Jim Rogers isto tvrdi vec godinama za dolar i stalno poziva na ulaganja u kini
sto citiras uopste ovog doomsday prognosticara
Au, batice.
Rogerče je, kao što znaš, sve evriće promenio za dolare, ne za juane, jene, rublje ( ) dakleM, za $$$.
Lično izjavio:
(jun, 2012, u 00:18)
A i u ovom intervju juče je opet rekao da ne poseduje evriće!
Boom!
Rogerče ulaže u sve zemlje, sem Evrope naravno.
Sada pokušava da uđe u Myanmar i Severnu Koreju i trenutno poziva da se ulaže u njih! A nešto kapiram da one postaju poligoni, sve trče, pa zapinju!
Ne kapiraš protok investicija!
DakleM, investitori šutaju evro onako kolokvijalno, znam da ti ne kapiraš da nije samo on u pitanju, već svi, ali sad će uncle Jimmy da ti to objasni!
Fleksibilnost uvek na drugom mestu
Currency's Days Feared Numbered: Investors Prepare for Euro Collapse
Banks, companies and investors are preparing themselves for a collapse of the euro. Cross-border bank lending is falling, asset managers are shunning Europe and money is flowing into German real estate and bonds.
Nego da nastavim ja, evo ga i Sorosh se oglasio u Indiji pre par dana
Collapse of euro will hit EU, global financial system: Soros
The collapse of the euro will have catastrophic consequences not only for Europe but for the global financial system because of inter-connectedness, said Mr George Soros, Chairman of Soros Fund Management which has assets of about $27 billion.
The euro-zone debt crisis is a direct consequence of the crash of world economy in 2008 and weakening of the currency may lead to the break-up of the European Union itself, he said at an interactive session here today.
“If the common currency broke down, it will then lead to the break-up of the European Union itself. So it is political problem. Thus, euro crisis in my opinion is something more serious and more threatening than the crash of 2008,” he added.
Certain inadequacies in designing the euro have led to the euro-zone crisis that looms large over world economies, said Mr Soros.
“There were also flaws in the design (of euro), of which the authors were not aware and actually which are still not fully recognised or not even fully are still ignored and those flaws are causing the problem,” Mr Soros said.
“The most important of which is that there was a false conception about how financial markets operate. It was assumed that any imbalances would arise only in the public sector.
There was a lack of recognition that financial markets themselves can generate those imbalances,” he added.
The Hungarian-American is in India and participated in an interactive session in the Indian School of Business.
When the euro was introduced, the European Central Bank accepted the government bonds of the member countries at face value, Mr Soros said.
The move brought the interest rates in the various countries very close together and the banks loaded up with the government bonds of the weaker countries.
“That then created imbalances in economic performance, because on the one hand, Germany which is the strongest country (in Europe) had to face the burdens of reunification and therefore had to undergo very serious economic reforms to deal with that,” Mr Soros said.
1/20/2013 @ 5:35PM |16,261 views Is China Running Out Of Workers?
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On Friday, Beijing’s National Bureau of Statistics announced that China’s “working age” population—the 15 to 59 segment—totaled 937.27 million last year. That number, as large as it is, represents a decline of 3.45 million from 2011. Moreover, the workforce in 2012 comprised 69.2% of the population, 0.6% less than in 2011.
“In 2012 for the first time we saw a drop in the population of people of working age,” said Ma Jiantang, the NBS chief. “We should pay great attention to this.”
We certainly should. Cai Fang, the widely followed Chinese demographer, thinks the workforce actually peaked in 2010, and he is probably correct. Yet whoever is right, the NBS announcement highlights the acceleration of Chinese population changes. Beijing’s official demographers were saying, as recently as 2009, that the workforce would continue growing until 2016.
“There are different opinions on whether this means that the demographic dividend that has driven growth in China for many years is now coming to an end,” said Mr. Ma, trying to put the best face on the news. Actually, it’s hard to see how the so-called dividend, an extraordinary bulge in the working population, can continue, especially because he also predicted that the number of workers in China will get smaller each and every year until about 2030.
Chinese technocrats have more than just a shrinking workforce to worry about. As late as 2008, the U.N.’s figures, Beijing’s numbers with minor adjustments, showed China’s total population falling off only after 2030. That date is, well, so out-of-date. Now, senior Communist Party officials, like Liu Mingkang, are talking about 2020, which means the peak will undoubtedly occur before then.
There are both good and bad—mostly bad—effects of a slowing population on a nation’s economy, but the point observers are missing is that China’s trends are occurring faster than almost all demographers predicted just a few years ago. The pace of change, therefore, means economic adjustments could very well be more painful than most analysts now believe.
Perhaps the most pernicious economic effect of a declining population will be on urbanization. The decades-old migration from farm to city is one of China’s “four new modernizations,” announced in mid-November by Li Keqiang. The man slated to become the next premier is placing a big bet that this trend will drive growth for the next two decades. After all, the Chinese government in 2011 announced it will be building 20 cities a year in each of the next 20 years.
Figures from the National Bureau of Statistics indicate that the government’s city-building plan is feasible. Last year, according to the agency, China’s urban population increased 21.03 million, hitting 711.82 million, or 52.57% of the country’s population. That was up 1.3 percentage points from 2011.
Even if these figures are correct—and there is growing doubt that NBS’s urbanization numbers are accurate—it’s not clear where Beijing officials are going to get the people to continue to power the farm-to-city process. Not only are the major demographic trends working against them, but there is also a growing concern that rural areas have already been emptied out.
Some Chinese scholars believe the supply of workers in the under-35 cohort—the so-called “golden age group”—has already been exhausted in rural areas. Others disagree, but even those who think there is still a pool of workers on the farm acknowledge that not many of them want to move to the cities, where conditions can be bad and pay low. And in the middle-aged portion of the rural workforce, again, not many more of them want to leave home.
I know about these trends first-hand. In the village where my father’s family comes from—near the Yangtze River in coastal Jiangsu province—you can see many children and old women, but not many adults of working age. Those who have left for nearby Shanghai and the other great cities of China have already done so. My hometown suggests that urbanization is a spent force.
Beijing can build urban areas, but the country already has its famous “ghost cities.” Urbanization is not sustainable unless there are people willing to move to the new cities—and more important—to work in them. Just because urbanization has contributed to China’s growth in the past does not necessarily mean it will continue at the same pace during the next two decades. Urbanization will undoubtedly continue, but it can no longer drive the Chinese economy like it has for the last 30 years.
Demography may not be destiny, but it will create high barriers for Chinese growth. If Beijing’s leaders are to succeed, they will have to do so in spite of population trends, not because of them.
Unfortunately, they are not even trying to reverse China’s adverse demographic trajectory. Although just about everyone believes that Beijing should drop the one-child policy, which has depressed population growth since 1979, there have been no substantial moves to do so. Yes, officials talk about liberalization of birth restrictions, but they never get around to implementing needed change. Yet even if they repealed the policy today, the beneficial economic effect would not be felt for years.
China, which has had one of the best demographic profiles of any nation, will soon have one of the worst. The economic effect of population decline will, in all probability, be severe, long-lasting, and evident soon.
E, zato Jimmy preferira Californiu, blizu porno valley, ako zagusti sa prirodnim priraštajem, skokneš par puta mesečno i eto ti grad veličine Frankfurta!
ma sav taj porast stanovnika u Americi je u redu brojcano ali daj gledaj ti to malo kvalitativno ono kakvo je obrazovanje kakve su radne navike odnos prema drugim rasama i religijama.....
I to nije jedini problem tvog neuspešnog pitanjca, drugo problemče je dok EU, Azija i Rusija gube stanovništvo, Amerika dobija još i njihove pametne glavice, pa dok neki gube i obrazovano stanovništvo, neki ga još i dobijaju na njihovoj muci!
Naravno, pored toga što im ionako već stari i umire generalno stanovništvo.
Znaš već batice, glupe države finansiraju pametne glavice, a onda pametne države im te glavice fino uzmu i iskoriste gratis.
Tako da si promašio, i u čisto reproduktivnom smislu, ali i onom drugom, presečnom ostavlja u prašinici!
kakve su radne navike
odnos prema drugim rasama i religijama
Ti ovo hvališ Ameriku?
Pa bezobrazno, pored toliko pametnih i divnih stvari oko nas, ja sad tebe da pržim tu, ono nije fer, realno, ali dobro, nije mi teško, moram da te razočaram, najbolji, mislim ono, da nije, ljudi ne dolazili ovde preko okeana, i Atlantskog i Pacifičkog!
Nismo u EU/Asia fazonu, hebiga. (Balkanče i braću Ruse ne računam, pošto tu ne živi civilizacija)
Što se tiče raznovrsnosti, tu nema presedana, pa ono!
Nego sad da nastavimo, prosto obožavam kada ovako napucavam, rođeni košarkaš, ljubi me mamica ovako pametnog
China Economic Paradigm Nearing End Game
For GMO’s asset allocation team, valuations are our first protection against losses. We generally believe that cheaper assets are more resilient against bad economic and financial events, and that if we focus on avoiding the overvaluedassets, we should not only achieve higher returns over time, but more often than not do less badly when marketsencounter dificulty. From a valuation perspective, Chinese equities do not, at first glance, look to be a likely candidate for trouble. The PEratios are either 12 or 15 times on MSCI China, depending on whether you include financials or not, and the markethas underperformed MSCI Emerging by about 10% over the last three years (ending December 31, 2012). Neither of these characteristics screams “bubble.” And yet, China has been a source of worry for us over the past three yearsand continues to be one, affecting not merely our behavior with regards to stocks domiciled in China but the entireemerging world, as well as some specific developed market stocks, which we believe are particularly vulnerableshould things in China go down the road we fear it might.China scares us because it looks like a bubble economy. Understanding these kinds of bubbles is important becausethey represent a situation in which standard valuation methodologies may fail. Just as financial stocks gave a falsesignal of cheapness before the GFC because the credit bubble pushed their earnings well above sustainable levelsand masked the risks they were taking, so some valuation models may fail in the face of the credit, real estate, andgeneral fixed asset investment boom in China, since it has gone on long enough to warp the models’ estimation of what “normal” is.Our fears have not stopped us from buying emerging stocks, or indeed some Chinese stocks, but they have temperedour positions relative to what they would be if we were not concerned about the bubbly aspects of China. Because thisview has a real effect on our portfolios, it is important for us to continue to update our work to make sure we aren’tmissing something important. The recent apparent strengthening of the Chinese economy is a potential challenge toour thesis, and as a result, Edward and others at the firm have been working hard to understand what is driving therebound and understand whether it is sustainable or not.
The Credit Tsunami
Until the summer of 2011, China’s economic juggernaut seemed unstoppable. In September of that year, however, anacute credit crunch appeared in the city of Wenzhou on China’s eastern coast. Stories suddenly appeared of defaulting property developers, loan sharks disappearing in the middle of the night, work halted on half-completed apartment blocks, luxury cars abandoned in droves, property prices plunging, and credit drying up. China’s high-speed economyappeared to be running off the tracks.
Such fears have proven unfounded. Last year, the property market – perhaps the most important driver of Chineseeconomic growth – staged a remarkable recovery. Credit growth has also picked up strongly. As memories of Wenzhoufade, conventional wisdom holds that Beijing has pulled off yet another soft landing. Even if credit problems re-emerge, it’s widely believed that a number of policy options remain open: the PBOC can free up some RMB 18trillion of bank credit by cutting the reserve ratio requirement.
Regulators can also relax the cap on the banks’ loanto deposit ratio. And interest rates can be cut further. If need be, Beijing can simply borrow more. There’s no near-termlimit to China’s financial capacity.This white paper presents a brief account of China’s great credit boom and outlines some worrying recent developmentsin the financial system. In our view, China’s credit system exhibits a large number of indicators associated with acutefinancial fragility. These include:
• Excessive credit growth (combined with an epic real estate boom)
• Moral hazard (i.e., the very widespread belief that Beijing has underwritten all bank risk)
• Related-party lending (to local government infrastructure projects)• Loan forbearance (aka “evergreening” of local government loans)
• De facto financial liberalization (which has accompanied the growth of the shadow banking system)
• Ponzi finance (i.e., the need for rising asset prices to validate wealth management products and trust loans)
• An increase in bank off-balance-sheet exposures (masking a rise in leverage)
• Duration mismatches and roll-over risk (owing to short wealth management product maturities)
• Contagion risk (posed by credit guarantee networks)
• Widespread financial fraud and corruption (from fake valuations on collateral to mis-selling of financial products) Not
only does financial fragility look to be on the rise, Beijing seems to be on the verge of losing control over thecredit system. Savings are migrating from deposits in the state-owned banking system to higher-yielding nonbank credit instruments. Furthermore, rich Chinese are increasingly willing to evade capital controls and take their moneyout of the country. As a result of these developments, deposits in the banking system are becoming less stable. “RedCapitalism,” namely the ability of the Chinese authorities to direct the country’s enormous savings for their own ends,faces an existential threat.
A Credit Bubble
Economists have woken up to the fact that periods of rapid credit growth generally end badly. As one recent paper putsit, “credit [growth] matters, and it matters more than broad money, as a useful predictor of financial crisis.”
Chinatoday seems to be in a similar predicament to several of the developed economies prior to 2008. Too much credit has been created too quickly. Too much money has been poured into investments that are unlikely to generate suficientcash ows to pay off the debt. Last year, for instance, new credit extended to the non-financial sector amounted toRMB 15.5 trillion.
That’s equivalent to 33% of 2011 GDP, although as Fitch Ratings notes, overall credit formationis running at an even faster rate when items missing from the oficial data are added in.
The latest surge of credit follows the great tsunami of 2009, when China’s non-financial credit expanded by theequivalent of 45% of the previous year’s GDP. Since that date, China’s economy has become a credit junkie, requiringincreasing amounts of debt to generate the same unit of growth. Between 2007 and 2012, the ratio of credit to GDPclimbed to more than 190%, an increase of 60 percentage points. China’s recent expansion of credit relative to GDPis considerably larger than the credit booms experienced by either Japan in the late 1980s or the United States in theyears before the Lehman bust (see Exhibit 1).
Feeding the Dragon: Why China’s Credit System Looks Vulnerable – January 2013
Most China commentators believe that rapid credit growth in China is not worrying because the debt is funded bydomestic savings rather than by foreigners. The historical record, however, suggests that current account deficits don’tincrease the likelihood of a fnancial debacle in an economy where credit has been growing rapidly (for instance,Japan’s “bubble economy” of the 1980s was funded domestically).
It has also been argued that China has nothing to fear because total non-financial credit, at roughly 200% of GDP,is relatively low by comparison with the U.S. and other developed economies. Yet the total stock of credit is less predictive of future problems than its rate of growth. Furthermore, mature economies appear to have a greater capacityto shoulder debt. In economists’ parlance, “fnancial deepening” is correlated with the level of economic development.In fact, China is rather heavily indebted relative to other emerging markets and has roughly the same amount of debtas Japan sported in the late 1980s (even though Japan’s per capita income at the time was much higher, as shown inExhibit 2).Many commentators also take comfort from the fact that China’s public debt is less than 30% of GDP. The troubleis that the oficial numbers are misleading. As is often the case in China, most of the debt is kept off balance sheet.Because the main banks are state-controlled and most of their lending is directed at state-controlled entities, a greatdeal of bank lending is quasi-fiscal in nature. In order to get a proper picture of China’s sovereign liabilities we mustadd back the loans to local government infrastructure projects, policy bank debt (issued by the likes of the ChinaDevelopment Bank), borrowings by the asset management companies (which acquire non-performing loans from banks and others), and debt issued by the Ministry of Railways to fund the roll-out of the expensive high-speed railnetwork.When these on- and off-balance-sheet liabilities are combined, China’s public debt approaches 90% of GDP.Significantly, this is considered by economists to be an upper threshold for public indebtedness.
Higher levels of public debt are associated with a prolonged decline in economic growth. Economist Andrew Hunt estimates that China’s true public debt has increased by around 60% of GDP since 2007. If Beijing were to attempt to repeat thecredit-fuelled stimulus package of 2009, its true debt-to-GDP ratio would exceed that of Greece.
Credit Bubbles
Rapid Credit Growth Precedes the Busts
China Is Heavily Indebted Relative to Emerging Peers
Source: Economic Perspectives, IMF
Debt and the Real Estate “Bubble”
Recent research suggests that credit booms are more likely to end in severe busts when they coincide with property bubbles.
It’s dificult to prove using purely quantitative tools that China’s property market is in a bubble. There’s no doubt, however, that China has witnessed a tremendous residential construction boom in recent years. Miles upon miles of half-completed apartment blocks encircle many cities across the country. Oficial data suggest that the valueof the unfinished housing stock is equivalent to 20% of GDP and rising.Real estate collateral supports much of the country’s outstanding debt. Oficially, the banks’ exposure to property – through loans to developers and mortgages – is only 22% of their total loan book. The banks, however, are alsoexposed to real estate through their loans to local government funding vehicles and through sundry off-balance-sheetcredit instruments. It’s probably fair to say that at least one-third of bank credit exposures are real estate related.Developments in the infamous “ghost city” of Ordos, in Inner Mongolia, reveal the vulnerability of China’s creditsystem to an overblown housing market. The Kangbashi district of Ordos is a totem for China’s property excesses.Kangbashi has enough apartments to shelter a million persons, roughly four times its current population. Until recently,turnover in the local real estate market appears to have been driven by debt-fuelled speculators. Construction in Ordoscame to a sudden stop in the fall of 2011 after property prices collapsed (Caixin magazine reports incredibly that prices declined by 85%). More than 90% of the building sites in Kangbashi were said to be idle.
Debt problems soon emerged. A prominent developer in the neighboring city of Baotou hanged himself last June, leaving behind debts of RMB 700 million, according to the National Business Daily. Local property developers wererevealed to have funded themselves in the underground loan market, where monthly interest rates range between oneand three percent. The city government has run into dificulties after revenues from land sales fell by three-quarters.Local banks also reported an increase in non-performing loans.Property-related debt problems have cropped up in other cities. In late 2011, funding dificulties at a Hangzhou-basedreal estate developer imperiled dozens of companies that had issued guarantees over its debts. Property trusts in Nanjing and Beijing have recently threatened to default. Last October, developers in the city of Changsha in Hunan province were reported to have both reneged on debts and sold the same properties to different buyers.
Given the vastamount of residential construction in China (estimated at around 12% of GDP) and severe weakness in many propertymarkets, it’s remarkable that real estate lending issues have been relatively contained.
