Firat Ünlü

Japan's Not Out of the Woods Yet

On Nov 18 07:38 AM Mad Hedge Fund Trader wrote:

> kji The collapse of the Japanese government bond market has long
> been the holy grail of the international hedge fund community.

I think what most people underestimated was the level of collaboration between banks/insurers etc and the government. As Japan's savings rate was high there was enough domestic capital to finance the debt load, in most other economies this money would not necessarily have been pushed into the government debt market but in Japan it was decided to use the savings in order to keep rates down. 'You help us out by funnelling those savings and we'll help you out in some other way'
Now imagine what happens to all those banks/insurers once interest rates spike and the value of their bond holdings goes down.
Nobody knows when it will happen but I can see the BOJ order several dozen helicopters by that time.

Why Krugman Is Wrong About the Yuan

Has it ever occured to some observers that maybe, just maybe the American trade deficit with China is, in some parts, due to Americans spending more than their income? After all excessive credit was used to buy products which were manufactured abroad.

Country by country the picture for America looks as follows:
(Imports above exports)

China ... US$323.1 billion
China ... $61 billion

Canada ... $312.5 billion
Canada ... US$213.1 billion

Mexico ... $210.2 billion
Mexico ... $119.4 billion

Japan ... $144.9 billion
Japan ... $58.1 billion

Germany ... $94.4 billion
Germany ... $44.3 billion

United Kingdom ... $56.9 billion
United Kingdom ... $45.4 billion

South Korea ... $45.4 billion
South Korea ... $33 billio

France ... $41.2 billion
France ... $25.8 billion

Whilst the case with China is indeed extreme it doesn't really look better when looking at other countries.
Is the whole world supposed to be undervalued?

China's Nine Nations

Great to see someone not fall into the trap of mistaking China as one giant monolith. Agree with most 'nations/colours'.
Hopefully more people catch up on this!

It's easy to dismiss the Chinese consumer by looking at the gdp/capita figure for China but that figure like averaging the income of Britons by adding Albanians into the mix.

Get Ready for the 'Jobless Recovery' Era

"You see, economic growth in the U.S. is reported as the annualized rate of the quarterly change in output - consumer spending, government spending, domestic investment, net exports"

With a 12% budget deficit how on earth is the GDP figure supposed to shrink unless there's a full-blown collapse in the private sector? There's your answer ;)

The Importance of China's Foreign Exchange Holdings

@Living4Dividends

There's two sides to this, while some people may look at recent numbers that show an increase in Chinese Treasury holdings and thus conclude that they are in fact even getting further entangled others could point to the move into the short term and thus conclude that despite superficially seeming to increase holdings they are preparing their way out of them. Sometimes in order to move forward you need to take a step back.

Dangerous Fallacy in GDP Measures

Great to see your posts appear on SA. Been following your blog for a long time and commented on occasion. Appreciate your outlook on economics which is a world away from the rubbish that is being taught elsewhere.
GDP as a wealth measure is ridiculously flawed, the effect of the exchange rate alone distorts the true picture (thankfully we've got PPP for that).

Five Points to Eliminate Confusion About the U.S. Macroeconomy

An important point that is rarely mentioned is that government borrowing drives up mortgage rates through higher yields on government bonds. Which means that any sort of stimulus is short-lived as the housing market deteriorates (higher rates, lower prices).

Book Review: 'The Birth of Plenty' Is a True Economic History of the World

In case you'd rather listen to Bernstein than spend months reading his book you can listen to him on EconTalk:
www.econtalk.org/archi...

Quite an insightful interview, just takes an hour.

Germany's Economy: How Did They Get into This Mess?

Following the Keynesian clown model proposed by the likes of Krugman Germans could always double government deficits (the German deficit is comparatively small) and spend all their 'excess' savings to bolster growth now. Someone should however have mentioned to those advocating for more and more spending that the German society is an ageing one and that in a world where capital is precious savings are any nations's treasure as only savings can finance investments. Whether GDP goes down or not Germany as a country looks stable (apart from the banking sector which is intransparent but that's the case anywhere) in the middle to long-run. It's main problem is that its schools churn out more and more people that can't keep up with global competition which is why I can see budget constrains arising quite soon as benefit spending will have to increase.

