If Then

If Then
Contributor since: 2009
Your comment misses one practical point for households, which is that most of real people's liability is not financial. For most household, they face liability in the form of food cost, general living cost, medical and educational cost, etc, all of which are likely to rise when interest rates rises.
Adam: how to find the index you said?
The argument is incorrect. Yuan appreciation although can increase the purchase power abroad of a Chinese individual or institution cannot do so for the country as a whole. In a capital controlled country as China, the aggregate purchase power abroad is the amount of the foreign reserve, which the currency appreciation cannot increase nor decrease.
what's the title got to do with what you wrote???
there is a big hole in your analysis:
Citi has 600 bn loans on their balance sheet. The loss sharing agreement only works on 300bn of the asset. I don't know the exact criteria of the asset to be covered, but one can infer that the existence of qualification of the asset to be covered by the USG and FED means that they cannot be the worst assets on Citi's book. Assuming the 300 bn loans that are excluded by the loss sharing agreement are likely to be those that will bring the most writedown for citi, then your worst scenario assumption is totally wrong.
Cannot agree with you on any of your ideas
1) On what evidence do you state that Fed ENCOURAGES banks to deposit their funds at the Fed? This is exactly where Fed is failing in injecting the liquidity into real economy. Commercial banks recycle the fund back to the Fed not to earn the tiny interest, but because they see no credible lending opportunities, and as argued in 3) below, they have forgotten how.
2) Indeed, the slow speed of money is preventing the massive new liquidity Fed has injected from reaching the real economy and causing inflationary pressure TODAY. However, the more Fed sees the low RATE of utilization of money, the more money it prints in the hope that more NET money will be utilized as the result. This is like building a bigger and bigger dam. The risk is that no way one can tell if the dam, although today only trickling water to the down stream, will not burst down at some point in the future, and whether when it happens, Fed has extremely powerful tool to contain the ensuing flash flood.
3) Fed has not realized that the low speed of money today is largely a structural issue rather than a cyclical one. The monetary policy is the wrong policy for the structural problem. In the past 3 decays, the US financial market has gone through the transformation in which Commercial banks have largely been replaced by the securitization market as the main lending institutions of US. This has been known as Bank dis-intermediation. By 2006, 75% of the US C&I loans and 90% of the US consumer loans have been financed by securization market. Leveraged loan issuance used to be $1 tri yr as of 2006, so is the subprime + card + auto loans + student loan market, all issued in the form of securitized debts. Now, these markets are close to zero on issuance. Fed DOES NOT UNDERSTAND that US banks have not been doing lending for over 20 years!!!!!. They originate and package and sell to a vast and diverse capital market. It takes another discussion to argue on the merits and evils of this mechanism, but nevertheless this has been the hallmark of the US financial market for the past 30 years. The dismantling of this system is the reason of the low utilization of money that is transpiring today. This is why shuffling liquidity to the banks will not increase lending. The banks simply are not good at it anymore!
Although I find your article logical and stimulating, it is unfortunately based on fundamental misconceptions about China, which in my opinion are shared by almost all the academics, economists, and analysts in the West.
Forget about the debate on the transformation of the Chinese economy from export to consumption. That is NOT the true driver of China's economy. Although there is no public data (naturally), some private organization estimates that corruption in China in 2008 alone costed the country about 3.5-8% GDP. THAT IS THE TRUE MAKE UP OF THE ECONOMIC GRWOTH IN CHINA, and the answer to your question as how the country grow. Why the governments at central and all local levels want to build more and more trophy skycrapers, roads, bridges, and convention centers? Because that is how they get ever bigger and bigger size loans from the banks. The bigger the loan size, the bigger the kick-backs and under the table deals. What purposes do these new assets serve is just for a show, and has absolutely no significance. You may think I am native and the numbers are way out of proportion, yet this way of life in the country is known all too well to every Chinese. It is a futile attempt by the western analyst trying to make sense of the Chinese economy with macroeconomic models from the West.
By the way, I find the assertion made by Ellen Brown that the Chinese government puts the interest of the people before any interest group SO LAUGHABLE. Such assertion will even get a good snicker from the government officials themselves, of course only in private settings. Ms. Brown may very well get an invitation to be the honorary chairman of the Beijing Party Member Training School.
One implication I dare to conjecture is that ultimately US will be in one way a beneficiary of the current great stimulus package in China. One outcome of the stimulus in China will be the creation of another large number of shadow millionaire and billionaires. Emphasis on the word "shadow", as they will by no means be the average Chinese people. If you think these new riches will be spending their wealth in China and boost the domestic consumption, you need a serious serious wake up call. Every single one of them knows that if they can make the money this way, they can lose it all in one flash in China. It is again a plain fact in China that the very officials of the party has almost zero trust to the system from which they so richly benefited.
Then where will those new wealth be going? US, Canada, Europe and Australia. Watch out in 3-5 years for the buying of properties at ethnically Chinese heavy cities - Vancouver, San Francisco, Sydney, the increase in foreign students from China attending western schools, and alone with them large bank deposits, etc.
You made a good point on seasonal adjustment made on the sales number. I noticed that without the adjustment, the sales number actually went down.
Any idea what formula NAR uses for seasonal adjustments? Appreciate if you can point me to the source. Thank you
On Aug 23 01:09 PM manya05 wrote:
> As someone much smarter than me said: there are lies, there are damn
> lies, and then there are statistics. Watch how the statistics are
> reported, now they are trumpeting monthly increases (July is up form
> June!). This of course happens on a seasonal basis. Once we go late
> in the Summer/Fall and the seasonal numbers start decreasing month-over-month,
> they will start reporting year-over-year (as long as they are positive).
> No turd will be left unturned to find a green shoot underneath.