Even Walser

Why China Will Continue to Buy U.S. Treasuries

Some people worry about the fact that the Chinese government owns several trillion dollars worth of U.S. government securities. You know the argument: If the Chinese sold their holdings the U.S. economy would collapse. China could conduct economic warfare against America. " People worry about China buying Treasuries, but for China, they don't have a choice. There's really no place else they can put their money. To say that China is somehow controlling the U.S. economy is laughable."

My point all along!

Economic Games of Misdirection and Sleight of Hand

I hear your point about continuity of regulations however it is important to keep in mind that FASB 157 is a new rule only introduced 3 years ago. For it to be effective it requires a functioning market where prices are being set based upon broadly based assets sales. This is not that environment. I am not advocating a temporary change I believe a fatal flaw has been seen in FASB 157 which necessitates its permanent wholesale restructuring.


On Mar 13 07:27 AM Economic Disconnect wrote:

> I am sorry my piece was not all you would have liked. I really did
> not go into specifics on either Enron's or Worldcom's particular
> mistakes, just using the overall accounting scams as a whole. I
> would ask Alexander to check over my article, as nowhere did I say
> mark to market would have saved or prevented anything. It was the
> government that used mark to market as a "prevention" measure. I
> did not write that Worldcom abused mark to market anywhere in the
> article.
> As far as "mark to market" not being particularly suited to today's
> conditions as both Even and Alexander state, should we have different
> sets of rules for different economic conditions? I mean if bad debts
> are hurting the banks during this credit crisis, could you describe
> a trigger point where some assets could be valued differently because
> "it's different this time"? How about calculating GDP differently
> during times of economic contraction? Why not indeed?
> Either there are accounting rules or there are not. If you want
> to change the game because you do not like the score then it's a
> free for all and a false market.
> It seems the current confidence boost by the full court press of
> the banks and accounting change possibilities have the markets humming.
> I imagine soon we will see if saying something is so, makes it so.
>
> Thanks for reading.

Economic Games of Misdirection and Sleight of Hand

FASB 157 has its uses yes but in this unique environment it is wholly unsuited. The fact that banks are required to mark CMOs with a 0% default rate and a 0% delinquency rate which they intend to hold until duration, down to 20 cents on the dollar because there is no market for them and only pricing baseline their auditors can gather comes from truly junk CMOs is ridiculous and scandalous. Had it not been for FASB 157 most financial institutions would be not only solvent but profitable. FASB 157 has been great for short sellers and vulture funds while being terrible for long financial investors and tax payers. It is time to bring this madness to an end and amend FASB 157.

Why Is China Stockpiling Oil?

Excellent point, I could not have said it better myself.


On Mar 10 11:38 AM Alex Filonov wrote:

> Wake me up when they are finished. It will be time to short oil,
> again. And other commodities.
>
> China acts on old communist ideology. There is no market reason for
> them to stockpile oil, buying futures would be much simpler and cheaper.
> There is no reason to buy other commodities in huge quantities. There
> are future markets for most of them where you can lock current price.
>
>
> As for conclusion that economic situation is much worse than chinese
> government wants us to believe, it's so obvious. How can export oriented
> economy feel good when world demand falls of a cliff?

China: Analyzing Trade, CPI Numbers

Excellent analysis. China's push to increase exports at this time shows clearly their governments global intentions. It also betrays a total lack of global concern and utter idiocy and is reminiscent of the Smoot-Hartley act in its terrible timing and intentions. The idea that countries are spending trillions in tax dollars to boost demand while China is looking to free ride on this investment while push Chinese made exports will not fly. It is a fools errand and if enacted will cause a trade war. Additionally, I could not agree with Tom E's comment more.

The Impact of a Global Recession on Asia

Very solid assessment. Thanks!

Why I'm Bearish on China

" It is true that the Chinese government has a lot of savings to deploy and can do so more quickly and efficiently than western governments. "

Yes it is true the Chinese do have considerable saving however I take serious issue with the notion that the capitalist authoritarianism is more efficient at allocating resources than a representative democracy. If history is any measure authoritarianism coupled with capitalism, which used to be called totalitarianism, is a poor allocator of resources.

"off a base of $4.4 trillion economy," more China hype, Chinese GDP is not $4.4 trillion period. 2007 est has Chinese GDP at $3.7 trillion if we are using PPP which is a highly debatable statistic in international trade.