Local Government Funding Vehicles
Moral hazard, or the belief that the government is underwriting nancial risk, is another common feature of unstable banking systems. In China, the issue of moral hazard is accentuated by the state’s control of both the leading banks andthe main recipients of credit, namely the state-owned enterprises. These arrangements have encouraged crony lending practices and the concealment of non-performing loans. In this respect, China combines the poor lending practicesof the Indonesian banking system during the corrupt Suharto era with the propensity to roll over or “evergreen” non- performing loans, which was a marked feature of the Japanese banking system after its property and stock market bubble burst in 1990.In recent years, the problems of moral hazard, related-party lending, and loan forbearance have been particularly prevalent in the area of local government nance. Local governments in China are restricted in their ability to borrow on their own account. To get around this law, they set up platform companies, commonly referred to as localgovernment funding vehicles (LGFVs), to nance their investment activities. Loans to these platform companiesmushroomed in 2009 and 2010 as the banks nanced China’s infrastructure-heavy economic stimulus. The People’sBank of China estimated LGFV debt at RMB 14.4 trillion, while China’s banking regulator came up with a gure of RMB 9.1 trillion. On these numbers, LGFV debt accounts for between 15% and 25% of outstanding loans in China’s banking system.Although ostensibly commercial entities, much of the money spent by these infrastructure companies appears to have been wasted on extravagant trophy projects. The quality of the collateral held by the banks against their loans has been questioned. Collateral often comes in the form of land, which in some cases has been valued by local ofcials ata premium to actual market values. Moreover, guarantees issued by local governments in respect of LGFV debts maynot be of much use. Not only is their legal basis dubious, these promises depend on continuing land sales. Becauseland sales and development taxes account for a large chunk of local government revenue, when the real estate marketturns down, local governments in China face a potential cash crunch.Loudi, a little-known city in Hunan province, serves as the poster child for LGFV excesses. According to Bloomberg,Loudi’s local government borrowed RMB 1.2 billion to nance the construction of a 30,000-seat faux Olympicstadium, gymnasium, and swimming complex. The land collateral for Loudi’s loan was valued at around four timesthe value of nearby plots zoned for commercial use.
Early evidence that platform companies were struggling to repay their debts emerged in April 2011 when the YunnanHighway informed its banks that it couldn’t meet the repayment schedule on RMB 100 billion of loans.
In thesummer of 2011 China’s banking regulator rescinded a previous instruction to the banks not to roll over non-payinglocal government loans. Since then, problems with LGFV loans have largely remained out of the headlines. As the banks’ balance sheets are laden with non-paying loans, capital is tied up that might otherwise have supported theextension of new credit to other entities. In the long run, the consequences of “evergreening” non-performing loanswill be slower economic growth.
Shadow Banking
Although Beijing maintains a tight grip over the lending of the Big Four banks (Bank of China, China ConstructionBank, Industrial and Commercial Bank of China, and Agricultural Bank of China), the most notable feature of thecredit boom has been the rapid expansion of nonbank lending, in particular of so-called wealth management products.The explosive growth of China’s shadow banking system represents a
de facto liberalization of the nancial system.In a number of countries, nancial liberalization has been associated with asset price bubbles and has been a leadingindicator of banking crises (e.g., the appearance of the secondary banks in the U.K. in the early 1970s and thederegulation of the Nordic banks in the late 1980s).
Last year, Chinese banks’ share of total lending fell to only 52% of total credit creation, down from 92% a decadeago. In the fourth quarter of 2012, nonbank lending accounted for an astonishing 60% of new credit issuance. China’sthriving shadow banking system has much in common with the American version, which thrived before Lehman’scollapse: trust loans that nance cash-strapped property developers have a whiff of the subprime about them; wealthmanagement products that bundle together a miscellany of loans, enabling the banks to generate fees while keepingloans off balance sheet, bear a passing resemblance to the structured investment vehicles and collateralized debtobligations of yesteryear; while thinly capitalized providers of credit guarantees are reminiscent of past sellers of credit default insurance.
Corporate Bonds and Trust Products.
After China’s economy turned down in early 2012, there were calls for another economic stimulus. The banks, however,were reluctant to add to their LGFV exposure. So the local governments turned to the bond markets. Restrictions onthe platform companies’ ability to issue bonds were relaxed, and a corporate bond boom was soon underway. Over thecourse of 2012, RMB 2.3 trillion of corporate bonds were issued in China, an increase of 64% on the previous year.Almost half of the funds raised went to local governments (see Exhibit 3).In the past, China’s banks have purchased most new corporate bond issuance. This time, however, an increasingnumber of bonds have been bundled into wealth management products, which are sold on to the banks’ retail andcorporate clients. Caixin quotes a source at a major bank claiming that many bonds, which purported to nance newinfrastructure projects, were actually being used to pay off old bank debts.
While this has allowed banks to reducetheir reported exposure to local governments, it is possible they will have to make good any future losses suffered byinvestors on future bond defaults.The worst investment decisions have generally been made when dumb money is chasing yield. Chinese savers whoare looking for something more satisfying than the negative real interest rates available on bank deposits often end upchoosing trust products. Borrowers whose operations are too risky for banks often resort to a trust company. However, over the last year LGFVs have emerged as the dominant borrower from trust companies.
China’s trust industry hasmore than doubled in asset size over the past two years, controlling some RMB 6.0 trillion of assets at end September 2012.
Given their generally low credit quality and widespread exposure to real estate, trust products can be seen asChina’s equivalent to subprime mortgage-backed securities.Problems with the assets backing trust products are well documented. Bloomberg recently reported on the “PurplePalace,” a half built and abandoned luxury development in Ordos, which had been funded with trust loans.
Trustinvestors, however, believe they are protected against loss. Because trust companies can lose their operating license if they impose losses on investors, they tend to make good any shortfalls with their own capital. The trouble is that trustoperators are highly leveraged. The average leverage of the trust companies – dened as trust balance divided by netassets of the trust company – was 24 times, according to Yongi Trust Research Institute.
To date, problems associated with trust products have largely been concealed from public scrutiny. Last year, a state-run asset management company, China Huarong, took over two property trusts that were on the verge of defaulting.Industry insiders have also alleged that on occasion the proceeds from new trusts have been used to pay off maturingloans.
Wealth Management Products
Wealth management products (WMPs) have been by far the most popular investment for Chinese savers looking for higher returns. These securities yield on average around 2 percentage points more than bank deposits, and are sold by banks to retail investors as low-risk investments. Ratings agency Fitch estimated that around RMB 13 trillion of WMPs were outstanding by the end of 2012, an increase of over 50% on the year.
WMPs share some of the characteristics of both the Structured Investment Vehicles (SIVs) and Collateralized DebtObligations (CDOs), which were used by U.S. banks before 2008 to keep loans off balance sheet. Central to thestructure is the pooling of investor funds. Money raised from the sale of several different WMPs is aggregated into ageneral pool (see Exhibit 4). The general pool then funds a variety of assets, investing across the risk spectrum. Somemoney goes into trust products and LGFV bonds described earlier in this paper, and some is invested in less riskyinterbank loans.
These credit instruments pose a number of different problems. They often create a duration mismatch, as short-datedfunds are invested in longer-dated assets, such as trust products supporting real estate development. Many WMPsare as opaque as the old SIVs and CDOs. The documentation provided to investors is typically short on detail withregards to the mix of assets funded. Some WMPs resemble blind trusts in which savers hand over their money withoutknowing what exactly they are investing in. A recent WMP sold by China Construction Bank, for instance, merelystated that it would invest up to 70% of the funds in debt and at least 30% in bonds and money market instruments.WMPs contain a further twist. The buyers are typically required to sign a conrmation – which can be as simple asticking a box on an online application – that they will bear the nancial shortfall if assets funded by the pool fail togenerate the expected returns. And, to be clear, most WMPs advertise “expected” rather than guaranteed or promisedreturns. So long as the returns are not guaranteed, WMP providers are able to hold off balance sheet both the liabilitiesraised from investors and the assets funded by them. Once again, buyers appear ignorant of the risks. Most likely,they assume that the issuing banks will backstop them should the funded assets fail to pay. After all, banks have their reputations to consider. They would be leery of starting a run on their WMP assets. And the government could beexpected to lean upon them.
Ponzi Finance
Within China, some highly-placed ofcials have started raising concerns. “Many assets underlying the [wealthmanagement] products are dependent on some empty real estate property or long-term infrastructure, and are sometimeseven linked to high-risk projects, which may nd it impossible to generate sufcient cash ow to meet repaymentobligations,” Xiao Gang, chairman of the Bank of China, wrote in the
China Daily
in October.
“China's shadow banking is contributing to a growing liquidity risk in the nancial markets...n some cases short-term nancing has been invested in long-term projects, and in such situations there is a possibility of a liquidity crisis being triggered if the markets were to be abruptly squeezed.”Xiao touches next upon a key vulnerability of WMPs. “In fact, when faced with a liquidity problem, a simple wayto avoid the problem could be through using new issuance of WMPs to repay maturing products. To some extent,this is fundamentally a Ponzi scheme,” he writes. “Under certain conditions, the music may stop when investors losecondence and reduce their buying or withdraw from WMPs.”These comments were well-timed. Salesmen employed by banks have reportedly earned commissions by sellingthird-party products without their employers’ knowledge.
Customers appear to have bought these third-party WMPs believing they came with a bank guarantee. In early December, the Shanghai branch of Huaxia Bank was beset by protesters after a WMP sold at the branch defaulted.
This incident was the rst in a number of scandals concerningshadow banking credit. In the same month, customers at a branch of China Construction Bank in the northeastern province of Jilin claim to have been sold a WMP with guaranteed returns but suffered a loss of 30% of their principal.
Citic Trust Co, a unit of China’s biggest state-owned investment company, recently missed a bi-annual payment toinvestors on one of its trust products after a steel company missed interest payments on the underlying loan.
As might be expected, sell-side analysts have reacted blithely to risks posed by shadow banking securities. A study by Merrill Lynch highlights so-called “collective trusts” – a type of high-yielding WMP originated by trusts rather than banks – as the most subprime-like subsector, but notes they are limited in size to RMB 1.7 trillion. “The risk for a systematic liquidity crunch seems very low for now,” Merrill concludes. While another broker concedes that “somecollateral is used twice by different institutions,” he suggests that only 5% of loan-backed WMPs are likely to go bad.
We are less sanguine. In our view, WMPs are providing a lifeline for the most marginal of borrowers.
If the proliferation of WMPs in China’s nancial system follows the originate-and-distribute model for credit popular in the U.S. prior to 2008, a further echo of the subprime era is sounded by China’s extensive network of creditguarantees. China’s credit guarantee businesses have enjoyed a long boom. There were 8,402 of them guaranteeingRMB 1.3 trillion of debt at the end of 2011, according to Merrill Lynch.
Providers of credit guarantees, like sellersof credit default insurance, earn a small fee for their service. The danger is that when credit guarantors operate withinsufcient capital, their losses can spread contagiously throughout the system.Around a quarter of all bank loans in China carry some form of guarantee. These guarantees may come in the formof a mutual guarantee, where one company guarantees another’s debts against default. Alternately, a guarantee can be purchased from a dedicated guarantee rm. The latter are nancial services companies engaged solely in the businessof issuing guarantees against default. They typically charge 3% of the loan amount.Credit guarantees are popular because regulations governing interest rates prevent Chinese banks from pricing creditrisk. As a result, the banks prefer to lend to state-owned rms. Smaller privately-held outts require a guarantee inorder to access bank nance. It is commonplace for companies with trading relationships to guarantee each other’sdebts, simply to grease the wheels of commerce.Wenzhou’s credit crisis, which commenced in the late summer of 2011, was propagated by the collapse of a network of credit guarantees – the city’s guarantee rms later had to be bailed out by the government. The failure of TianyuConstruction, a Hangzhou-based developer, a few months later created a “credit crisis threatening banks and nancialinstitutions that altogether issued about RMB 6 billion in loans to scores of companies,” according to Caixin.
Sixty-two companies, “from furniture makers to import-export traders…were nancially linked to Tianyu through a province-wide, reciprocal loan-guarantee network.”As with sellers of credit default insurance in the era before Lehman’s collapse, many providers of credit insurance inChina are thinly capitalized and poorly regulated. Consider the case of Beijing-based Zhongdan Investment CreditGuarantee Company, which has guaranteed more than RMB 3 billion in outstanding loans to nearly 300 companies.“Some of these companies,” reports Caixin, “had borrowed from banks with Zhongdan's guarantee and invested themoney not in their businesses but in the latter's so-called wealth management schemes, which promised high returnsthrough murky operations. In some cases, fraudulent contracts were used by Zhongdan and its client companies toobtain bank credit, most likely with bank ofcers' acquiescence, the investigation found.”
Collateralized lending
The American economist Hyman Minsky warned that nancial stability was undermined when lending becomesoverly linked to collateral values rather than income. “An emphasis by bankers on the collateral value and expectedvalue of assets is conducive to the emergence of a fragile nancial structure,” wrote Minsky in Stabilizing an Unstable Economy (1986). Lending against collateral has the potential to create both virtuous and vicious cycles; ascollateralized credit supports asset prices in the boom phase, whilst in the bust falling collateral values create credit problems.Collateralized lending is especially popular in China for the same reasons as credit guarantees – banks want collateral because they are not allowed to charge for risk. By our estimates, more than 40% of all bank loans outstanding arecollateralized, with residential mortgages accounting for around half of this amount. A curious feature of Chinesecredit practices is that various inputs to the residential housing bubble – including commodities, such as steel andcopper, and construction equipment – are often used as collateral to back loans. Concrete producers have been notedto purchase equipment on easy credit terms in order to use the machines as collateral against bank loans to nancetheir working capital. More machines have been purchased than were needed for purely operational reasons.
The demand for copper has reportedly been buoyed by Chinese speculators, who have raised loans against stockpilesof imported copper and invested the proceeds in the property market. The same practice aficts the market for steel.
Last summer, Shanghai-based steel traders began defaulting on their loans after the steel price slumped. “Chinese banks and companies looking to seize steel pledged as collateral by rms that have defaulted on loans are making anuncomfortable discovery: the metal was never in the warehouses in the rst place,” reports Reuters.
“As defaultshave risen in the world's largest steel consumer, lenders have found that warehouse receipts for metal pledged ascollateral do not always lead them to stacks of stored metal.”
An End to Financial Repression?
For better or worse, nancial capitalism as practiced in China is rather different from the Western variety. The large banks are run by members of the Chinese Communist Party who receive instructions on how to allocate credit fromtheir Party superiors. Loans are made at the behest of Beijing to state-owned enterprises and local government fundingvehicles to meet public policy purposes. Credit quality is not a main concern.These arrangements tend to generate large numbers of bad loans. “Red Capitalism,” however, has worked in itsfashion because the regulators have guaranteed the banks’ generous net interest margins – the spread between whatthe banks pay on deposits and receive on their loans. Large prot margins have compensated the banks for makingunproductive loans and provided them with the cash to conceal subsequent losses.Chinese savers who have historically received low interest rates (often negative in real terms) on their deposits havefooted the bill. They are the victims of what economists call “nancial repression.” Until recently, however, they hadno alternative to leaving their cash in state-run banks and capital controls prevented them from taking money out of thecountry. The emergence of the shadow banking system changed this state of affairs. As we have seen, savers now earnmore from investing in WMPs than keeping their money on deposit. Some property trusts offer double-digit returns.Braver hearts can venture into China’s usurious underground loan market. (As shown in Exhibit 5, in Wenzhou prior to the September 2011 crisis lenders were charging up to 80% annualized rates in the underground market.)Competition from China’s shadow banking world creates a problem for the banks. Wealth management productsare now around a fth the size of the banks’ total loan book. As money ows into the shadow banking system, the banks have on occasion run short of deposits. For long stretches over the last year and a half, deposit growth has beeninsufcient to cover new loans. Furthermore, the inows of deposits into the banking system are becoming more volatile. Every quarter, deposits ow out of the banks to purchase wealth management products. Three months later,the money returns briey to the banking system as these securities mature. The returning deposits allow the banks tokeep within their regulated loan-to-deposit ratio (current maximum 75%).There’s a wrinkle, however. More than two-thirds of WMPs mature in three months or less. Yet these nancialinstruments are often invested in assets with much longer maturities, including trust loans whose maturities stretch outseveral years. This asset-liability mismatch makes it crucial for the banks to be in a position to roll over the loans. Thenumbers are enormous and getting larger by the day – every quarter around RMB 3 to 4 trillion of wealth management products need renancing.The banks have been forced to turn to the interbank market to nance the roll-over. Interbank assets within theChinese nancial system have grown to roughly RMB 28 trillion at the end of September 2012 (up from RMB 11trillion at the end of 2009).
They now comprise a quarter of total bank assets. Although China’s banks report lowloan-to-deposit ratios, the banking system is now more reliant than ever on market liquidity.The dubious creditworthiness of many WMP assets means that defaults are an ever present possibility. A loss of condence in China’s shadow banking arrangements could threaten a full-blown credit crunch. China’s shadow banking system has grown too big to fail, but it may also have become too big to control. Beijing is caught betweena rock and a hard place. Recent moves by policymakers suggest a desire to limit local government borrowing andregulate growth of WMPs. However, if the authorities were to crack down on the shadow banking system, they risk creating a “credit crunch by accident.”
As a result, most regulatory pronouncements remain a dead letter.
Capital Flight
The state’s control over the credit system is threatened on another front. China’s vast trade surplus and substantialcapital inows over the last decade have required massive intervention by the central bank in order to maintain theexchange rate peg to the U.S. dollar. For every dollar entering the country, several new RMB have had to be printed.Capital inows into China have thus boosted deposits in the banking system and underpinned the country’s credit boom. The corollary is that capital outows would suck cash out of the banking system as savings ed the country.Exhibit 6 shows the ratio of new loans to new deposits moving in line with changes in China's FX reserves.
How realistic is the prospect of capital ight? Wealth is highly concentrated in China. Rich Chinese have manyincentives to take their money out of the country – real estate is no longer a one-way bet, savings in the state-controlled banks continue to earn negative real rates, while the shadow banking system is stuffed with dodgy credits.There’s also a danger that the new administration may seek to appease the public’s anger toward rising inequalityand corruption by conscating windfall fortunes. The wealthiest 1% of households, according to Victor Shih of Northwestern University, control funds equivalent to two-thirds of China’s huge foreign exchange reserves.If the wealthiest Chinese were to move a signicant portion of their money offshore, liquidity in the banking systemwould be drained. Such a movement is already underway. The
Wall Street Journal reckons that capital outows in thetwelve months through to September 2012 amounted to $225 billion.
