The indicator on how residents' felt about their income was 8.6 percent below zero, a record low. It was a sharp decrease from 28.6 percent in the first quarter….More than 60 percent of respondents said they found the current property prices were beyond their reach and the number of those willing to buy real estate is down 0.9 percentage points on a quarter ago to 15.8 percent."
Its just not rigorous enough to assume that the sustainability of recent consumption stats about autos/retail are any good.
@Bruce
The problem is not to know if there is demand in China. The tricky question is "Is this demand solvent ?" (After all, there is "unlimited demand" worldwide for Ferraris, but it doesn't mean that Ferrari is going to produce several million cars…). What makes a demand solvent is that the demand is covered by sufficient productivity of the workers.
In normal times, "the proof is in the pudding", I.e. the fact that the production can be bought by the producer/consumers is proof that demand is sustainable. During a credit boom/bubble, the image is blurred : what one thinks is sustainable demand can vanish once financial flows are disrupted.
It has become relatively clear that the "Deficit" countries consumption patterns are unsustainable, but it doesn't necessarily imply that the "Surplus" countries have the mean to increase their consumption symmetrically. If the investment of their surplus went into bad investments the capacity to consume is just lost. People much derided the reckless behavior of irresponsible US bankers that lent to overstretched US consumers, but I think that there is potential for symmetrical irresponsible (or party obedient) Chinese Bankers lending to poorly productive Chinese producers.
Credit Deflation is not a zero sum game, it is perfectly possible that everybody looses, even China…
R.I.P.
Shortly after his last posting Mr. Krasting ransacked his home apparently looking for something.
Thereafter, he drove his Bentley into a nearby bridge abutment at high speed. He is, 'off the grid'.
"Muffy"
Assistant Copy Editor
I am remeinded of how Bush, in order to justify domestic spying and programs of torture and detention, would always cite examples of how they had in fact foiled terrorist plots. These were quickly debunked. The facts were wrong. The information was old, derived from other sources, or referred to something that the government itself had concluded belonged to no real or ongoing plot. I mention this because if Bush had ever had a real instance he could point to he would have been shouting it from the roof of the White House on primetime TV.
You could say much the same about this China coverage. If there were something real here, the Chinese wouldn't just be putting out press releases. They would be giving tours.
You would also expect that such positive developments would leave large, unequivocal tracks for us to see. A decline in electrical usage would not be one of these.
And if there were a big expansion in China's internal market, this would have to financed somehow. Exports are way off so I don't think we can look there. Drawing down of public and private capital reserves could do it. But if this were true, I would expect to see a much larger movement out of Treasuries than has happened.
Re the media, coming from a different part of the blogosphere, I can say we have been writing about them extensively for 4-5 years now. The loss of locally owned, community oriented outlets and the growth of media corporatization and consolidation have been going on for 2-3 decades now. It has led to the replacement of traditional news functions by a bread and circuses approach that delivers equal measures of infotainment and propaganda. It also greatly contributed, as a reaction, to the formation of the blogosphere. The mainstream media are now no longer the first and last place to go for news but just one of the places to go to check out, not what is going on, but what our elites and powers that be are saying is going on.
Delightful thread
It has become relatively clear that the "Deficit" countries consumption patterns are unsustainable, but it doesn't necessarily imply that the "Surplus" countries have the mean to increase their consumption symmetrically. If the investment of their surplus went into bad investments the capacity to consume is just lost. People much derided the reckless behavior of irresponsible US bankers that lent to overstretched US consumers, but I think that there is potential for symmetrical irresponsible (or party obedient) Chinese Bankers lending to poorly productive Chinese producers.
Could not agree more on this.
It's about time we use our Austrian lighter on this. Yes, artificially low interest rates – as the ones created by the massive actions of central bankers – tend to alter the allocation of money. Triggering massive mis-allocation of capital.
That has happened in our OECDE countries. 30-years-or-more low return investments on home were transformed in gold financial schemes. On the other side of the Pacific, China, literary flooded with capital – via pegging – also enjoy a massive perversion of capital allocation Long term investment there means plants and long term infrastructures of all kinds. Of course this takes place at the expense of consumption. But the pegging is certainly more instrumental at this level.
In any case, Mises was right and this crisis is nearly a textbook of capital mis-allocation and a crazy preference for long term. This lunatic preference has a cost.
Getting back to normal will imply the massive destruction of useless – but enormously costly housing capacities in our countries. Has anyone paid attention to the demographics?
In China, these over-capacities will most certainly weigh on the five years to come. Anyone with a passè in industries knows how destructive industrial overcapacities can be both socially and financially.
Overall, yes this planet has missed a few boats there and will find it difficult to fund some of the challenge in front of us all.
The "quantitative easing" knee jerking exercise will not change the situation.
As Martin Hutchinson would put it, "A Decade of Low Productivity Growth" is just upfront. Lost money is "lost money". No way back.
Agree w Marin Belge(TM) that this is a fine thread. Congrats to Yves for engendering such a literate, polite and informed following that can agree and disagree w civility.
Now that Mr. Krasting is off the grid, I can opine that one should neither bet on nor against China from a US perch. Great fortunes were made investing in the US from Europe during the unprecedented growth century of the 1800s in this country. Getting rich off of China will likely require being there.
China = goosed, fudged and false data.
Yeah, 'the China story' plays on and on and..on but, with a dramatic rise in bank lending accompanying a strong decline in mass and rate of industrial profit, the pump has become increasingly retarded.
BTW, within the context of state capitalism, building commodity stocks can represent a form of subsidy, so evidence of weakness rather than real or potential strength.
Anyway, for those who've not read Lu Lei's 6/4/09 article:
Chinese bank lending increased to more than 5 trillion yuan between January and April, nearly three times the credit level reported during the same period last year. Even if new loans average only 500 billion yuan during each of the remaining eight months of 2009, the year's total would be more than 9 trillion yuan – more than all loans issued over the previous two years combined.
The industrial sector's recent performance provides solid grounds for concern over this rapid credit growth. A National Statistics Bureau survey of 22 regions found industrial profits totaled only 323 billion yuan during the first quarter, down 32 percent from a year earlier. That means annual profits for all industries will amount to only about 1.6 trillion yuan this year.
… And profits of 1.6 trillion yuan versus 35 trillion in capital investment means an annual return rate of only 4.57 percent, below the weighted loan interest rate of 4.76 percent we saw in March. In this sense, companies seem to be in a rather weak position to finance debt with earnings.
[…]
Now we're faced with the possibility of undesirable negative GDP growth.
[…]
In addition, drastic volatility in oil and commodity markets reflects concern over the dollar but not a rebound pushed by fundamental demand. So the only results of credit-backed output expansion can be oversupply and depressed prices.
…
caijing.com.cn
"DoctoRx",
It seems to me that comparing the 19th c U.S. development and 21st c China misses on at least two related counts – on one hand, today's higher technical composition of capital so relatively less employment per unit than had been the case and, on the other, a relatively greater subsistence-based population + expanding number of semi-workers.
In 'Lewis speak', this combination is not so conducive to domestic market development even though it can enhance production.
Differently, late development is not always a plus but can bog down into forms of stagnation.
Small china factor…internatinal schools through out china are reducing staff in successive waves.
A good freind is coming back after 8 years in china, Phd with stick and bag.