I do not disagree with the general tone of the authors argument in fact I think if anything he has been too soft. Chinese government statistics cannot be trusted, there is very little outside evidence to support the numbers they are putting out. The government has shown time and time again that it will do whatever is necessary to continue to propagate the rising China myth.

It is certain that many of you believed that a $50 billion ponzi scheme at the heart of wall street involving many of the so called best and brightest couldn't happen, but it did. It is important to use a measure of skepticism when viewing China hype. Simply look at the ever growing GDP exaggerations that are pushed on this board, in the media and in financial circles. These numbers matter because companies and individuals invest based upon perception while greedily chasing the "biggest potential market in the world". Need I remind you all of Lenin's maxim " the capitalists will sell us the rope with which we will hang them". China is actively trying to keep up appearances especially in this time of global economic weakness, as a means to showcase their economic might. Putting out false growth, consumption, employment and export statistics would be but a minor thought to the Chinese government.

$800 Billion: Too Much? Too Little? Yes.

Caveat: This is analysis I performed when the stimulus package was roughly $888 billion. The numbers may not be 100% but the multiplier insight and returns should not change.

According to CBO, individual category projections, averaged, the multiplier effect would be between 0.66% and 1.86% for each dollar of the federal stimulus. According to this analysis, the federal stimulus would stimulate economic growth equaling between $561 billion and $1,581 billion. Estimating that the multiplier effect is the average of these two numbers, than the stimulus would promote $1,071 billion of new growth. This represents a 26% return overall and an annualized return from the years of 2009 through 2011 of 9.34%. Based upon these numbers the federal stimulus appears to be a good investment, but is it?

The federal stimulus will add an additional $888 billion dollars to the federal budget. The federal government currently runs a deficit, so in effect; the federal stimulus will add an additional $888 billion to the debt. The federal stimulus is not all appropriated in a single year. As such, the increase in deficit spending will occur over several years. In year 2009, the cost of the federal stimulus, will add $233 billion dollars to the deficit, bringing total deficit spending for 2009 to $1,573 billion dollars. This represents a total deficit of over 10% of GDP. The federal stimulus will add an addition $460 billion to the deficit bring the combined total to $1,303 billion dollars or slightly more than 9% of GDP, in year 2010. Things get better in 2011, but only slightly, as the federal stimulus adds an additional $141 billion in spending, bring the total budget deficit to an estimated $782 billion dollars or 5.3% of GDP. The years 2012 through 2019 see an additional $48.3 billion in federal stimulus related deficit spending. Even with record low interest rates on federal borrowing, the net interest on the $888 billion dollar stimulus is projected to cost $347 billion dollars by 2019. This brings the total real cost of the stimulus of $1,235 billion dollars. Taking my analysis assuming the average multiplier effect, into consideration, the net return on the stimulus is a negative 13.27% or an annualized loss of 1.32% from years 2009 through 2019. Based upon these narrow calculations, it appears that the federal stimulus will have a net negative effect on the long term economic health of the US.

Did 2008's $677 Billion Trade Deficit Cause the Recession?

As Bernanke said, the problem is not that we consumer too much, it is that the rest of the world consumes too little. Asia, particularly China and Japan have flooded the US with credit while through market manipulation suppressed their own consumer demand. These are classic mercantilist policies. It is time to call a spade, a spade and recognize that the world economy cannot grow on US consumption alone. We need Asian countries to let their currencies float and allow their consumers to reap some of the hard fought rewards of economic growth.

The Dollar's Point of No Return

John,

It is important to keep in mind that the vast majority of all new currency issued, has been pushed out to the banks, through the federal reserve loan programs.This liquidity can and will be easily mopped up once the current financial crisis has waned.

Can We Trust Statistics?

Paul,

I find it interesting that you consider a factual assessment of China's economic state, bashing. If trying to bring some honesty and reality to a debate that is 99.9% pro-China, regardless of common sense or facts, bashing than yes, I guess I am singled minded that way.

Furthermore, I find it quite interesting that you position the Chinese investment in dollar denominated assets, as an investment, rather than a necessity. The Chinese did not invest in dollar assets because they thought they were a good deal, they bought and will continue to buy dollar assets because they must. Should the Chinese stop purchasing dollar assets, they will no longer be able to maintain an artificially low currency value via the dollar. An economy so tied to exports to the United States is in no position to see a sharp rise in its currency value or piss off it largest customer.

I am not sure if you have every actually manufactured or sold anything Paul, but I can tell you it is always the purchaser who has the power. For the time being, like it or not, the US is the purchaser and the Chinese are the sellers.