The Art of Bank-Watching
There is a famous CIA paper, dating from the 1970s, entitled “The Art of China-Watching.” The anonymous author expresses frustration at the way in which important events in China are hidden from the eyes of Western observersand ends up by questioning whether logic even helps when analyzing Chinese affairs. An observer of China’s modernnancial system is similarly handicapped and is in danger of reaching the same conclusion. Over the last year and ahalf, we have seen the sudden collapse in credit and, just as abruptly, a miraculous recovery.There
appears to be a large and growing gap between appearance and reality in China’s banking system. On thesurface, China’s credit conditions are healthy. Yet the China-watcher gets an occasional glimpse of a rather differentreality; of Ponzi nance practices across the nancial spectrum; of loan sharks disappearing with the locals’ savings;of miscellanous entities exaggerating the value of their loan collateral and at times faking it; and of bank employees purloining funds from their banks or engaged in the mis-selling of nancial products. China’s nancial system simmerswith incipient scandals.
The public appearance is of a banking system with negligible levels of bad debts, ample liquidity, and low leverage. Thereality, on closer inspection, looks rather different. While the banks continue to report low levels of non-performingloans, skeptical China-watchers suspect that bad loans are being “evergreened.” Red Capitalism resembles a shellgame in which bad debts are shufed from one entity to another, without any losses observed; this may involve trustcompanies selling dubious loans to state-run asset management companies or bank loans being turned into corporate bonds and stuffed into wealth management products.
Low reported loan-to-deposit ratios of the banks also give a misleading impression. Deposits are increasingly unstable – the banks look to attract deposits from maturing WMPs as the quarter ends but the money ies out the door shortlyafter. If the banks have no liquidity problems, asks the frustrated China-watcher, why over the course of the last year has the People’s Bank of China been injecting ever larger sums into the banking system?
As we have seen, loans are being taken off the banks’ balance sheets and placed in shadow banking products. By law,these credit instruments are non-recourse. But skeptics suspect that the banks will be forced to compensate customersfor any future losses. Bank loans are ofcially around 130% of GDP; add on interbank assets, other assets held on balance sheet, and various off-balance-sheet exposures, and the banks’ total credit exposure is close to 300% of GDP.Perhaps the most profound gap between appearance and reality exists in the contrast between the booming creditmarkets and the lackluster demand for credit from the private sector. Despite the recent explosion of lending, thereare curious signs of distress in the real economy. Chinese companies appear to be squeezed for cash – inventoriesand accounts receivable have been rising. A recent poll by China Reality Research found the appetite for borrowingamong private manufacturers across 50 cities had fallen to an all-time low. Despite near-record credit growth this lastyear, economic growth continued to weaken.Local governments, on the other hand, have an insatiable demand for credit. They have needed money to offset thefall in land sales revenue, nance ongoing infrastructure projects, and, on occasion, to bail out large employers in their districts (in July the city of Xinyu in Jiangxi province agreed to spend RMB 500 million paying off the debts of LDK Solar).Local government demand for credit may even be crowding out other borrowers. A recent trip to China revealed thatvirtually every credit provider we came across – including banks, trust companies, and asset management companies – were actively engaged in lending, sometimes at double-digit rates, to local governments. They professed littleinterest in providing loans to private enterprise whose credit was not back-stopped by the state. “Moral hazard inChina is state policy,” one analyst told us.A considerable amount of recent lending has gone to roll over existing local government debt with interest. It isnoticeable that city and rural banks that have lent profusely to local governments have been particularly heavy issuersof wealth management products. Rolling over bad loans doesn’t generate much in the way of economic growth.Of course, every credit bubble involves a widening divergence between perception and reality. China’s case is notfundamentally different. In this paper, we have documented rapid credit growth against the background of a nationwide property bubble, the worst of Asian crony lending practices, and the appearance of a voracious and unstable shadow banking system. “Bad” credit booms generally end in banking crises and are followed by periods of lackluster economic growth. China appears to be heading in this direction.
China has recently become the world's top manufacturing country by output, ending the United States' 110-year run as the largest goods producer according to IHS Global Insight. The last time China held the position was around 1850, however since 1895 the manufacturing industry has been dominated by US producers.
Chinese companies have been taking larger shares of the global manufacturing market, outpacing many of their U.S. counterparts primarily due to lower operating expenses and favorable labor costs. Yet many of China’s advantages are eroding while U.S. manufacturing is becoming more competitive, meaning that the scales may soon tip in favor of American industry.
For over a century, the United States manufacturing sector was the largest and most advanced in the world. While it remains technologically sophisticated, U.S. manufacturing has ceded much of its market share to Chinese companies in recent years and, according to some reports, China’s manufacturing sector outgrew that of the U.S. for the first time in 2010.
But the conditions that have made China factory-friendly have begun to fade, while U.S. competitiveness is on the upswing. Is the momentum of industrial growth shifting back to the U.S.?
China is a Giant…
China’s rapid rebound from the global economic downturn was largely driven by its manufacturing sector, which has expanded at a record pace in recent years. Between 2008 and 2010, Chinese manufacturing grew at an average rate of 20.2 percent per year. In 2010, Chinese manufacturing output climbed to 19.8 percent of the global total, surpassing the U.S.’s 19.4 percent and dropping U.S. manufacturing from the top spot in global rankings for the first time in 110 years, according to the Financial Times.
Moreover, China’s manufacturing production totaled $1.96 trillion in 2010, up 9.3 percent from 2009, while U.S. production was valued at $1.95 trillion, a gain of only 6.6 percent from the prior year. Chinese growth has been astronomical in the 21st century. In 2000, Chinese industrial output accounted for just 6.9 percent of the world total, but grew to nearly 20 percent 10 years later.
“Between 2000 and 2010, the number of jobs in American manufacturing fell by 34 percent; it was, in all, a loss of six million jobs,” MIT’s Technology Review explains. “Much of that labor was not eliminated by declining demand for goods, or by automation of production, so much as it moved. The United States is no longer the largest manufacturer in the world; that honor now belongs to China…”
The pace of expansion can be seen across a range of industry groups. According to Business Insider, today China exports more than twice as many high-tech goods as the U.S. and is also the world’s top energy consumer. In 2010, China produced more than twice as many cars as the U.S., as well as 627 million metric tons of steel, compared to the U.S.’s 80 million metric tons. America’s trade deficit with China, which is currently the largest trade gap between any two countries in history, is expected to cost roughly half a million U.S. jobs each year.
Much of the strength of Chinese competitiveness derives from the fact that it’s cheaper to do business there. The combination of a large manufacturing base, relatively low labor costs and numerous support policies have made China an extremely attractive option for international business.
“Based on research regarding the actual conditions in China, we believe that the main drivers of competitiveness in China’s manufacturing industry are labor resources conformed to the structural transformation of [the] manufacturing industry, quality of infrastructure, the government’s scheme for sustainable support to technical research and local business dynamics,” according to a recent Deloitte report.
The low cost of labor, large workforce and economies of scale have drawn major brands to Chinese manufacturers, particularly in the textiles and electronics industries. The advantages conferred from government support are also a major advantage, as low-interest loans from China’s state-owned banks have lured many companies, including U.S.-based firms, to shift their operations overseas.
“Over the last 10 years, China has mounted the biggest challenge to the U.S. manufacturing sector ever seen, threatening producers of steel, chemicals, glass, paper, drugs and any number of other items with prices they cannot match,” Forbes.com warns. “China’s intensely mercantilist government is engaged in a global campaign to become the world’s dominant manufacturing nation, and no U.S. company on its own can hope to compete against state-subsidized Chinese enterprises.”
…But the Tide is Turning
Despite its rapid growth over the past decade, many of the advantages that have fueled the expansion of Chinese manufacturing are beginning to deteriorate, and the exponential gains made by Chinese manufacturers seem increasingly unsustainable.
“[T]he era of cheap China may be drawing to a close,” the Economist explains. “Costs are soaring, starting in the coastal provinces where factories have historically clustered. Increases in land prices, environmental and safety regulations and taxes all play a part. The biggest factor, though, is labor.”
Chinese labor costs have surged 20 percent per year for the past four years, and its most productive industrial centers are increasingly losing the ability to draw cheaper labor from inland China, while corruption and piracy are also degrading profitability. Labor costs for blue-collar workers in Guangdong, a key manufacturing region, rose by 12 percent a year from 2002 to 2009, while in Shanghai costs rose by 14 percent.
According to a study from consultancy AlixPartners, if China’s currency and shipping costs were to rise by 5 percent annually and wages were to go up by 30 percent a year (both within range of current growth rates), by 2015 it would be just as cost-effective to produce goods in North America as it would be to manufacture them in China and have them shipped overseas.
“[S]tamping out products in Guangdong Province is no longer the bargain it once was, and U.S. manufacturing is no longer as expensive,” Wired Magazine reports. “As the labor equation has balanced out, companies — particularly the small to medium-size businesses that make up the innovative guts of America’s technology industry — are taking a long, hard look at the downsides of extending their supply chains to the other side of the planet.”
Apart from China becoming less cost-effective for business, recent economic conditions in the U.S. have also boosted manufacturing competitiveness. A May report from the Boston Company identified several key factors that have strengthened American industry, including:
A depreciated dollar that has reduced the relative costs of manufacturing in the U.S. and made U.S. exports more globally competitive;
Lower natural gas prices that have reduced input costs for many manufacturing activities, particularly in energy-based industries like petrochemicals and steel;
A slowdown in global supply chains, which has made offshoring less effective due to longer transport times;
A rise in global volatility, which has made management teams less likely to view transportation, wages and currency as predictable factors, and consequently driven them to reduce their exposure to risk by operating within the U.S.; and
Concerns over intellectual property violations and quality control that have greatly boosted the “nearsourcing” movement.
In addition, the U.S. remains one of the most advanced manufacturing nations in the world, with technological capabilities and expertise that enable the production of extremely sophisticated products, as well as an entrepreneurial culture that actively generates new ideas and inventions.
“[T]he U.S. still is very competitive in the types of products that demand a high level of technology, engineering and capital to produce. In such industries, wages don’t matter quite as much, and the U.S. can capitalize on its clear advantage over emerging markets like China in expertise, technology and innovation,” TIME Magazine notes. “That’s why the U.S. sells Boeing aircraft to China, and the Chinese sell blue jeans to Americans.”
Sto bi rekli :
“Between 2000 and 2010, the number of jobs in American manufacturing fell by 34 percent; it was, in all, a loss of six million jobs,” MIT’s Technology Review explains. “Much of that labor was not eliminated by declining demand for goods, or by automation of production, so much as it moved. The United States is no longer the largest manufacturer in the world; that honor now belongs to China…”
While the national unemployment rate paints a grim picture, a look at individual states and their so-called real jobless rates becomes even more troubling.
Michael Nagle | Bloomberg | Getty Images
The government's most widely publicized unemployment ratemeasures only those who are out of a job and currently looking for work. It does not count discouraged potential employees who have quit looking, nor those who are underemployed — wanting to work full-time but forced to work part-time.
For that count, the government releases a separate number called the "U-6," which provides a more complete tally of how many people really are out of work.
The numbers in some cases are startling.
Consider: Nevada's U-6 rate is 22.1 percent, up from just 7.6 percent in 2007. Economically troubled California has a 20.3 percent real rate, while Rhode Island is at 18.3 percent, more than double its 8.3 percent rate in 2007.
Those numbers compare especially unfavorably to the national rate, high in itself at 14.9 percent though off its record peak of 17.2 percent in October 2009.
Only three states — Nebraska (9.1 percent), South Dakota (8.6 percent) and North Dakota (6.1 percent) — have U-6 rates under 10 percent, according to research from RBC Capital Markets.
Election battleground states paint a picture not much more flattering. Florida's U-6 number is an ugly 17 percent, though Pennsylvania and Ohio are both around 14 percent, below the national U-6 average.
The numbers come as the government prepares to release its latest reading, the July nonfarm payrolls number, on Friday. Economists expect the report show about 100,000 jobs created for the month and the traditional "U-3" rate to hold steady at 8.2 percent.
Jobs Data: What Markets REALLY Want
Discussing whether a dismal jobs number is actually what the markets are asking for, with Michael Pento, Pento Portfolio Strategies; Bill McVail, Turner Small Cap Growth Fund; Benjamin Pace, Deutsche Bank; and CNBC's Rick Santelli.
"The lack of improvement in state U-6 rates continues to be troubling," Chris Mauro, head of US Municipals Strategy at RBC, said in a research note. "While down from recent peaks, state U-6 levels remain dramatically higher than they were in 2007 and 2008."
Mauro used the numbers to demonstrate that investing in municipal bonds remains a challenge because high real unemployment rates will be a drain on local finances.
"We remain concerned about the corrosive influence that these stubbornly high U-6 rates may have on both consumer sentiment and state and local tax revenues," he said. "At current levels, these U-6 rates will continue to be a drag on credit quality."
According to official figures released by the U.S. government, unemployment rates in the country are hovering around 8.6 percent. However, the American Enterprise Institute (AEI) suggests that a better measure of the real jobless rate -the U-6 - stands at 15.6 percent.
The AEI's rate includes those individuals who would like a job and have been looking for employment for the last twelve months and not just the last four weeks. The agency believes therefore the number of Americans hurt by the bad economy is almost twice what the official number would suggest.
According to the AEI, the official rate excludes workers who have decided to drop out of the labor market altogether, either because they are discouraged or for other reasons. This rate also ignores workers who settle for part-time work because they are unable to find a full-time job.
Aparna Mathur, an economist with the AEI, and researcher Matt Jensen, have found that currently more than 5.7 million Americans, or 43 percent of all unemployed, have been in that state for more than 27 weeks.
As per the findings, the tremendous increase in long-term unemployment is one factor driving the unprecedented disparity between the official measure of unemployment and the alternative measure (U-6). The AEI also states that long-term unemployment has a damaging psychological impact on workers' willingness to keep searching for work and motivates them to accept part-time work.
Zamalo da ti uspe tekst od pre godinu i po dana, ali zamalo, znači bio si tako blizu, a opet nisi uspeo.
Nego ono, pre 5 sati te demantovali i to sa gratis milkšejkom
U.S. unemployment claims drop to 5-year low
The number of Americans seeking unemployment aid fell last week to the lowest level in five years, evidence that employers are cutting fewer jobs and may step up hiring.
The Labor Department said Thursday that weekly unemployment benefit applications dropped 5,000 to a seasonally adjusted 330,000. That's the fewest since January 2008.
The four-week average, a less volatile measure, fell to 351,750. That's also the lowest in nearly five years.
The decline may reflect the government's difficulty adjusting its numbers to account for layoffs after the holiday shopping season. Layoffs spike in the second week of January and then plummet. The department seeks to adjust for those seasonal trends, but the figures can still be volatile.
If the trend holds up, fewer applications would suggest the job market is improving.
"Encouraging news on the U.S. jobs front, even when you remove all of the noise," said Jennifer Lee, an economist at BMO Capital Markets. "Weekly data are noisy, particularly at this time of year, so keep that in mind."
Applications are a proxy for layoffs. They fluctuated between 360,000 and 390,000 for most of last year. At the same time, employers added an average of 153,000 jobs a month. That's just been enough to slowly push down the unemployment rate, which fell 0.7 percentage points last year to 7.8%.
There have been other positive signs for the economy and job market.
The once-battered housing sector is recovering, boosting construction and home prices. In 2012, home builders started work on the most new homes in four years. And sales of previously occupied homes reached their highest level in five years last year. Still, home building and sales remain below the levels consistent with a healthy economy.
More home building will likely increase job growth. In December, the economy gained 30,000 construction jobs — the most in 15 months. And economists expect construction firms to add more jobs this year as the housing recovery strengthens.
Patrick Newport, an economist at IHS Global Insight, forecasts that construction companies will add 140,000 jobs this year, up from a meager 18,000 in 2012.
The number of people continuing to claim benefits is falling, too. There were nearly 5.7 million people receiving unemployment aid in the week ended Jan. 5, the latest data available. That's down from almost 5.9 million in the previous week.
The overall economy grew at an annual rate of 3.1% in the July-September quarter. But economists believe activity slowed considerably in the October-December quarter, to a rate below 2% or less, in part because companies cut back on restocking.
Less restocking leads to slower factory production, which weighs on economic growth.
Nego, ja stvarno mislim da ti ovo sam sebe pokušavaš da spustiš
Chinese companies have been taking larger shares of the global manufacturing market, outpacing many of their U.S. counterparts primarily due to lower operating expenses and favorable labor costs. Yet many of China’s advantages are eroding while U.S. manufacturing is becoming more competitive, meaning that the scales may soon tip in favor of American industry.
Tako je, znači i ti se slažeš da prednost jeftine radne snage više nema i da Kina posustaje
Doduše, jeste brže nego Japan devedesetih, ali ono, ko pa gleda sitnice.
Pošto ti to misliš da je neka novost, Amerika je osamdesetih svu proizvodnju šorovala ka Latino Americi, devedesetih ka Japanu, u prošloj deceniji ka Kini, mislim ono, nikakava novost, posebno što em proizvodnja napušta Kinu em se proizvodnja sama kao i uvek do sada vraća kući, baš u fazonu Lesi se vraća kući
Baš me podsećaš na jednog mog dugara iz ove teme, koji se uživeo da je ovo sve nešto novo i neviđeno
Nego da pređe Jimmy na posao
Analysis: After decades of outsourcing, manufacturing jobs coming home to US
But unskilled labor positions will remain in short supply.
NEW YORK, New York — Beginning in the 1970s America’s high-paying manufacturing jobs in the steel, textile, electronics and automotive industries relocated first south to Latin America and then east to Asia.
In what some dubbed “a global race to the bottom,” labor rights have dwindled all along the way and the American middle class, long sustained by those manufacturing jobs, finds itself gutted. Now the fate of what is left of the American middle class is at the center of a presidential election and forcing a reexamination of the impact of the global decline of labor rights.
But after years of pain for America’s manufacturing sector and its workers, some economists and analysts are wondering if the tide may be turning.
Call it “re-shoring” or “rebalancing” or just “revenge,” but the dynamics of global labor, transportation and productivity costs that eviscerated American manufacturing over the past decade have begun to shift again.
Over the past few years, some key American manufacturers have either brought jobs back to the US from Asia and Latin America, or have made important decisions not to relocate them in the first place.
For several years now, the anecdotal data has been tantalizing:
Caterpillar is building a $120 million plant to make giant earthmovers in Victoria, Texas, including some models that were previously built in Japan and shipped back to North American customers. The Japan plant is now free to devote more capacity to the booming Asian market.