The Germany Problem

Being hit hard once exports fall off a cliff comes with being an export-orientated nation. I fail to see how this competitiveness is a negative thing, yes it will be difficult to get through this but the Germans were raking it in during the good times and other European nations can hardly claim to have come up with a better economical system. Achieving such high levels of exports came after many years of low, if at all, wage rises so don't expect domestic demand to pick up the slack. However had wages risen higher then exports would have grown slower. Catch-22.
Being 'export-champion' comes with a cost.

Loss of Manufacturing Jobs Prevents Normal Recovery

Appreciate your work. Nicely done!

Animal Spirits, by Shiller and Akerlof: Questioning Economic Motives

If you make if abundantly clear that people will not have to suffer negative consequences of their actions then of course people will take on stupid risks. Nothing to do with 'animal spirits' or whatever fancy word someone comes up, it is rational to **** your company and even your country if you stand to benefit a lot from it (if your morals are in line with that).

"This conclusion leads to a policy prescription: “Without intervention by the government the economy will suffer massive swings in employment."

I wonder whether some people in Washington might have an interest in that...

China: Replenishing Bank Capital

Where did you shop? In my experience the opposite is the case, after several months I could have easily lived on a 'Chinese-budget' (i.e. 150€). You could get a cab in China for the same money you pay in the UK for a bus ticket.
In fact I stopped buying things in Europe and get almost anything in China as it's that much cheaper over there, flying over tomorrow and will be stocking up in Shanghai.


On Mar 16 05:22 PM James Lewis wrote:

> Having just spent the last few months in the UK, it has amazed me
> at how much cheaper consumer goods/food is in the UK compared to
> China.

re the article:
Your argument reminds me of the one used by US economists which left the US with a severe lack of productive capacity now. There's a certain merit to it but I think rather than try to increase the wealth of its people and risk alienating some, they're trying to keep it somewhat equal.
The reports about inequality in China are mostly useless, what matters is not inequality within China but inequality within social structures. Comparing villages in Guanxi that can only be reached by tractor to Pudong makes no sense.
Shame I missed your blog while I was at Beida, could have had a decent chat.

World Bank Says, Fix Banks First. Uh-Oh.

There is no point in trying to save the banks, the value of the so-called 'toxic assets' will only continue to decline with rising unemployment and house prices that have yet to find a bottom. They are earning some money now because they're getting the money on the cheap and can charge high interest rates on it, in that environment anyone could make money and have a good cash-flow, unfortunately the losses seem to be so big that those gains are not enough to compensate for them. Not to mention that savers are punished hard, not that it matters though, as this drives them to buy government bonds...

Chinese Are Likely to Halt Purchases of U.S. Treasury Debt

I think it's fair to say that there's substance behind Wen's comment, there is a siginificant danger in holding US Treasuries. Japan is a totally different entity when compared to China, Japan needs the US whilst China is at best a strategical partner. It is not in Japan's or South Korea's interest to endanger the US as it provides securtiy for both countries on the ground and via a nuclear umbrella, China is not even close to being in such a situation, they're at best a strategical partner.
Many countries will be in dire need of US Dollars, e.g. Russia still has huge reserves but already spent $200bn in defending its currency and many poor countries might be crowded out this year, China could help those countries out with its reserves. The US can't really print its way out of this mess as the price of natural ressources would immediately rise for US citizens. There's no point in accepting worthless pieces of paper.
The US is a big export market, yes, but Taiwan and Tibet are even more important than exporting to the US.


On Mar 14 02:52 AM Crocodilian wrote:
> Folks with long memories will recall the same story used to be told
> about Japan-- that one day the Japanese would stop buying Treasuries,
> and the dollar would collapse.
>
> Didn't happen, and the Japanese kept right on buying Treasuries,
> as I suspect the Chinese will do. My suspicion would be that they
> _will_ try to get more from the US than the Japanese did (because
> they have much greater strategic ambitions), but its a safe bet that
> crashing their most important export market is not one of their desired
> outcomes.