On Feb 12 02:16 AM paultaut wrote:

> Even: I checked your commentary stream. The comment I referenced
> was the 5th out of 6 that bashed China.
>
> Your response continues that streak. You are now 6 out of 7.

>
>
> Bashing China will not help the US economy. We need them to buy our
> Fiat money. There are not many nations that still have the wherewithal
> to buy this garbage.
>

Can We Trust Statistics?

Paul,

I appreciate your comments and I agree with you. My point was simply to state that China's official statistics have been way off for many years. The official 17.5% drop in exports is likely way off also, thus the beginning of the great unraveling. As to your comment regarding bias and relevance, I am not biased towards China, I am however biased towards the truth. China's bogus growth numbers have been amplified by a willing worldwide media intent on building up a false idol. The size of China's GDP has been widely overstated through the use of PPP (Purchasing Power Parity), a totally bogus statistic. For the last decade the global corporate elites have deemed it "necessary" to be in China, to chase, thus far, illusory riches of their "soon to be" consumer class. These consumers have, surprising, failed to materialize, all the while China engages in out and out Mercantilist policies. Corporations do their shareholders a great disservice by doing business in China, with its local partner rules, rampant intellectual property theft and pro national champions planning establishment. Let me say nothing of the moral issues of doing business with what is still a dictatorship that brutally represses its people.

As to relevance, if 10 years of, multi-billion dollar global corporate investment in China based upon false statistics, projections and outright lies is not relevant to the original posting and book I am not sure what is.

Once again I appreciate your comments and the opportunity to clarify my position.





On Feb 11 11:57 AM paultaut wrote:

> Even: either the numbers are correct or they aren't.
>
> The 17.5% Number stating the decline came from the Chinese Government.
>
>
> "The announcement of a 17.5% drop in exports is the beginning of
> the unraveling of the greatest economic fraud in history."
>
> Why do you believe in these numbers but not previous ones?
>
> Your statement seems rather biased. Basically, you do not appear
> to believe anything that comes out of China.
>
> But, the real question is What has your comment got to do with the
> Article?

Can We Trust Statistics?

China, #1 offender of the misuse of numbers. The official statistics agency for far too many years has fed the world meaningless BS re: their economic performance. The global economic crisis is making their willful misrepresentations harder to conceal now that the world is finally focused on facts rather than speculation. Take monetary manipulation off the table and China is not the globally competitive economic engine it pretends to be. The announcement of a 17.5% drop in exports is the beginning of the unraveling of the greatest economic fraud in history.

Geithner on China's Currency Manipulation

It is about time! I cannot for the life of me understand all the deference to China. It is about time we realized that they need us way more than we need then. Their currency is dangerously undervalued and has been so for far too long. The effects of China's currency manipulation is now being felt through the credit crisis. Lets us not forget that had China not needed to purchase huge sums of dollar denominated assets in order to artificially keep the Yuan low against the dollar interest rates in the US would have risen long ago bring an end to the financial bubble that grew.

I understand many of the other arguments put forward on this blog re: China and the need for them to continue purchasing treasuries. I don't not completely buy the argument that they will not. To be honest I would rather our government prints the money than borrows it from a potential future adversary. The bottom line is China needs the US consumer to continue to purchase Chinese made goods in order for them to achieve growth targets. In order to keep their goods competitive in a global economy they must continue to purchase US treasuries or revalue and compete on a level playing field. Considering the Chinese attempts to rig the system I don't see why we would not take advantage of their position by running large deficits financed by them or inflate our way out of the recession. Either way as far as I see it we are in the strongest position and it is about time we started acting like it.

U.S. Handset Subsidies to Be Replaced by Something Worse?

It is my belief that non GSM carriers Sprint and Verizon have the most to lose, along with Qualcomm, should handset subsidies and contract locking go the way of the dinosaur. My reasoning is simple. CDMA handset selection is pitiful compared to GSM. In an environment with infinite selection available it is unlikely that consumers will choose from the low-end CDMA universe. GSM offers much broader selections and feature sets all at a lower price due to enormous production economies of scale. If the iPhone has shown anything it is that handset matter as much if not more than pricing plans, now that cellular service has become virtually a utility across all carriers.

In this environment I would bet against Sprint, Verizon, Qualcomm and Motorola. The CDMA/GSM war is over and was lost to GSM. Nokia and assorted GSM manufactures will be the real winners along with GSM carriers, T-Mobile & AT&T, in any new contract free environment,.