Master Lock, in Milwaukee, landed a visit from President Barack Obama in February after its decision to bring 300 jobs back from China.
General Electric reversed a decision to build a new “green” refrigerator plant in Asia and decided instead to invest $93 million in refurbishing a plant in Bloomington, Indiana, saving 700 jobs. The company followed up in 2010 by investing $80 million in a water heater plant in Louisville, Kentucky, preventing another 400 jobs from heading east.
Not to be outdone, GE competitor Whirlpool decided to break ground on a new $200 million plant in Cleveland, Tennessee rather than send the 1,500 jobs overseas. The facility is part of a four-year, $1 billion American investment campaign.
Dow Chemical, the cash register company NCR, Sauder Woodworking and the machine tool firm GF AgieCharmilles have all brought overseas production back to the US market in the past three years.
More from GlobalPost: Team America needs a new game plan
Most economists — even those inclined to sympathize with the Obama administration’s economic policies — scoffed in 2010 when, in his State of the Union address, the president vowed to double US exports in five years — creating 2 million jobs in the process.
It’s not that this wasn’t possible in the eyes of economists. It just wasn’t likely, they thought, that the global conditions and political climate in the United States would allow it.
The “zero effect” — the distorting phenomenon of measuring growth starting at an unnaturally low point — kept a damper on enthusiasm even as export figures soared in 2010-2011.
Many experts assumed that the favorable trends supporting that growth had little to do with long-term shifts. Instead, most felt the numbers reflected a coincidental confluence of events: sky-high oil prices that drove the costs of shipping upwards, a mega-recession that undermined American labor’s negotiating leverage, Federal Reserve “quantitative easing” that kept the dollar cheap and pumped up US exports, and freak events like the euro zone meltdown and the Japanese earthquake/tsunami that took major players off the economic chessboard.
But the data has started to cause reassessments. Monthly net exports have grown from $140 billion to $180 billion since the start of 2010.

Indeed, energy exports (mostly refined gasoline, jet fuel and natural gas) have suddenly grown into the single most valuable product sent abroad by American manufacturers, the first time in 60 years the US has been a net exporter of any of these items.
A new revolution
So what’s behind this strange counterintuitive trend? For some economists, this represents the start of the “third industrial revolution,” the dawn of the new high-tech, value-added era of manufacturing that follows the first two global revolutions: England in the mid-1800s, and the oneparked by Henry Ford’s mass production innovations in the 1920s in Detroit.
“The factory of the past was based on cranking out zillions of identical products,” writes The Economist in a special report on the new trend published in April. “Now a product can be made on a computer and ‘printed’ on a 3D printer, which creates a solid object by building up successive layers of material. … the cost of producing much smaller batches of a wider variety, with each product tailored precisely to each customer’s whims, is falling.”
Manufacturers have discovered the value of bringing production closer to the point of sale, where their employees can engage more directly with customers and adapt quickly to changes in the market. And for all the changes in the global economy, the point of sale, by and large, will still tend to be in the world’s largest consumer economy.
For America, this could be the start of something good, according to the Boston Consulting Group. In 2011, BCG reported that, due to a number of changing economic realities — including rising salaries and economic expectations among Chinese workers, new labor, environmental and safety regulations abroad, the higher cost of energy required to ship products halfway around the world, and the US market and the uncertainties of political risk in these places — the cost benefits of producing in Asia no longer automatically outweigh the risks.
Indeed, the BCG report predicts a “renaissance for US manufacturing” citing the fact that labor costs in the United States and China are expected to converge around 2015.
“Executives who are planning a new factory in China to make exports for sale in the US should take a hard look at the total costs,” says BCG’s Harold L. Sirkin, an author of the report. “They’re increasingly likely to get a good wage deal and substantial incentives in the US so the cost advantage of China might not be large enough to bother and that’s before taking into account the added expense, time, and complexity of logistics.”
Skeptics continue to question whether this is sustainable. Not in the political realm, of course; it is anathema for any politician to suggest that America should content itself to life as a “post-industrial society,” in part because so few can explain how to employ 300 million people in such a place.
“Even if we didn’t have to compete with lower-wage workers overseas, we’d still have fewer factory jobs because the old assembly line has been replaced by numerically-controlled machine tools and robotics. Manufacturing is going high-tech,” writes Robert Reich, a University of California at Berkeley professor who served as Bill Clinton’s labor secretary. “Bringing back American manufacturing isn’t the real challenge, anyway. It’s creating good jobs for the majority of Americans who lack four-year college degrees.”
BCG, which launched a cottage industry with its 2011 report on manufacturing, believes this line of argument misses the changes underway in the global economy. On April 20 its economists released a survey of the largest American manufacturing firms. The results: one third of all US manufacturing executives of companies with sales above $1 billion per year now say they are planning or considering “reshoring”; in effect, bringing home manufacturing plants that were sent to China and other low labor cost countries during the 1990s and first decade of this century.
The top factors for bringing these jobs home cited by these executives surveyed by BCG: Higher labor costs in Asia (57 percent), ease of doing business (29 percent), and proximity to customers (28 percent).
For the American worker, this will be rare good news. But the jobs that are returning will look nothing like those that left. Rote assembly lines, low value-added manufacturing like textiles, furniture and heavy smelting operations like the steel industry may never again be profitable in the way they were after World War II, when the US economy was the last bastion of capitalism not destroyed by war.
But history shows that workers adapt to change when the incentives are present. Displaced hunters became farmers; displaced farmers became artisans; displaced artisans learned the skills of the factory; and displaced factory workers can learn the techniques of the 21st century.
Da bi mogao da ispadneš dasa kao ja, moraš da umeš da spustiš drugu stranu, a ne i sebe istovremeno!
Znaš već, ponavlja se isti scenario, jedan deo se vraća, a drugi odlazi u jeftinije krajeve, Indiju, Vijetnam i tako dalje
India Wages and Currency Beckon Manufacturers from China
Posted on Friday, June 1, 2012
U.S.-India bilateral trade now same level as U.S.-China trade in 1997 and increasing
Op-Ed Commentary: Chris Devonshire-Ellis
Jun. 1 – India is beginning to look increasingly attractive as a destination for foreign investors as concerns over a lack of reform direction in China, coupled with increasing labor costs and a strengthening RMB position are placing some China based businesses under financial pressures. This was a point made earlier this week by Davide Cucino, president of the European Union Chamber of Commerce in China in its annual report – citing that 20 percent of its member companies surveyed said they were considering exiting the China market.
The issue with China is that the business model it offered foreign investors 10-20 years ago has now changed. China’s population is aging, its workforce is shrinking, and it needs more money to sustain its citizens. Even up to a decade ago, a Chinese worker could be hired for a little over US$100 a month, and he’d be happy with that, a couple of beers and some cigarettes. But as the demographics of age have kicked in, the average Chinese worker is now both older, and as a result, has more responsibilities; he’s now married, has a child, dependents in the shape of two sets of parents to look after, as well as needing money for future education and a mortgage for his family to live in a house. It is this simple reason why China has gotten more pricey, and those labor costs have risen to keep pace with his needs.
The implications of this are two fold; firstly, Chinese labor is becoming increasingly expensive, as is mandatory welfare and associated employment costs. When compared to the rest of Asia, China has the third highest labor costs throughout the emerging Asia region.
This means that if your business model requires cheap labor, and is not especially concerned about selling to the China market, then China is going to become increasingly unviable as a location to have your manufacturing or production facility. This would apparently account for the 20 percent of EU companies suggesting they wanted to exit China. However, the flip side to the increasing age and wealth of the Chinese population is that as a nation of consumers, the Chinese market is growing and has increasing amounts of disposable income to spend. If your business model supports selling to the Chinese consumer, then you would be part of the 63 percent of EU companies in the same report that indicated they would be expanding operations in China.
But for that 20 percent, what are the options? Interestingly, India looks increasingly likely to be the answer. Unlike China, India is getting reforms into place, and is opening up its markets. It has a large and cheaply available workforce, and the rupee is relatively low against the U.S. dollar and Euro. Just the currency situation alone means your dollar value goes further in India, whereas in China it is diminishing. India in fact has been making considerable progress – bilateral trade with the EU reached a record high of US$110 billion last year, an increase of 22 percent. Of that, exports from India to the EU also increased – demonstrating that even with the difficulties in the European markets, firms there are buying more Indian manufactured products.
It’s the same story regarding Indian trade with the United States. Last year’s bilateral trade reached a new high of US$57.8 billion, an increase of 19.88 percent according to the Indian Embassy in Washington. Of that, Indian exports increased faster than U.S. imports, suggesting again that the U.S. desire for cheaper products is shifting from a China base to an Indian one.
To put this into context, and to measure the level of bilateral trade between the United States and China and the United States and India today, the current level of bilateral trade between the United States and India now is about the same as the level between the United States and China in 1997, at the time of the handover of Hong Kong. As we have seen, trade levels can increase dramatically in the space of a decade, and the same is likely to happen in India, especially given the population and worker age demographics.
The sectors today that are attracting the highest volume of trade between the EU and India are below, in order:
Clearly, if your business is involved in these sectors then India is a market to now seriously consider. But what of the wages and welfare costs? The new issue of our India Briefing Magazine covers payroll, salaries and welfare costs in India. It is currently available online as a complimentary download for a limited time, and its content makes for interesting reading.
In it, we compare the salaries and welfare of employees in eight Indian cities, including Delhi, Mumbai and Bangalore, in addition to fast industrial developing areas such as Gurgaon and Pune.
The findings are broken down into a full sub section of salary and welfare components. In it, we discuss welfare and other payments in detail and find that these are significantly lower than when compared to China. Although basic wages in China and India are becoming comparable, the difference lies in the social insurance costs. In China, where government policy has seen average wages increases of between 15 percent to 20 percent annually the past few years, plus a high rate of mandatory welfare contributions regularly reaching an equivalent of roughly 50 percent of the actual salary, in India these add-ons are far less of a burden. The difference is striking, and now in times of economic austerity, well-worth considering. The magazine goes into some detail as concerns costs of Indian staff.
We also covered a direct cost comparison between China, India and Vietnam in terms of relocating an entire factory from China. In it, we found that a combination of land and labor costs, when looking at the operational cost differences between a factory of 300 people, were about four times more expensive in China than in Vietnam, and a whopping eight times more expensive in China than in India. Although the comparison cannot be considered exact as individual businesses differ so much, these are large enough differences at face value to begin to make it worthwhile for CFOs to sharpen pencils and start to look more closely at the costs of business across Asia as concerns alternatives to China.
India may indeed seem somewhat exotic, and perhaps even difficult as a destination for business, but don’t be fooled. I personally have conducted business in both for the past six years, and I am often asked about this. My reply is “the frustrations are different but the outcome is the same.” Essentially that means that if you can deal with running a business in China, India isn’t going to be any harder, just different.
China remains an excellent market in terms of foreign businesses approaching it for its increasing consumer wealth. However, for companies that need to continue with low-cost, export-driven manufacturing, India is now a key destination. And with a low rupee, English language abilities, and policies that are opening up market sectors for foreign investment, the time to take a long look at the cost dynamics of establishing operations in the country are now ripe.
E, da, zaboravih, mogao si da nađeš neke fresh novosti, naprimer iz 1930. ili iz 1950. ili tako nešto, da budeš malo više IN!
Nego kad smo već kod toga, opet problem sa jedinim kontinentom koji ponovo odlete u negativu, a koji je izglasan od strane domestic stručnjaka ovde kao nova rezervna valuta:
IMF expects EU economy to contract by 0.2% this year
Thursday, January 24, 2013
By John Walsh, Business Correspondent
The IMF forecasts growth to reach 3.5% this year and a more robust 4.1% next year. However, conditions in the eurozone will remain challenging with the economy expected to contract by 0.2% before posting a modest growth rate of 1% next year, according to the Fund’s latest World Economic Outlook.
Effective policy responses have reduced the acute risks facing the eurozone, Japan and the US.
“If crisis risks do not materialise and financial conditions continue to improve, global growth could even be stronger than forecast. But downside risks remain significant, including prolonged stagnation in the euro area and excessive short-term fiscal tightening in the United States.”
In a press briefing following the release of the WEO, IMF chief economist Olivier Blanchard said moves towards a banking union and closer fiscal integration in the eurozone were important steps towards fixing the debt and financial crises that had affected the region.
Good progress had been made on both of these fronts, he noted. But for banking union to succeed it needed three components: a single supervisory mechanism; a common resolution regime; and a deposit insurance scheme. Moreover, there had to be a fiscal backstop underpinning banking union, said Mr Blanchard. If these steps are introduced in full, there is no need for debt mutualisation.
The IMF’s chief economist declined to comment on British prime minister David Cameron’s pledge to hold a referendum on the country’s EU membership. Neither would he comment specifically on the elections in Italy and Germany this year. “[eurozone integration] is a complex process and because of this governments have different constraints. What we have learned is that two steps forward and one step back ends up delivery, but it is a messy process.”
The US faced significant challenges over the medium term because of an aging population and medicare commitments. A fiscal consolidation of 5% over that timeframe was needed, which was “do-able,” he said.
Stock markets may be “getting ahead of themselves” and it is difficult to transmit this enthusiasm to the real economy because the banking system is broken. “But financial markets are seeing something optimistic in the real economy.”
Significant financial market reforms remain, but the threat of currency wars has been overblown, concluded Mr Blanchard.
Nego ono, Soroš to bolje objašnjava, onako poetski ko drma, a ko ćuti!
Ipak se lik koji je srušio funtu sluša uspravno!
The United States is no longer the largest manufacturer in the world; that honor now belongs to China…”
Pff, Nemačka je već 20 godina prva po medicinskoj proizvodnji, ono, zamalo da uspeš, opet si bio jako blizu, ali nedovoljno.
Gleda se ukupna ekonomija za ozbiljnije stvari, a kako MMF kulturiška kaže, do promene naravno neće ni doći.
US still ahead of China GDP by 2016: IMF spokesman
The United States will remain the world's largest economy in 2016 if economic growth remains the same as at present.
The United States will remain the world's largest economy in 2016 if economic growth remains the same as at present. Picture: A girl poses in front of the Statue of Liberty. (File Photo/Xinhua)
At what point China overtakes the United States as the world's largest economy depends on how their respective gross domestic product is compared. Given a comparison based on GDP at market price, the US economy will still be 70% larger than China's by 2016.
GDP in purchase-power-parity (PPP) terms meanwhile is not the most appropriate measure for comparing the relative size of countries to the global economy because PPP price levels are affected by non-traded services, which are more relevant domestically than globally, according to Jude Webber, a South America-based correspondent for the Financial Times, citing an International Monetary Fund spokesman.
"The Fund believes that GDP at market rates is a more relevant comparison," the spokesman said, adding that under GDP at market price "the US is currently 130% bigger than China and will still be 70% larger by 2016."
The IMF projects US GDP in dollars will be US$15.2 trillion this year while China's will be US$6.5 trillion, rising to US$18.8 trillion and US$11.2 trillion by 2016, meaning the United States looks likely to stay the world's number one if current growth rates are maintained, Webber reported.
I to računajući dvocifreni rast koji nam je nekada Kinica ostvarivala.
A pošto nam je na veliku žalost i tugu već pala na 7%, a u narednim godinicama će još padati, biće divno i fantastično pratiti takav izvanderan pedigre live!
Nego kad smo kod te teme, još finiji tekstić
China’s Manufacturing to Collapse by 2015, Says Economist
By Gao Zitan
A Hong Kong economist accustomed to making shocking pronouncements has predicted that China’s manufacturing industry will “completely collapse” by 2015 and that the economy will soon follow it.
Larry Lang made his latest remarks at a lecture in Kunming City, in Southwest China’s Yunnan Province on May 19.
“China’s economy is facing two distinct phenomena that are exactly opposite to each other. The real estate and stock market has cooled down. However, the market for luxury goods, such as high end vehicles and collectors’ items, has heated up,” he said, according to Shanghai Securities News.
He added that China’s economy is “sick,” and this sickness is the crisis the manufacturing sector is facing.
China’s manufacturing sector is “suffering from two illnesses,” he said, i.e., worsening of investment and management environment and excessive production capacity; consequently money originally meant for investing in the real economy has been diverted to luxury cars and goods.
The three main segments of the manufacturing sector—R&D, logistics channels, and key component parts—are controlled by European and American companies. China, therefore, has lost control of product pricing, which, inevitably, has created crises, Lang said in the lecture.
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According to Lang’s analysis, the investment and management environments for manufacturing industries in China continue to deteriorate, causing excessive production capacity.
Heavy taxation and fees, as well as a broken capital chain have lowered the margins of manufacturing industries and exacerbated the investment and management environment as a whole.
Lang said China is actually facing four imminent crises: wasting of resources, excessive production capacity, debt crisis, and inadequate consumption. The crisis of wasting of resource and excessive production will explode first, he predicted.
“So many industries with overcapacity inevitably would lead to a long-term depression in China’s economy,” he said.
The excessive production in various industries adds up to “21 percent in steel, 12 percent in automobile, 28 percent in cement, 60 percent in stainless steel, 60 percent in pesticides, 95 percent in photovoltaic, and 93 percent in glass,” Lang said, quoting a report by eastday.com.
The banking sector is also straining under the weight of heavy debts, and 50 industries, led by the real estate industry, are also threatened by crisis due to tightening measures, Lang said.
He mentioned that in the near future, local government debt in China will be listed alongside U.S. debt and European debt as part of the three major crises in the world. “This is horrifying. All Chinese people will pay a painful price for it,” he said.
He blogged on May 7 that China’s economy is on the brink of greatest danger, and that “it is definitely not an alarmist talk.”
“I want to tell those Chinese people and officials, who are only concerned about saving face rather than resolving internal issues, how dangerous and terrible today’s economy is.”
Lang also wrote that having crises is not frightening, “what is horrible is that we turn a blind eye to crisis and try to cover it up. What is even more frightening is to adopt a stopgap approach and therefore create an even bigger crisis.”
“China’s economic problem today cannot be resolved by the current economic system and means, we should look for other ways,” he added.
In October last year, Lang said the regime was on the brink of bankruptcy. One reason, he noted, is that the regime’s officially published GDP of 9 percent is fabricated. According to Lang’s data, China’s GDP has decreased 10 percent.
A što se tiče moje Kine, ja bih se stvarno jako zabrinuo šta će se desiti ako pored balončeta puknu i pravi brojevi istovremeno.
China Focus Gordon Chang on Chinas Impossible Economic Figures
Ispade da nam Kina u stvarnosti raste po stopi od maksimalno 4%.
E pa da, to onda rešava nesporazum kada nam je Južna Koreja prošle godine rekla da se import iz Kine smanjio, a Kina objavila da se export ka JK povećao.
Jao, sad ću stvarno da plačem, setio sam se dobrih starih vremena, 80-tih i SSSR-a, kako su samo divno kuvali cifrice, isto ko moja Kina danas.
Nego da ja nastavim
BMO bets big on U.S. recovery
21 Jan 2013 08:51 | BNN.ca staff
Bank of Montreal (BMO-T) chief Bill Downe says there will be "surprising levels of growth in the U.S. economy" thanks to a recovering housing market and an increase in commercial banking. And BMO sees this as an opportunity to rev up its U.S. expansion plans.
Downe tells BNN the manufacturing economy in the U.S. Midwest, where BMO's U.S. business is concentrated, is doing well and he calls the opportunity the improving U.S. market presents "extremely exciting."
Downe says the fiscal cliff deal gave the average business customer "a good degree of certainty around what the tax situation is going to be."
"They're plowing ahead, they're going to be reinvesting in their business," he says.
BMO has just under 700 U.S. branches, 350 of those were added when it bought Marshall and Ilsley Corp. in 2011 for $4.1 billion US.
Downe says there are similarities between the U.S. Midwest and Canada when it comes to population size, GDP and the unemployment rate. So it "makes a lot of sense" for the bank to boost its U.S. branch system to 900 locations, the same number it has in Canada
Downe says the bank can get to that number through organic growth of 10 to 15 percent a year.
He adds that the bank can increase its current U.S. retail earnings from $500 million annually to $1 billion within 5 years or even sooner.
"It depends on the [U.S.] economy, but if we have strong economic growth in the next three years, it could conceivably be in the three period," says Downe.
Buffett: U.S. debt on its own ‘not a problem’
Jan. 20, 2013, 2:54 p.m. EST
Billionaire says deficit a lower percent of GDP than after World War II
NEW YORK (MarketWatch) — Billionaire Warren Buffett believes the federal deficit should be stabilized in relation to U.S. economic growth, but that the nation’s $16.4 trillion in red ink is not trouble in and of itself.
“It is not a good thing to have it going up in relation to GDP, that should be stabilized, but the debt itself is not a problem,” the CEO of Berkshire Hathaway BRK.A +0.45% said in an interview broadcast Sunday on the CBS “Sunday Morning” news show.
The nation’s debt is “a lower percent of GDP [gross domestic product] than it was when we came out of World War II. You’ve got to think about it in relation to GDP,” added Buffett, a vocal advocate for increased taxes on the nation’s wealthiest, a stance he alluded to in the broadcast.
“I would say in a country with $50,000 of GDP per person, that nobody should be hungry, nobody should lack a good education, nobody should be worried about medical care, you know, nobody should be worried about their old age.”
China will surpass the US as the world’s largest economy by 2020, Standard Chartered Bank said in a report released Thursday.
Standard Chartered is not the only one to make the claim of China GDP growth beating the US within the next 9 years. The International Monetary Fund has made similar assessments over the last year. Standard Chartered forecasts China GDP to hit $24.6 trillion in 2020, up from $5.7 trillion 2010. Meanwhile, the US economy should register GDP growth of $23.3 trillion, up from $14.6 trillion in 2010, according to Standard Chartered economists.
India is seen rounding out the top three, taking the place of Japan. India’s GDP by 2020 is expected to come in at $9.6 trillion from the $2 trillion a year ago.
Standard Chartered said that the US will eventually be replaced in what it defines as the third global economic super cycle.
“The first super-cycle took place from 1870 to 1913. It had many features, including the emergence of the US economy, which moved from the number four position to become the world’s major economy. The second super-cycle started after the Second World War and lasted until the early 1970s. Japan and the Asian tigers were the biggest winners,” Standard Chartered economists wrote.
“In our view, Asia, the Middle East, parts of Africa, and Latin America all bear the characteristics of the third super-cycle, which could transform the world economy over the next few decades. Such transformations do not mean that growth will remain continuously strong over the whole period or that everything will go up all the time.”
China may be getting richer, and the Chinese economy may surpass that of the US, but it is worth noting that the country is also three times bigger. As a result, the median Chinese salary about four times less than their American counterparts.
“On a per capita basis, you’ve gone to around $10,000 in China with growth like that, while we in the US are a little over $40,000 per capita,” says Hugh Simon, chief executive of Harmon Investment Advisors in Hong Kong. “When the US was in the 1960s, what was happening? There was no Wal Mart. IBM was coming out. Infrastructure, FedEx and national logistics were still getting started. And we haven’t even begun to talk about Apple and those US companies of today. Look at your Madison Avenue ‘Mad Men’ of the 1960s and now you can get a sense of what is going to drive China’s economy in the future. The same stuff. They don’t yet have an industry of product development and branding. They don’t have the national distribution businesses yet, or a major transportation industry, or a national airline industry, or entertainment, and tourism throughout China. This is all happening now and that kind of consumer growth is what is going to take China from the five trillion dollar economy it is today to fifteen trillion in the next few years,” he says from his Hong Kong office early Friday.
China's economy is likely to surpass the United States in less than two decades while Asia will overtake North America and Europe combined in global power by 2030, a U.S. intelligence report said on Monday.
I buy none of the post-election, prime-time hokum that what decided the presidential race was the Latino vote, women’s issues, the next Supreme Court justices, the view from the fiscal cliff or how drones are winning the War on Terror. This presidential election was, as always, a contest between gold standardists and inflationists.
The victors were the forces of cheap money. William Jennings Bryan would be proud ‑ as would bimetalists and Weimar Republicans.
Inflation won because it is the panacea for all that ails the body politic: a short-term cure-all that promises economic growth, the possibility of paying off runaway national and international debts, new-found prosperity for the middle classes and liquidity for the impoverished, who otherwise would be voting in the streets with rocks and burning tires.
Think of it as doping for those wanting to win political races.
Cheap money defers many liabilities. Real wages for industrials workers have declined since the 1970s. True unemployment ‑ including those too discouraged to look further and others working part-time for unlivable wages ‑ is closer to 22 percent than the official figure of 7.9 percent. The national debt, $16.3 trillion, exceeds the gross national product. With unfunded entitlement programs, such as Medicare and Social Security, the government is eventually on the hook for an additional $46 trillion, which it would rather not pay with pieces of eight.
The hard-money men have not been able to win many elections since the 19th century, arguing as they do for reductions in the monetary supply; an asset-backed currency (preferably with gold) and policies that lead to deflation. These are a boon to lending institutions that want to get repaid with readily convertible cash, not watered stock.
The magic of inflation, before it turns everything to dust, is that it papers over a number of intractable financial problems. The United States is now able to run monumental trade and budget deficits, fight multiple foreign wars, vote tax cuts, extend unfunded pension and healthcare benefits to citizens over age 65 and spend money with Medici-like munificence on myriad federal programs by printing money or borrowing in national and international capital markets.
Were the dollar unacceptable as a reserve currency in investor portfolios here and abroad, these financial sleights of hand would have ended long ago. Imagine the consequences if the Chinese demanded gold, diamonds or barrels of oil as collateral for their U.S. dollar bond investments. Already, the dollar is badly depreciated against many currencies, including the Swiss franc and the euro.
The reason lenders to the American dream don’t demand hard assets in exchange for their full faith and credit is that most marketplace debt, as well as the circulating currency, comes with the guarantee of the U.S. federal government ‑ perhaps why a pyramid is printed on the back of a dollar bill.
Think about it: Bank deposits, mortgages, the balance sheets of large banks and hedge funds, Social Security, Medicare, defense spending and General Motors all fall under the rubric of being “too big to fail.” They have the implicit aval (endorsement) of the federal government, which pays its obligations with inflated money ‑ as opposed to doubloons carried around in a sack.
Why, then, does the economic data never show inflation as a problem, one that might have become a discussion point in the election? Since 2000, the consumer price index has shown inflation hovering between a manageable 2 percent and 4 percent per year.
The reason the inflation statistics alarm few is because it is far easier to manipulate economic data than it is to control runaway inflation, which ought to be synonymous with four-year college tuition at $200,000, one-bedroom apartments in New York City priced at $1 million, gasoline at $3.46 a gallon and carts of groceries that routinely cost at least $250. Nonetheless, the September consumer price index showed inflation at a modest 2 percent per year.
Another reason inflation enjoys such electoral pull is that it allows the political classes to maintain the illusion of power and authority. Without the ability to print and circulate paper money to balance the books on $16 trillion in national debt and $1.4 trillion in budget deficits, U.S. presidents would be riding Greyhound on their appointed rounds, not the magic carpet of Air Force One.
Inflation carries the swing states of the American imagination because the tenets of a democracy are not consistent with deflationary politics, which favor landed and moneyed interests. In the 19th century, when deflation had its halcyon days, the winners were the railroad trusts, J.P. Morgan and John D. Rockefeller, all of whom demanded gold-based assets in settlement of obligations due in their favor.
The reason inflation finds so many willing partners is that, initially, it seems a painless way to pay off thorny debts; raise the illusions of prosperity (“Wow, I got a raise”) and provide society with a veneer of fairness. Nonetheless, inflation is best understood as a direct tax on the savings of American citizens, especially those of the middle classes, who lack hedges against its effects ‑ large real estate portfolios, say, or vaults of gold.
What stops the inflation Ferris wheel is when the currency is reduced to worthlessness. During the worst of Weimar’s inflation in the 1920s, robbers would steal suitcases of money and throw away the cash before fleeing.
In the case of the United States, the economic carnival will end when the dollar is no longer acceptable as a reserve currency, first in international markets and later domestically.
Part of the reason that a barrel of oil costs $85, not $10, in world markets is because traders discount the value of the dollars that they will receive when accepting payments. The only reason the Chinese hold debts denominated in dollars is because it helps them maintain the artificially low exchange rate of the renminbi.
Whether or not the United States goes over the fiscal cliff, it will remain unified as a nation of debtors for whom the goal is always to repay their loans with debased currency.
Adam Ferguson, in the introduction to his book, “When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany,” writes: “This is, I believe, a moral tale. It goes far to prove the revolutionary axiom that if you wish to destroy a nation you must first corrupt its currency. Thus must sound money be the first bastion of a society’s defense.”
No wonder Adolf Hitler, when he led a beer hall putsch in 1923, spoke of addressing “the revolt of starving billionaires.” For that kind of money, he could have also paid for a political campaign.
Jimmy daj covece malkice krace postove treba coveku vremena bre da ovo sve procita.
Nego ove liste su malkice bezveze svugde u prvih sto po 10 britanskih univerziteta a 1-3 nemackih sto kad im se pogleda privreda nekako nije usaglaseno.
Za obrazovanje ti je odgovor ko da si citao zalopojke ovdasnjih politicara na odliv mozgova.
Zanima me majstore da li su imigranti generalno obrazovaniji sloj stanovnistva,a to mi nisi odgovorio vec si se naspamovao sa nekim pricama o pametnim glavicama koje kupuju karte u jednom pravcu a domovine im ostadose ucveljene jer ih ovi napustise.
I na kraju jel se setas po onim naseljima kraj puteva gde sve kuce imaju resetke a trokrilni crnci se seckaju i merkaju jel kome pukla guma.
Neki bi rekli da se termin "propast dolara" odnosi na ovo:
Ja se stvarno brinem da ti sam sebe hoćeš da spustiš
Mislim ono, meni je tebe žao, realno te duvam ko uragan Sendi NYC
A neki bi rekli da je uragan počeo
FED ono namerno obara vrednost dolarčeta već godinama, počevši još od 2003. godine
The benefits of a lower dollar How the high dollar has hurt U.S. manufacturing producers and why the dollar still needs to fall further
By Robert A. Blecker | June 1, 2003
Briefing Paper #138
The current decline in the dollar will provide a much-needed stimulus to the U.S. economy. The falling dollar will bring especially welcome relief to the internationally competitive U.S. manufacturing sector, which has suffered disastrous consequenceslost jobs, reduced profits, and decreased investmentas a result of the dollar’s overvaluation for the past several years. However, although the dollar has come down significantly from its peak in February 2002, it has not yet fallen nearly enough to reverse the damage caused by its high value since the late 1990s.
In spite of its recent fall, the dollar has still not lost most of the value it has gained since 1995 compared to the euro and other major currencies. Moreover, the dollar has not fallen compared to the currencies of the developing nations that now account for more than half of the U.S. trade deficit. Some of these nations, especially China, maintain fixed exchange rates and intervene heavily to prevent the type of market-driven adjustment that is now occurring between the dollar and the euro. As a result, relying on financial markets to bring the dollar down is not enough. More active management of the dollar’s declineincluding cooperation with major U.S. trading partners and action to end foreign manipulation of currency valuesis vital to ensure that the dollar falls in a comprehensive and sustainable fashion.
The high value of the dollar since the late 1990s has acted like a massive tax on U.S. exports and a huge subsidy to U.S. imports. As a result, although U.S. manufacturing firms have made substantial investments in new technologies and U.S. manufacturing workers have vastly increased their productivity, these achievements have not paid off in the face of foreign products that have been selling at deep, artificial discounts created by the overvalued dollar. Specifically, the overvalued dollar has resulted in:
About 740,000 lost jobs in the manufacturing sector by 2002—more than one-quarter of the 2.6 million jobs lost in manufacturing since 1998.
A decrease of nearly $100 billion in the annual profits of U.S. manufacturing companies by 2002.
A fall in investment in the domestic manufacturing sector by over $40 billion annually as of 2002, representing a loss of 25% of U.S. manufacturing investment.
Thus far, the dollar has reversed only part of its 34% rise in overall value (in “real,” inflation-adjusted terms, compared with most global currencies) between mid-1995 and early 2002. As of May 2003, the dollar is still 24% higher overall than it was at its low point in July 1995.1 Moreover, the dollar’s behavior in the last few years has varied significantly between two different groups of currencies:
Compared with other “major” currencies (the Japanese yen, British pound, the euro and its predecessors, and a few others2), the dollar has fallen 16% since February 2002, after rising by 51% between April 1995 and February 2002; thus the dollar has lost only about a third of the value it gained in the late 1990s relative to those currencies.
Other important U.S. trading partners, such as China and other developing nations, have fixed or managed exchange rates that do not respond to the market forces that have generated the recent decline in the dollar vis-á-vis the major currencies. The dollar has continued to rise relative to these other currencies, which belong to countries that now account for nearly half of total U.S. trade (and more than half of the trade deficit).
With the U.S. economy still struggling to recover nearly two years after the recession of 2001 officially ended, with the trade deficit still at record levels, and with global currency markets already forcing a downward adjustment in the U.S. exchange rate, the need to reconsider the U.S. Treasury’s “strong dollar policy” has never been more clear. Although some Bush Administration officials have recently signaled a greater openness to market-driven reductions in the value of the dollar, much more needs to be done by the U.S. government—both alone and in collaboration with U.S. trading partners—to ensure a stable adjustment of the dollar to a more realistic level while promoting a recovery of growth in the global economy.
Causes of the overvalued dollar
The U.S. dollar’s sharp rise from 1995 to 2002 and its partial fall in 2002-03 are only the latest episodes in the gyrations of the dollar’s value since the major industrialized nations switched to floating exchange rates in 1973. As shown in Figure 1, the dollar fell for most of the 1973-79 period, but then rose to new heights in the early 1980s before falling precipitously in 1985-87. After that, the dollar had a more gradual declining trend through mid-1995. In mid-1995, there was another abrupt reversal, as the dollar began rising toward a new peak in early 2002, at which point its value returned to levels not seen since the mid-1980s.
Figure 1 shows that the decline in the dollar since early 2002 has reversed only part of the increase after 1995. By this “broad” measure, which includes most other global currencies, the dollar rose by 34% from July 1995 to February 2002, and has fallen by only 8% since that time. Although the dollar briefly had a higher value in the mid-1980s, it has been more persistently overvalued in the last several years than it was during that earlier episode. Moreover, Figure 1 makes it clear that the dollar’s fall thus far in 2003 has taken it only back to about where it was in 1999, not to its much lower level of the early and mid-1990s.
Although there are many reasons for the dollar’s rise after 1995,3 the most fundamental explanation is the strengthening of the U.S. economy during the “new economy” boom of the late 1990s, at a time when most of the rest of the world was relatively stagnant. The dollar’s strength was, to a large extent, the mirror image of severe economic weaknesses abroad that resulted in falling values of foreign currencies. Japan’s decade of stagnation, continental Europe’s slow growth and high unemployment, the Asian financial crisis, and the subsequent financial turmoil in other countries from Russia to Argentina led to a massive flight of capital funds out of those countries and into the one “safe haven” in the global economy: the United States. Meanwhile, the U.S. economy had six consecutive years of relatively rapid growth with low inflation between 1995 and 2000. A robust business climate and a booming stock market helped to attract investment into U.S. financial markets, pushing up the value of the dollar.
In addition to the overall impact of U.S. economic strength relative to foreign economic weakness, several specific events provided more targeted stimuli to the appreciating dollar. In the mid-1990s, the governments of several countries, Japan in particular, intervened to halt the dollar’s previous decline and to prevent their own currencies from appreciating further (Morici 1997). These interventions, which were especially large in 1994-96, effectively started the dollar on its new upward course and contributed significantly to rising U.S. trade deficits at that time. As a prominent trade economist wrote,
In the 1990s, the Japanese, the Chinese, and other governments have dramatically increased their purchases of U.S. government securities, propping up the value of the dollar against other currencies. This has helped to sustain both their trade surpluses and U.S. deficits, even as the United States has put its fi
scal house in order. In most cases, these purchases are not market-driven decisions, made in response to higher U.S. interest rates. Rather, they often reflect policy decisions to block exchange rate adjustments, and reduce internal pressures on national governments to revise protectionist trade policies and the reliance on export-led growth. (Morici 1997, p. v)
Figure 2, which focuses on the period since 1990, shows an important but oft-neglected fact about the dollar: how its exchange rate has varied between the “major currencies” of the other industrialized countries and what the Federal Reserve calls America’s “other important trading partners,” i.e., the developing nations and transition economies.4 Compared to the major currencies, the dollar started rising in mid-1995 and continued its upward trend until early 2002, when it began a partial reversal as described above. But compared to the other (non-major) currencies, the dollar did not rise until the Asian financial crisis of 1997-98, which led to the sudden collapse or devaluation of several important currencies in Asia and elsewhere (notably the Thai baht, Taiwanese dollar,5 Korean won, Indonesian ruppiah, Malaysian ringgit, Philippine peso, and Russian ruble) in the second half of 1997 and 1998.
As a result of the Asian crisis, the dollar jumped in value relative to the other currencies in 1997-98. Most of the Asian currencies that initially collapsed began to stabilize by 1999, but subsequent currency crises in other developing countries (such as Brazil, Turkey, and Argentina) and smaller depreciations elsewhere (e.g., Mexico) have led the dollar to rise even higher relative to these other currencies in the early 2000s. As of May 2003, the dollar was 24% higher against these other (developing country) currencies, compared with its low point relative to the same currencies in 1997 (see Figure 2).
The other currencies account for roughly 45% of U.S. trade with the countries included in the Fed’s broad dollar index and nearly half of overall U.S. trade;6 hence, the dollar’s continued rise relative to these currencies has thrust the overall value of the dollar upward and has had a notable impact in worsening the U.S. trade deficit. By 2002, the developing countries accounted for more than half of the U.S. trade deficit for goods.7 Thus, the dollar is still rising and not falling compared to the currencies of the countries that account for most of the nation’s trade deficit.
One reason the dollar has stayed so high relative to these other currencies is that many of their governments either peg their exchange rates (fix them relative to the dollar or other major currencies) at artificially low values, or intervene heavily to keep their currencies undervalued relative to the U.S. dollar (the latter policy is also followed by Japan, which issues a “major” currency). Such manipulative exchange rate policies are usually pursued as part of an export-led growth strategy that fosters chronic trade surpluses with the United States and therefore effectively exports unemployment to this country’s traded goods sectors (mostly manufacturing). The most egregious offenders in this regard are a number of prominent East Asian countries, especially Japan, China, and Taiwan, which (not coincidentally) account for disproportionately large shares of the U.S. trade deficit.
Countries keep their currencies undervalued (and the dollar overvalued) by buying up the excess supplies of dollars that enter their countries and holding them as foreign exchange reserves.
As shown in Table 1, several leading Asian countries have had truly prodigious increases in their international currency reserves since 1995.8 Japan increased its foreign currency reserves by two and a half times between 1995 and 2002, reaching a world-leading $461.3 billion at the end of 2002. To put this number in perspective, Japan’s reserves at that time were nearly double those of the entire euro area ($246.6 billion), even though the euro area is much larger by other economic criteria (e.g., gross domestic product) and the reserves of the future euro area countries exceeded those of Japan in 1995 and earlier.9
China’s reserves nearly quadrupled between 1995 and 2002, and at $291.2 billion were also larger than those of the euro area at the end of 2002. The reserves of Taiwan, Hong Kong, and Singapore are also enormous for relatively small countries, and grew substantially between 1995 and 2002. These four newly industrializing countries (NICs)China, Taiwan, Hong Kong, and Singaporetogether amassed $646.9 billion of foreign reserves by 2002, more than double what they held in 1995, and more than double the level of the entire euro area. No other group of countries in the world comes close to the level of reserves accumulated by the East Asian countries shown in Table 1.
Of course, some growth of international reserves is important for sustaining global liquidity and facilitating trade, and the evidence from the financial crises of the late 1990s shows that countries with larger arsenals of reserves were more successful in avoiding speculative attacks on their currencies or contagion effects from other countries’ crises.10 But the sheer magnitude of the reserves accumulated by these East Asian countries, and the rapidity with which these reserves have increased in recent years, is prima facie evidence of efforts to keep their currencies undervalued and prevent their currencies from appreciating to exchange rates that would be conducive to more balanced trade relations with the United States.11 This is outright currency manipulation of a mercantilist nature, intended to maintain those countries’ trade surpluses with the United States, which by 2002 accounted for about 40% of the overall U.S. trade deficit.12
How the high dollar has hurt U.S. manufacturing
The rise of the dollar since 1995 has had a devastating effect on U.S. trade performance, especially in the manufacturing sector, which accounts for the vast majority of U.S. trade.13 A high dollar makes U.S.-produced goods less competitive compared with foreign-produced goods, putting U.S. exports at a disadvantage while encouraging imports into the U.S. market. As Table 2 shows, the growth rate of nonagricultural exports (mostly manufactures) was cut in half across 1996-2002 (the period of a rising dollar) compared with 1990-95 (a period of a gradually falling dollar, as shown previously in Figure 1).14 The growth rate of nonpetroleum imports (also mostly manufactures) increased over the same time frame.
Job losses caused by dollar overvaluation
Slower export growth combined with accelerated import growth implied that foreign trade had a negative net effect on U.S. employment during the late 1990s and early 2000s. Most of these negative employment effects were felt in the manufacturing sector, which produces the vast majority of the traded goods and services in the U.S. economy.15 Indeed, although overall U.S. employment rose rapidly in the economic boom of the late 1990s, hours of manufacturing workers peaked in the fourth quarter of 1997, the number of manufacturing jobs peaked in the second quarter of 1998, and both trended downward thereafter (as shown in Figure 3), even though the recession did not begin until 2001.16
A large part of this falling trend in manufacturing employment since the late 1990s can be attributed to the rising trend in the dollar since 1995. According to estimates, for each 1.0% rise in the real value of the dollar, the hours of labor employed in manufacturing fall by 0.13% and the number of workers employed falls by 0.12%.17 Since the dollar rose by 33.5% between the second quarter of 1995 (when the dollar was at its lowest level) and the first quarter of 2002 (when the dollar peaked), the increased value of the dollar caused U.S. manufacturing workers’ hours to fall by 4.4% and the number of jobs to decrease by 4.0%. These losses in hours and jobs attributed to the value of the dollar are beyond any effects of productivity growth and the business cycle downturn, i.e., the recession and slow recovery.
In terms of the actual number of workers affected, since there were approximately 18.5 million employees in manufacturing when the dollar reached its nadir in the second quarter of 1995,18 a 4.0% reduction in employment would be equivalent to about 740,000 jobs lost19 as a result of dollar appreciation. These three-quarters of a million lost jobs represent more than a quarter of the 2.6 million total job losses in manufacturing between the peak of manufacturing employment in the second quarter of 1998 and the employment level in the second quarter of 2003. The remainder of the job losses in manufacturing can be attributed to the effects of the recession and sluggish recovery in the United States, slow growth of U.S. export markets abroad, and continued rapid productivity growth.
Manufacturing profits squeezed by the high dollar
By weakening U.S. manufacturing as a whole, the high dollar has had devastating consequences for business profits and manufacturing jobs. Starting in mid-1997, when the dollar’s rise accelerated (see Figure 1), domestic manufacturers ceased to benefit from the economic boom that continued for three subsequent years in most of the U.S. economy. As Figure 4 shows, manufacturing profits began to rebound during the economic recovery of the mid-1990s, but then peaked and tumbled in mid-1997—three years before overall economic growth slowed down in the second half of 2000 and four years before the recession of 2001.20 This premature decline in manufacturing profits in the midst of an overall economic boom coincided with the dollar’s accelerated rise during the outbreak of the Asian financial crisis. Figure 4 also shows that the cyclical fluctuations in manufacturing profits are virtually a mirror image of the value of the dollar, i.e., manufacturing profits and the real dollar index have generally moved in opposite directions throughout the past two decades.
The inverse relationship between the dollar and profits is no coincidence. On the one hand, a higher dollar brings down import prices and forces domestic firms that compete with imports to either cut price-cost margins or lose sales volume (or both). As Figure 5 shows, import prices began to fall immediately after the dollar started to rise in 1995 and have trended downward ever since. On the other hand, a higher dollar also makes U.S. exports less competitive abroad and compels exporting firms to either lower their dollar prices or suffer reduced export volumes. Either way, exporting firms lose profits.20 Thus, whether manufacturing firms compete with imports or sell in export markets, their profits are cut by an overvalued currency. Because firms that are not making profits cannot continue to employ U.S. workers, the drop in profits ultimately hurts everyone in industries that are open to foreign competition.
Of course, manufacturing profits are also affected by other factors, especially demand factors (the business cycle) and cost factors (labor, energy, and raw materials). However, none of these other factors can explain the timing of the decline in manufacturing profits starting in mid-1997. Figure 6 shows the trends in labor and energy costs affecting the manufacturing sector since 1990. Unit labor costs in manufacturing were virtually flat throughout the 1990s and early 2000s, with only slight fluctuations, as productivity growth almost exactly matched nominal wage increases. Unit labor costs simply did not change enough to cause the wide swings in profits seen in Figure 4. Energy costs (measured by the producer price index for all fuels) have fluctuated more than unit labor costs, but the timing of their fluctuations does not match the trends in manufacturing profits. Fuel prices rose slightly in 1996 through early 1997, followed by a much larger increase in 1999-2000 and another increase in 2002, but these spikes in energy costs cannot explain why manufacturing profits started to decline in the second half of 1997. In fact, energy costs (i.e., fuel prices) were actually falling in late 1997 and early 1998 when the profit share began to fall (compare Figures 4 and 6).
On the demand side, overall U.S. economic growth remained strong until the third quarter of 2000, three years after manufacturing profits peaked and fell. A recession occurred in the first three quarters of 2001, but this was nearly four years after manufacturing profits had begun to fall. Manufacturing profits did fall further in the last few years as a result of the growth slowdown and recession beginning in the second half of 2000, but those profits had already begun to decline while demand was still strong three years earlier. Thus, the only factor that can account for the downturn in manufacturing profits in the late 1990s was the rising dollar.
The rise in the dollar from its (quarterly) trough in the second quarter of 1995 to its peak in the first quarter of 2002 reduced manufacturing profits by $96.2 billion annually.21 Since actual manufacturing profits were only $66.7 billion (measured at an annual rate) in the first quarter of 2002, they would have been nearly one and a half times higher (144%, to be exact) if the dollar had not appreciated.
The enormous decline in manufacturing profits after 1997 was unique among the major sectors of the U.S. economy (with the possible exception of agriculture, for which comparable statistics are not available). As shown in Figure 7, real (inflation-adjusted) profits in manufacturing fell earlier and more precipitously than real profits in the financial sector and other nonfinancial sectors in the late 1990s and early 2000s. In fact, Figure 7 shows that financial sector profits were hardly affected by the recession and slow growth of the last few years. The financial sector benefits from the high dollar by continuing to attract financial inflows from foreign countries, while the goods- and services-producing sectors that have to compete with artificially cheapened foreign products are hurt. The profits of other (non-manufacturing) nonfinancial sectors also came down in the late 1990s and early 2000safter booming more than the other sectors’ profits in the mid-1990sbut did not fall nearly as fast or as far as manufacturing profits.
In spite of the losses experienced by workers and firms alike in
U.S. manufacturing, it should be noted that the ultimate effects of the overvalued dollar on U.S. workers and corporations have been highly unequal. Multinational corporations (MNCs) are able to respond to the higher dollar by moving production offshore and outsourcing components abroad in order to stay competitive—eliminating jobs for U.S. manufacturing workers. Most large business firms can thus evade the negative effects of a high dollar that U.S. manufacturing workers (and smaller, national companies) cannot escape. As a result, although profits on domestic manufacturing operations fell, the profits of U.S. MNCs on their global operations were not necessarily hurtand may even have been helpedby the strong dollar.
Investment by domestic manufacturing firms was also reduced by the high dollar
In addition to its negative impact on domestic employment and profitability, the overvalued dollar also hurt the domestic manufacturing sector by decreasing investment in new plants, equipment, and software (i.e., capital expenditures).22 Since decreased investment in real, productive assets threatens the long-term viability of U.S. manufacturers, and their ability to create jobs in the future, this negative effect of the high dollar is especially alarming.
The appreciation of the dollar diminishes investment in domestic manufacturing for two reasons. First, domestic firms that either produce for export or compete with imports are likely to perceive a reduced need for production facilities in the United States when they have to compete with foreign goods that have become cheaper in dollar terms; as a result, customers switch to foreign-produced goods. For this reason, a high dollar causes both exporting and import-competing firms to reduce their planned investment at U.S. plant locations. Second, there are indirect effects of dollar appreciation on investment through the reduced profits of domestic manufacturing firms (as discussed earlier). Business firms rely on the cash flow out of current profits to finance investment, either internally (through retained earnings) or by attracting outside funds (since bank and bondholder willingness to lend depends on firms’ financial health). Thus, reduced profits curtail the ability of firms to finance their investment and can result in the cancellation or delay of already planned capital expenditures.23
Investment in U.S. domestic manufacturing was reduced by $42.7 billion in 2002 as a result of the post-1995 appreciation of the dollar, based on an estimate that combines the two effects discussed above.24 To put this number in perspective, note that $42.7 billion is equivalent to 24.5% of the actual level of investment in manufacturing of $174.3 billion in 2001 at current prices (sectoral investment data for 2002 were not available as of this writing). With capital expenditures thus reduced by nearly one-quarter as a result of the rise in the dollar, domestic manufacturers will find it difficult to keep up with new technologies and to maintain the pace of productivity growth that they were able to achieve in the 1990s unless the overvaluation of the dollar is soon reversed. Such a reversal will require the dollar to fall further, and in relation to more currencies, than it has fallen to date.
Conclusions and policy recommendations
It is clear that the high value of the dollar has hurt employment, profits, and investment in the U.S. manufacturing sector. Although the value of the dollar has declined against some currencies, this partial decline has erased only a fraction of the overvaluation built up since 1995. The dollar still needs to fall further to allow the U.S. economy, and especially the manufacturing sector, to get back on their feet. This concluding section will discuss what the U.S. government can do, both by itself and in cooperation with U.S. trading partners, to encourage a further and more widespread decline of the dollar and to stabilize exchange rates at more sustainable levels.
Until recently, Bush Administration officials have generally maintained their support for a “strong dollar policy,” in spite of occasional admissions (usually by either former Treasury Secretary Paul O’Neill or current Treasury Secretary John Snow) that a decline in the dollar might be a welcome corrective.25 Since the dollar’s decline accelerated in April-May 2003, Snow and some other U.S. officials have begun to adjust their rhetoric, signaling that the United States will accept a market-driven realignment of the dollar’s exchange rate, but indicating no desire to manage the process or to coordinate it with other countries.26 What remains constant in the administration’s dollar policy is a hands-off, laissez-faire attitude toward currency markets (Blustein 2003b).
Although the new attitude of accepting market-driven dollar decline is a welcome shift in Bush Administration policy, no one in this administration has yet accepted the need for more active management of the dollar’s decline by the United States and its trading partners. There has also been no support for an extension of the dollar’s fall to encompass more currencies, especially those with managed or manipulated exchange rates. A partial decline of the dollar relative to only some currencies (mostly European) that account for less than half of the U.S. trade deficit will not suffice for reversing the damage done to the domestic U.S. economy by the dollar’s broad-based overvaluation in recent years. However, there is also a risk that a decline in the dollar vis-à-vis the euro and other floating-rate currencies could trigger a panic-driven rout if the dollar collapses so fast as to threaten global financial stability.
Although the dollar needs to fall significantly further relative to the major currencies such as the euro, its fall needs to be cushioned as its value begins to reach a more acceptable level (approximately the value the dollar had in 1995 before it began its ascent). Moreover, the dollar also needs to drop relative to those foreign currencies that have been deliberately undervalued through exchange rate manipulation by their governments (especially in East Asia), so that an excessive share of the adjustment burden is not placed on those countries (mainly in Europe) that let their currencies adjust to market-determined levels. This is especially important so that the depressing effects of the falling dollar on foreign economies are not exacerbated at a time when many countries, such as those in Europe, are already suffering from slow growth and high unemployment. With the entire global economy teetering on the verge of a worldwide slowdown, the way the current realignment of exchange rates is managed will be a crucial determinant of whether that realignment helps to revive the global economy, or to sink it further.
A more effective dollar policy, therefore, has to begin by recognizing the vital distinction between the major currencies with floating exchange rates, and the currencies of the developing nations that have pegged or managed rates. For the major, floating-rate currencies (such as the euro), U.S. economic officials, in cooperation with their foreign counterparts, should announce a desire for a further decline in the dollar, but set a target range for the dollar’s level in order to encourage an orderly and limited depreciation. For those countries that keep their currencies artificially undervalued by buying up large amounts of dollar reserves (primarily China, but also Japan and the other Asian countries identified in Table 1), the United States should pressure them to abandon such intervention in currency markets and allow their exchange rates to appreciate. The rest of this section explores how these twin objectives can be achieved and sustained.
Influencing market psychology
Given the importance of market psychology in determining the value of any financial asset, including a currency such as the U.S. dollar, statements by prominent U.S. officials have profound effects on int
ernational currency markets. Administration rhetoric in support of a strong dollar helped to brake the dollar’s decline until early 2003; the recent shift toward accepting a weaker dollar has contributed to accelerating that decline. It is vital for leading economic policy makers such as the Fed Chairman and Treasury Secretary to clearly and publicly accept the need for further dollar depreciation, instead of trying to prevent the necessary correction of an unsustainable, misaligned exchange rate.
At the same time, market expectations must be stabilized in order to prevent a panic-driven collapse of the dollar, such as occurred with the Mexican peso in 1994-95 and several Asian currencies in 1997-98. Therefore, U.S. officials should not only suggest that the dollar needs to fall more, but also state a target range for the necessary dollar depreciation and suggest a floor for the dollar’s level relative to the other major currencies. Even implicit suggestions of this sort proved effective in the 1985-87 period (when no specific targets were mentioned); more specific targets for sustainable exchange rates could be very effective today. The data in Figure 2 suggest that another 15-20% further depreciation of the dollar relative to the major currencies (starting from the current level in May 2003) would bring the dollar back to about where it was in 1995 (roughly an index of 80 on the scale shown in Figure 2). All such announcements would be even more credible if they were backed by the United States’ major trading partners, such as through a joint announcement at a meeting of leading finance ministers or a G-8 summit.
The Federal Reserve could help to support a decline in the dollar by modifying its monetary policies to take into account the dollar’s value. For example, the Fed could announce that it will not raise interest rates to prevent further dollar depreciation until the dollar reaches the new (lower) target level. The Fed could also precommit to raising interest rates modestly after the dollar has fallen to the desired target level, which would help to foster a set of self-fulfilling expectations that would encourage a significant but controlled depreciation of the dollar.
Currency market intervention and policy coordination
Direct intervention in currency marketsi.e., central banks or treasuries buying and selling foreign exchange in order to influence exchange ratescan also be helpful. It is often argued that the volume of currencies traded in today’s global financial markets dwarfs the relatively meager foreign exchange reserves of most central banks. Although this is true, it does not mean that currency market intervention cannot be successful. If such intervention is coordinated with policy announcements and undertaken in a concerted fashion by several leading central banks simultaneously, exchange market intervention could help to shift exchange rates in a desired direction.27 Once the dollar starts to fall, efforts by foreign countries to intervene to prevent the decline should be strongly opposed until the dollar has reached its new, lower target value.
Given the importance of foreign countries’ macroeconomic policies in determining the values of their currencies relative to the dollar, it is vital for the United States to negotiate with its trading partners for the adoption of policies that would encourage a sustained appreciation of their currencies (and hence depreciation of the dollar). For the eurozone countries, Japan, and other economically depressed areas, this means above all convincing them to revive their economies through the use of domestic demand stimuli and structural reforms instead of relying on low currency values and export-led expansion. Such policies would also help to boost U.S. exports and prevent a global slump. In addition, foreign countries should be persuaded that allowing a realignment of currencies with a lower dollar could be helpful for resolving trade disputes with the United States, which have been exacerbated by the anticompetitive effects of the high dollar for U.S. producers (an example of this is the recent steel controversy).28
Policies for currencies with managed exchange rates
The appropriateness of pushing for countries with pegged or managed exchange rates to revalue their currencies upward depends on their economic conditions. Those countries that have recently been through financial crises and have depressed domestic economies (e.g., Argentina and Brazil) should not be pressured to revalue their currencies, and would probably be unable to do so anyway. On the other hand, those countries that are accumulating large amounts of reserves in order to artificially undervalue their currencies, such as China and the other Asian countries shown in Table 1, should be pressured to abandon such policies and allow their currencies to appreciate to market equilibrium levels.
The United States can use its political leverage to pressure such countries to stop manipulating their exchange rates. Specifically, support for future trade liberalization efforts and access to the U.S. market should be linked to the establishment of exchange rates that allow for more balanced trade relationships. It was a mistake to negotiate so many trade liberalization agreements (such as NAFTA, the WTO, and China’s accession thereto) without paying attention to the need for keeping exchange rates at levels that prevent excessive trade imbalances; it is not too late to make sure that this need is addressed in future trade negotiations. The U.S. Treasury Secretary should also use his authority under the 1988 Trade Act to investigate currency manipulation by foreign governments and to negotiate with countries that are found to practice such manipulation.
Stabilizing exchange rates at realistic levels
Supporters of the strong dollar have raised concerns about the risks of lowering its value, including the potential harm to U.S. trading partners of their currencies appreciating while their economies are weak; the possible jeopardy to financial markets of a sudden dollar collapse; the potentially inflationary consequences of currency depreciation; and the need to keep attracting large capital inflows to finance the U.S. trade deficit. Although these are legitimate concerns, they are not insurmountable, and some are merely excuses for inaction rather than reasons not to act; for example, there is no reason why the United States needs a large trade deficit requiring significant capital inflows to finance it, or why foreign countries cannot stimulate their domestic economies.
The most significant fear29 is that the dollar will collapse too quickly, potentially causing disastrous declines in financial markets where complicated investment positions have been created on the expectation that the dollar will remain about at its current level (see Blustein 2003a). Such fears can be mitigated, however, if the dollar’s decline is managed in an orderly fashion, as advocated earlier. This problem will only get worse if U.S. officials continue to defend an indefensible “strong dollar policy” instead of encouraging investors to adjust to a new set of more realistic expectations about the dollar’s future value. The question today is no longer whether the dollar needs to fallthe currency markets have already settled that questionbut rather whether the U.S. government will seek to encourage and manage that fall as part of an internationally coordinated effort to promote a global economic recovery.
Looking to the future, it is important to consider systemic reforms that could prevent a recurrence of the exchange rate misalignment that the United States has experienced in the past eight years. There have been several useful proposals for stabilizing exchange rates.30 Although it is beyond the scope of this paper to endorse any particular such plan, what is most important is to target exchange rates at levels that are consistent with more balanced trade and which allow all nations to grow a
t respectable rates with full employment. Countries should be prevented from undervaluing their nations’ products in order to grow faster and employ more workers at the expense of their trading partners. A full and sustainable recovery of the global economy depends on all countries sharing in the growth of the world market.
— May 2003
Robert A. Blecker is a professor of economics at American University in Washington, D.C., and a research associate of EPI.
Appendix
This Appendix presents the econometric estimates of the effects of the increased value of the U.S. dollar on the performance of the domestic manufacturing sector. Equations were estimated for the effects of the real value of the dollar (measured by the Fed’s broad, inflation-adjusted index) on employment, hours, profits, and investment in manufacturing. Other variables (such as the GDP growth rate) were included in the regression equations to control for other factors (such as the business cycle) that also affect the dependent variables in these equations. A complete, detailed list of the variable definitions and sources is given at the end of this Appendix.
Because all the data are time series, all the variables were tested for the presence of unit roots or non-stationarity. Generally, all the variables had unit roots (i.e., were non-stationary) when measured in levels (or levels of logarithms31), according to Augmented Dickey Fuller (ADF) tests,32 except the GDP growth rate which was stationary.33 However, all the variables were stationary (did not have unit roots) when measured in first differences (i.e., period-to-period changes) or logarithmic differences (i.e., proportional changes). The variables used in each equation were also tested for cointegration (in levels). For those cases in which the series had unit roots and no evidence of cointegration was found, the regression equations were run with the data measured in first differences or log differences.
Although differencing the data helps to make time series stationary, it also loses information and can therefore result in less reliable estimates. In some of the equations this was not a problem, but in the equations for the profit share and the investment rate in manufacturing, differencing the data resulted in very poor statistical fits. As a result, other methods were used to estimate these two equations, while the other equations were estimated with the data in first differences or log differences. Both of the equations that didn’t fit well in differences (i.e., for the profit share and investment rate) showed evidence of cointegration among the variables, although the cointegration tests were sensitive to the specification chosen. Hence, the results of cointegration analysis are reported for these equations along with more conventional estimates in levels.34
Hours and employment
Variations in hours and employment in manufacturing are well explained by a simple specification with the variables measured in first differences of natural logarithms (“log differences,” which approximate percentage changes). Log differences were used for these equations for three reasons: they were stationary (all the included variables had unit roots in logs but not in log differences); they yield good fits in the regressions; and the coefficients can be interpreted as elasticities. The variables in these equations were not cointegrated, according to standard cointegration tests, and hence it was preferred to use standard regression methods with the data series in a form that was stationary (i.e., log differences).
The model assumes that demand for workers in the manufacturing sector depends primarily on two factors: GDP growth, which determines the overall demand for manufactured goods; and the real value of the dollar, which determines how profitable it is to produce manufactured goods in the United States either for export markets or in competition with imports. GDP growth affects hours and employment contemporaneously, while the value of the dollar affects them with lags of up to four quarters due to the time it takes for imports and exports to adjust to changes in the exchange rate. This model explains a relatively high percentage of the changes in manufacturing hours and employment.
The equations for hours and employment implied by this model were estimated by ordinary least squares (OLS) using quarterly data for 1980Q2 to 2002Q1 with the following results:
D log Hourst = -0.01 + 1.14 D log Real GDPt – 0.13 D log Real Dollar Index + et
(0.001) (0.11) (0.06)
(adjusted R2 = 0.571)
D log Employmentt = -0.01 + 0.83 D log Real GDPt – 0.12 D log Real Dollar Index + nt
(0.001) (0.09) (0.05)
(adjusted R2 = 0. 529)
where the “t” subscript designates the current quarter; the numbers in parentheses are standard errors; and et and nt are random error terms. The coefficients on D log Real Dollar Index are the sums for 1-4 quarterly lags and the standard errors are for the null hypothesis that the sum of these coefficients equals zero using a Wald F-test. The constants and D log Real GDP (i.e., the GDP growth rate) are significant at the 1% level in both equations; D log Real Dollar Index (i.e., the percentage increase in the value of the dollar) is significant at the 5% level in both equations. The adjusted R2′s are relative high for equations estimated in log differences. Note that, with the variables measured in log differences, the constant terms are equivalent to time trends. In these equations, the time trends can be interpreted as the effects of labor productivity growth, and thus the results show that both hours and employment in manufacturing fell by about 1% per quarter (approximately 4% per year) as a result of trend productivity growth (holding other factors constant).
Both hours and employment have elasticities of close to 1 with respect to GDP growth (D log Real GDP), but hours are slightly more elastic than employment because firms are more likely to adjust hours of existing workers than to either lay off or hire workers in responses to changes in demand for their products. Similarly, the (negative) elasticity of hours with respect to the real value of the dollar is slightly higher (in absolute value) than the corresponding elasticity of employment, for the same reason. However, the real value of the dollar clearly has a negative impact on both the hours and employment of manufacturing workers and this impact is statistically significant. The coefficients of -0.13 and -0.12 for hours and employment, respectively, were used to estimate the effects of the rise in the dollar between 1995 and 2002 reported in the text above.
The profit share
The most successful way of estimating the manufacturing profit share equation was with the data measured in levels and including a lagged dependent variable to represent a partial adjustment process. This eliminated autocorrelation of the residuals, which was a problem in all other specifications tried (including using lags of the independent variables), and produced much better fits than differencing the data. With a lagged dependent variable, the estimated coefficients are estimates of the short-run effects of the other variables, i.e., how much they affect the current value of the dependent variable relative to its one-period lag. The effects of lags of the other independent variables are all captured in the lagged dependent variable. Estimates of the long-run effects of those variables can be obtained using the formula
(formula)
in which (coefficient) is the estimated coefficient on the lagged dependent variable and (coefficient)
is the estimated coefficient on the ith variable (i ¹ 1). Several different specifications (in terms of which other variables were included) were tried as sensitivity tests, i.e., to make sure that the estimated effects of the dollar index are robust. In addition, since the variables in this equation showed evidence of cointegration, the cointegrating equation from the cointegration analysis is also used as a further sensitivity test.35 The results of these various estimates are given in Table A-1.
In the equations reported in Table A-1, the GDP growth rate is included to control for business cycle effects, and is strongly positive and significant. The most basic version of the equation is (1), in which the implied long-run effect of the dollar index on the profit share is -0.33, i.e., for every sustained 1 point rise in the real dollar index, profits fall by 0.33 percentage points of national income generated in domestic manufacturing. Equations (2) and (3) test the sensitivity of this result and find that it is robust when a time trend (2) or unit labor cost (3) is included. Including these variables, each of which is statistically significant when included separately (but not together), reduces the estimated long-run effect of the dollar index only slightly. (The equation was also estimated with the PPI for fuels as an index of energy costs, but this variable was not statistically significant.) The cointegrating equation (4) yields remarkably similar (long-run) coefficients for the dollar index and the time trend, although it yields a somewhat higher estimate of the growth rate effect (perhaps because of the omission of the lagged dependent variable from the cointegration test). Based on these equations, I take the value of -0.30 for the long-run dollar effect from equation (3) as a mid-range estimate and use that to calculate the quantitative impact of the dollar’s rise on manufacturing profits discussed in the text.
Investment
For the investment rate (i.e., capital expenditures as a percentage of the capital stock at the end of the previous period, both measured at current costs) in manufacturing, the best fits were obtained using the variables in levels and with certain lags. Lags are common in investment models because of the time it takes for changes in observed economic conditions to affect firms’ desired investment plans, and then for firms to design and implement those plans (e.g., to order and install new equipment or to construct new facilities). The most robust variable for explaining investment is the growth rate, representing business cycle effects (known in the investment function literature as the “accelerator effect”). Many theories emphasize negative effects of (real) interest rates on investment, but empirical evidence on interest rate effects is mixed at best. Many empirical studies have found interest rate effects (or a broader measure known as the “cost of capital”) to be small, statistically insignificant or to have the “wrong” sign (positive).36
Also, much research has shown the prevalence of financial constraints on investment, which can prevent firms from making otherwise desired capital expenditures (the classic study is Fazzari, Hubbard, and Peterson 1988). Such financial constraints are usually represented in econometric tests by cash flow or other profit measures; in the present analysis, I use the profit share. Financial constraints often operate contemporaneously rather than with lags, since they can force firms to cut back on already planned investment projects. What is innovative in the present analysis is the inclusion of the Fed’s real broad dollar index to test for direct (negative) exchange rate effects on investment. Only a few previous studies have tested for (and found) such effects (see Worthington 1991, Goldberg 1993, and Campa and Goldberg 1995), and none have estimated those effects for the period of dollar appreciation since 1995.
Table A-2 (above) reports the results of several different variants of an investment equation for the U.S. manufacturing sector. Annual data had to be used for the investment equation because the investment and capital stock data series for manufacturing are only available on an annual basis. Given the use of annual data, the number of lags that can be included is necessarily limited. The sample ends in 2000 because the investment and capital stock data for manufacturing for 2001 were not yet available at the time when these regressions were run. As noted earlier, estimates of the investment equation in first differences yielded very poor fits and therefore the equation was estimated in levels.
Equation (1) in Table A-2 is a baseline investment equation without the dollar index included. The profit share and growth rate (accelerator) variables are positive and significant, as expected, but the real interest rate variable has the wrong sign (positive) and is insignificant (and this was also true using several alternative specifications of the real interest rate).37 Hence, the real interest rate was omitted from the other equations. Equation (2) shows the effects of including the real dollar index (but omitting the real interest rate). The real dollar index is negative and significant at the 5% level, while the coefficients on the other variables change only slightly and are still significant at the 1% level. This is strong evidence that the dollar’s value has a negative effect on manufacturing investment in the United States, after controlling for other factors.
Certain econometric issues lead to the estimation of alternative equations (3) and (4) as sensitivity tests. Because the profit share is an endogenous variable, and is a function of other right-hand side variables,38 it could be argued that equation (2) suffers from an identification (simultaneity) problem. To remedy this, equation (2) is re-estimated with two-stage least squares (2SLS), treating the profit share as endogenous, and using as instruments all the exogenous variables in the investment function plus the exogenous variables in equation (2) from Table A-1 above. The resulting estimates (equation (3) in Table A-2) are remarkably similar to those in the OLS equation (2), and the real dollar index is still negative and significant at the 5% level, lending further support to the hypothesis of significant direct negative effects of the dollar’s value on manufacturing investment.39 Equation (3) is used to estimate the effects of the rise in the dollar on investment between 1995 and 2002 as reported in the text.
Finally, the fact that the variables in this equation have unit roots suggests the need for a cointegration test, which shows evidence of at least one significant cointegrating vector and possibly two such vectors (see notes to Table A-2 for details).40 The cointegrating equation (assuming only one cointegrating vector) is presented as equation (4) in this table. The coefficients differ somewhat in magnitude from those in equations (2) and (3), but have the same signs, and if anything the direct negative effect of the dollar on manufacturing investment is estimated to be even greater in the cointegrating equation than in the OLS and 2SLS estimates.
Data definitions and sources
This section gives the exact definitions and sources for the data series used in the preceding statistical analysis.41 Abbreviations and web sites (home pages) for the major data sources are as follows:
U.S. Department of Commerce, Bureau of Economic Analysis (BEA); www.bea.gov.
U.S. Department of Labor, Bureau of Labor Statistics (BLS); www.bls.gov.
U.S. Board of Governors of the Federal Reserve System (Federal Reserve Board or FRB); www.federalreserve.gov.
Hours of labor in manufacturing: index (1992 = 100), BLS, quarterly data were downloade
d from www.bls.gov/lpc/home.htm under Major Sector Productivity and Costs Create customized tables.
Employment of labor in manufacturing: index (1992 = 100), BLS, quarterly data were downloaded from www.bls.gov/lpc/home.htm under Major Sector Productivity and Costs Create customized tables.
Real GDP and growth rate of GDP: gross domestic product in chained 1996 prices, BEA, National Income and Product Accounts (NIPAs), Table 1.2. Growth rates (percentage changes) were calculated by the author. Annual and quarterly data were downloaded from www.bea.gov/bea/dn/nipaweb/index.asp (quarterly data are expressed at annual rates).
Profit share in manufacturing: profit income was calculated as a percentage of national income generated in the manufacturing sector; BEA, National Income and Product Accounts (NIPAs), Tables 6.1B and 6.1C for national income by sector, and Tables 6.16B and 6.16C for profits by sector. Annual and quarterly data were downloaded from www.bea.gov/bea/dn/nipaweb/index.asp.42
Real dollar index: trade-weighted index of the real (inflation-adjusted) value of the U.S. dollar; “broad” index includes both “major” currencies and currencies of “other important trading partners, March 1973 = 100; FRB, Federal Reserve Statistical Release H.10, Foreign Exchange Rates, Summary Measures of the Foreign Exchange Value of the Dollar. Monthly data for the real broad index were downloaded from http://www.federalre...es/h10/Summary/ and converted to quarterly or annual time series as needed by the author.
Unit labor costs in manufacturing: index (1992 = 100), BLS, quarterly data were downloaded from www.bls.gov/lpc/home.htm under Major Sector Productivity and Costs Create customized tables.
Investment rate in manufacturing: annual investment as a percentage of the capital stock at the end of the previous year, calculated by the author based on data from BEA, Fixed Asset Tables: investment from Table 4.7, “Historical-Cost Investment in Nonresidential Fixed Assets by Industry Group and Legal Form of Organization”; yearend capital stocks from Table 4.1, “Current-Cost Net Stock of Nonresidential Fixed Assets by Industry Group and Legal Form of Organization.” Annual data were downloaded from www.bea.gov/bea/dn/faweb/AllFATables.asp.
Real interest rate: prime interest rate minus the inflation rate (measured by the annual percentage rate of change in the GDP chain-type price index). Prime interest rate from FRB, Federal Reserve Statistical Release H.15, Selected Interest Rates; monthly data for “bank prime loan rate” downloaded from http://www.federalre...es/h15/data.htm and converted to annual averages by the author. The GDP chain-type price index was calculated by the author by dividing nominal GDP (BEA, NIPAs, Table 1.1) by “real” GDP at chained 1996 prices (BEA, NIPAs, Table 1.2); annual data were downloaded from www.bea.gov/bea/dn/nipaweb/index.asp.
Kaže Jimmy, još si ti zeleniška da bi pričao o Americi!
Al pet bambija za trud!
Pa kaze i ovo:
Zamalo da uspeš
Will China Have the World’s Largest Economy by 2030?
14 December 2012
On Monday, the National Intelligence Council released its fifth “Global Trends” report. Among its conclusions, the study predicted that the Chinese economy would surpass the American one to become the world’s largest “a few years before 2030.”
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The report, a blend of analysis from the American intel community and experts in almost 20 other countries, is consistent with most assessments of the subject. The World Bank, for instance, made the same prediction (pdf) this year.
As the Global Trends report notes, predicting the future is “an impossible feat,” but spotting the flaws in this report is quite easy. For one thing, its recommendations rest on a flawed premise, that “China’s current economic growth rate” is “8 to 10 percent.” Beijing’s National Bureau of Statistics claims that growth in the third quarter of this year was 7.4 percent, and that calculation is highly debatable.
By far the best indicator of Chinese economic activity is the production of electricity. In the third quarter of this year, the average monthly increase in electricity production was just 2.1 percent. And electricity growth was on a downward trend at the end of the quarter. In September, the growth of electricity was just 1.5 percent.
Because the growth of electricity historically outpaces the growth of gross domestic product, it is unlikely that China’s economic growth could have been much beyond zero during the quarter. And as bad as recent electricity numbers were, there is growing evidence, documented in the New York Times in June, that they were inflated to make the economy look better than it actually was.
The downward trend evident from the electricity statistics is consistent with manufacturing surveys, corporate results, and price indexes. Capital flight is another telltale sign that the economy is in distress.
Analysts say that in the last few months the Chinese economy has resumed its high-growth pattern and that the problems evident over the last year will soon be forgotten. Yet this year’s slump appears to be more than just a momentary downturn. On the contrary, it looks like the beginning of a decades-long slide.
For one thing, the three principal reasons for China’s growth over the last three decades—continuous reform, benign international environment, and favorable demography—no longer exist. And Chinese leaders cannot just wave a wand and create new conditions for growth. In fact, the anti-reformist bent of the newly unveiled Politburo Standing Committee, the apex of Chinese political power, makes positive change look unlikely.
The triumph of the hard-liners means that, when China needs economic reform the most, the political system will be least able to deliver it. China has progressed about as far as it can within its existing political framework. Today, there is a growing recognition that fundamental economic restructuring cannot occur unless there is far-reaching political reform, reform certainly more ambitious than the “inner-party democracy” that leaders like to talk about. Yet meaningful political reform is completely off the table, as the disappointing lineup of the new Standing Committee makes clear.
China is now trapped in self-reinforcing—and self-defeating—feedback loops. In one of these loops, a slumping economy is creating a crisis of legitimacy. The legitimacy crisis, in turn, is causing a wide-ranging political crackdown. The crackdown makes reform impossible. The lack of reform prevents long-term economic growth.
For China to break out of this loop, it must move in a direction that it has not been able to go for years. New leader Xi Jinping, speaking during his recent Guangdong Province tour, said officials should “allow no delay” in economic restructuring. That’s a hopeful sign, but Chinese leaders typically talk big in their first days after taking over.
Xi may be hoping to launch bold reforms to sustain growth, but at this moment he is likely to be busy further consolidating power and maintaining political stability. In other words, he is in no position to sponsor change. His predecessor, Hu Jintao, and his premier, Wen Jiabao, were considered economic reformers but in their decade in office they only implemented one substantial reform, the abolition of the agricultural tax. Apart from that change, which ultimately caused more harm than good, they never got around to fundamental restructuring.
Perhaps Xi Jinping will end up being a transformational figure. Yet we have to remember each leader of the People’s Republic has been weaker than his predecessor, and there is little to indicate this pattern will be broken now. Unless Xi can remake Communist Party politics—most unlikely given the composition of the new Standing Committee and the “dead hand” of former leaders who refuse to relinquish power—China will be stuck with a half-reformed economy dominated by entrenched interests. And in these circumstances, the country will not be able to sustain the growth necessary to propel its economy past the American one in less than 20 years.
Nego i od te prognoze nam se Kina shrinkovala i tek će shrinkovati.
I tako od 2016, pa 2019., pa 2020., sad smo stigli do 2030., pa ćemo do 2050., pa do 2100., i tako dalje!
Doduše, nećemo, za par decenija će se pojaviti novi punoglavci koji će to isto govoriti za Indiju, Kinu kulirati ko danas Japanče i tako u krug!
Pošto nameravam da živim 85+ godina, siguran sam da ću to doživeti, svratiću ovde, obećavam!
Asia will overtake North America and Europe combined in global power by 2030, a U.S. intelligence report said on Monday.
Slažemo se
Ja ovde sve vreme govorim da Evropa ide out u prošlost.
Više se zanimam za Trans Pacifički pakt i kolika će njihova ekonomija biti.
Kina se ne računa naravno, neće biti deo njega.
Samo ASEAN + USA + Australia + New Zeland!
Nego sad ozbiljne stvari, onako live
Eurozone unemployment reaches new high
Comments (206)
Rabobank's Jane Foley says unemployment is the legacy of the transitions many countries are going through
Continue reading the main story
Eurozone crisis
The unemployment rate across the eurozone hit a new all-time high of 11.8% in November, official figures have shown.
This is a slight rise on 11.7% for the 17-nation region in October. The rate for the European Union as a whole in November was unchanged at 10.7%.
Spain, which is mired in deep recession, again recorded the highest unemployment rate, coming in at 26.6%.
More than 26 million people are now unemployed across the EU.
For the eurozone, the number of people without work reached 18.8 million said Eurostat, the official European statistics agency said.
'Continuing saga'
Greece had the second-highest unemployment rate in November, at 20%.
The youth unemployment rate was 24.4% in the eurozone, and 23.7% in the wider European Union. Youth unemployment - among people under 25 - was highest in Greece (57.6%), followed by Spain (56.5%).
Continue reading the main story
“Start Quote
The general trend however remains upwards and it makes it even harder for the governments concerned to collect the taxes they need to stabilise their debts”
image of Andrew Walker Andrew Walker BBC World Service Economics correspondent
Overall unemployment was lowest in Austria (4.5%), Luxembourg (5.1%) and Germany (5.4%).
The eurozone and wider European Union economies are struggling with recession as government measures to reduce sovereign debt levels have impacted on economic growth.
However, European Commission President Jose Manuel Barroso said on Monday that he believed the worst was over.
Mr Barroso said the turning point was last September's promise from the European Central Bank to buy unlimited amounts of eurozone states' debts, which has helped crisis hit countries borrow more cheaply.
But in the view of the UK's Institute of Directors, whose members rely on demand from trading partners in the eurozone, this "has bought time, but that is all it has done".
"It is clear that the economic implosion of several member states continues at a troubling pace," said the business group's chief economist Graeme Leach.
"The headline figures spell bad news, but that is compounded by the political and human impact of terrifying levels of youth unemployment in Spain, Greece and Italy.
"This saga is far from over, whatever President Barroso may believe, and it seems it is set to get worse in 2013."
'Very shocking'
BBC Economics Correspondent Andrew Walker said: "The biggest rises, in percentage terms, were in countries at the centre of the eurozone financial crisis - Greece, Spain, Cyprus and Portugal. One striking exception to that pattern was the Republic of Ireland where unemployment fell.
"The general trend however remains upwards and it makes it even harder for the governments concerned to collect the taxes they need to stabilise their debts."
Rabobank economist Jan Foley said the rise in unemployment was "the other side of austerity or structural reform."
"There is a very worrying picture painted by these numbers, and governments do need to wonder if they need more pro-growth strategies in the next few years," she told the BBC's News Channel.
The record low for the eurozone unemployment rate was 7.2%, which was recorded in February 2008, before the financial crisis that first gripped the banking sector spread to the real economy.
The historic low for the eurozone youth unemployment rate was 15% in March 2008.
Eurozone unemployment reaches new high
Rabobank's Jane Foley says unemployment is the legacy of the transitions many countries are going through
Continue reading the main story
Eurozone crisis
The unemployment rate across the eurozone hit a new all-time high of 11.8% in November, official figures have shown.
This is a slight rise on 11.7% for the 17-nation region in October. The rate for the European Union as a whole in November was unchanged at 10.7%.
Spain, which is mired in deep recession, again recorded the highest unemployment rate, coming in at 26.6%.
More than 26 million people are now unemployed across the EU.
For the eurozone, the number of people without work reached 18.8 million said Eurostat, the official European statistics agency said.
'Continuing saga'
Greece had the second-highest unemployment rate in November, at 20%.
The youth unemployment rate was 24.4% in the eurozone, and 23.7% in the wider European Union. Youth unemployment - among people under 25 - was highest in Greece (57.6%), followed by Spain (56.5%).
Continue reading the main story
“Start Quote
The general trend however remains upwards and it makes it even harder for the governments concerned to collect the taxes they need to stabilise their debts”
image of Andrew Walker Andrew Walker BBC World Service Economics correspondent
Overall unemployment was lowest in Austria (4.5%), Luxembourg (5.1%) and Germany (5.4%).
The eurozone and wider European Union economies are struggling with recession as government measures to reduce sovereign debt levels have impacted on economic growth.
However, European Commission President Jose Manuel Barroso said on Monday that he believed the worst was over.
Mr Barroso said the turning point was last September's promise from the European Central Bank to buy unlimited amounts of eurozone states' debts, which has helped crisis hit countries borrow more cheaply.
But in the view of the UK's Institute of Directors, whose members rely on demand from trading partners in the eurozone, this "has bought time, but that is all it has done".
"It is clear that the economic implosion of several member states continues at a troubling pace," said the business group's chief economist Graeme Leach.
"The headline figures spell bad news, but that is compounded by the political and human impact of terrifying levels of youth unemployment in Spain, Greece and Italy.
"This saga is far from over, whatever President Barroso may believe, and it seems it is set to get worse in 2013."
'Very shocking'
BBC Economics Correspondent Andrew Walker said: "The biggest rises, in percentage terms, were in countries at the centre of the eurozone financial crisis - Greece, Spain, Cyprus and Portugal. One striking exception to that pattern was the Republic of Ireland where unemployment fell.
"The general trend however remains upwards and it makes it even harder for the governments concerned to collect the taxes they need to stabilise their debts."
Rabobank economist Jan Foley said the rise in unemployment was "the other side of austerity or structural reform."
"There is a very worrying picture painted by these numbers, and governments do need to wonder if they need more pro-growth strategies in the next few years," she told the BBC's News Channel.
The record low for the eurozone unemployment rate was 7.2%, which was recorded in February 2008, before the financial crisis that first gripped the banking sector spread to the real economy.
The historic low for the eurozone youth unemployment rate was 15% in March 2008.
Spanish unemployment at record high
Unemployment in austerity-gripped Spain has edged higher to 26.2pc, continuing a rise towards levels not seen since the end of the Franco dictatorship in the mid 1970s.
People line up to enter a government employment benefit office in Madrid, Spain
Youth unemployment in Spain could be on a downward trajectory after peaking in November. Photo: AFP
By Denise Roland
11:55AM GMT 24 Jan 2013
Comments32 Comments
Almost 200,000 people lost jobs between October and December to send the jobless figure to nearly 6m, Spain's National Statistics Institute reported on Thursday.
Spain's youth unemployment - the number aged 16 to 24 without a job - hit a new quarterly high of 55pc, but showed tentative signs of retreating after falling from a peak of 56.5pc in November. Similarly, overall unemployment hit a high in November of 26.6pc and slid in December.
Meanwhile, the number of households in which every member is out of work climbed to 1.8m, more than one tenth of all Spanish families.
The report also suggests the long-term unemployed face a tougher struggle in returning to work, with the number of people remaining unemployed more than a year after losing their jobs rising by 213,800 during 2012.
The bleak figures - which make Spain home to a third of the eurozone's total unemployed - will cast a dark shadow over the one-year-old premiership of Mariano Rajoy, who has faced mounting criticism and a wave of general strikes over his administration's handling of the economy.
Related Articles
Mr Rajoy has so far seen little fruit from his relentless application of austerity measures, with the Bank of Spain expecting the recession to have worsened in the fourth quarter and the International Monetary Fund cutting its growth forecast for Spanish GDP to a 1.5pc contraction from an earlier prediction of a 1.4pc decline.
Although the Organisation for Economic Co-operation and Development predicts Spanish unemployment to climb to almost 27pc in 2013, Mr Rajoy has insisted the economy has turned a corner and that the nation will see economic growth as soon as 2014..
"Recent job losses have taken place in the real estate sector, in the financial sector and in the public sector,” he told the FT earlier this month.
“But in other sectors of the economy jobs have not been lost. So the labour reform has started to bear fruit."
Hopeful signals came from elsewhere in the eurozone, where private business activity rose to a 10-month high, according to a leading growth indicator.
The Purchasing Managers' Index published by London-based Markit researchers, a survey of thousands of eurozone companies, logged 48.2 points in compared to 47.2 points the previous month.
January marked a third rise running for the index, even though it remains below the 50-point line indicating economic growth or contraction - a 16th reading of less than 50 in 17 months.
Manufacturing production fell for the 11th month in a row, with both the manufacturing and services sectors each registering their smallest retreat in 10 months.
Markit chief economist Chris Williamson said forward-looking indicators "suggest that the rate of decline will continue to slow in the coming months, and a return to growth looks to be on the cards during the first half of 2013."
However, he underlined that "worrying signs of weakness persist, however, with companies cutting staff at a faster rate, reflecting the need to keep costs as low as possible in the face of ongoing uncertainty about the economic outlook."
China And The Upcoming Global Financial Crisis
January 23, 2013
By Paul Shea
China's financial system is not as solid as it seems, and the weakness of the system may result in a serious shock to the global financial system.
China’s economy is still booming. Despite it’s worst growth in over a decade, the country’s economy expanded by 7.9% in 2012, and is expected to grow by a similar margin in 2013.
Despite some investor concerns, trust in the nation’s brand of Directed Capitalism and steady growth have made it a popular target for investors and companies looking to expand into new markets.
However, there may be trouble brewing in East Asia. If China undergoes a serious financial meltdown, the entire globe could enter into a second period of deep recession; According to some analysts another deep recession could eliminate the gains made in the last five years. Where exactly could such a catastrophe come from and is there anything that can be done about it?
GMO LLC recently created a A new white paper examining the country’s financial system and identifying its weaker points; the conclusions are worrying. One of the central points of the paper’s thesis is that our methods for predicting a bubble may be wrong and we may have learned the wrong lessons from the 2008 crisis. China may be on the very edge of collapse.
China Credit Bubble
China Credit Bubble
The paper, authored by Edward Chancellor and Michael Monnelly, draws parallels between China’s current position and U.S.’s financial position before the 2008 crisis; it also points out particular weaknesses in the country’s banking system. As can be seen from the chart above, the pattern across financial crises and their similarity to China’s current state, is chilling.
First off, it’s important to dispel some myths. China’s credit system is often considered safe because it is funded by domestic savings, rather than external funds and the country’s debt burden is relatively small by Western standards. The report, leaning on evidence from Japan in the 1980s, asserts that these two indicators are not significant enough to downplay the chances of a financial crisis.
Japan’s debt level before it’s crisis was similar to China’s, as can be seen from the chart. Japan’s banking system was also funded by domestic debt. If the argument that China is not vulnerable to financial crisis relies on indicators that led to crisis in Japan twenty five years ago, it is surely worth reexamining, if not discounting entirely.
In addition, it is wrong to compare debt levels in an emerging economy to those of a developed economy, contends the report. China is heavily indebted relative to the other countries designated as emerging economies. The chart below offers a graphical comparison.
The trend line may be a poor fit, but the ratios remain important. Mexico, Poland, Brazil, India and Russia have ratios well below China’s current level, and Japan’s 1988 ratio is more similar to China’s contemporary situation than many analysts would be happy to admit.
The numbers don’t give enough impetus to suggest a coming apocalypse, but they can help demonstrate the potential. There is a convincing thesis to go along with those numbers presented in the White paper. China’s financial system is weak, and there is every reason to expect it to show signs of stress going forward.
The value of unfinished housing stock in China has been estimated at 20%, and property, as collateral, secures much of the country’s debt. Though the reported value of property exposure in the Chinese banking system is just 22%, there is a great deal of property exposure hidden in the credit held by local government agencies.
Those agencies, funding vehicles directed from Beijing, are receiving loans from a banking system also directed by Beijing. Directed Capitalism may seem stable but this dynamic is unsustainable. Corruption is endemic to any system with such an incestuous design, local government funding vehicles accounted for 15-15% of credit in the Chinese banking system.
While the regulated state banking system has settled into a feedback loop, a second “shadow” banking system has emerged, making the situation much more complex and much more dangerous. This, asserts the white paper, marks a de facto liberalization of the banking system. The second banking system accounted for 60% of new lending in the fourth quarter of 2012.
These loans represent an unstable, and largely unaccounted for, mass of debt in unusual wealth management vehicles resembling the infamous CDOs that led to the 2008 crisis. A secondary, unregulated, banking system is not a good in general; in an economy lauded for its control of capital, it might be downright disastrous.
The difficulty of following the flows of capital in China make the system all the more threatening to the developed world. One of the more startling speculations in the white paper contends that a significant portion of the secondary banking system’s issuance may be financing property developers. That possibility is terrifying to any with knowledge of how bubbles work, or how the 2008 financial crisis arose.
When China’s economy began to wobble at the beginning of 2012, many members of the country’s establishment demanded a stimulus. That request was denied, but the Local Government Funding Vehicles were given a significant licenses. The controls on bond issuance were relaxed. The country’s corporate bond issuance jumped 64% between 2011 and 2012.
Many of these bonds are not being bought by banks, as had been the case in years gone by. Instead they were sold into wealth management funds and the like in the secondary banking system. The money from bond sales was then used, some research found, to pay off old bank debt instead of investing in infrastructure.
Wealth management products in China offer higher yields than bank deposits and are sold to retail investors as low risk, high performance assets. The entirety of the risk is placed on the investor, returns are expected, not guaranteed and investors are expected to take a loss if the assets do not perform. Chinese investors, according to the report, do not understand these risks, expecting the government and the banking system to cover them if there is a crash.
In simple terms, China’s wealthy are investing in Wealth Management Products, WMPs, that invest at least some of their capital in corporate bonds from the Local Government Funding Vehicle, LGFV sector, and some of it in the property sector. The LGFVs use the funds raised in bond sales to invest in infrastructure, and property, or in the worst of cases, pay back loans to banks.
The country’s regulated, state run banking system is making loans to the LGFVs, using property as collateral. As long as the property values continues to rise, and they are able to continue issuing bonds, this system will continue to produce excellent economic returns, and ultimately lead to a utopian ideal.
However, there is a chance that property values may not continue to grow forever, and in China it is possible that bond issuance will be arbitrarily caped. This means the interest would not be paid, and WMPs would not be able to deliver returns to their customers. Banks would not be paid, and deposits might become questionably safe, even in a state banking system.
The thesis is horrifying. It represents a system so close to the 2007 American financial system that it is difficult to believe. If the story is borne out by the reality, so much of analysis on China is filling in blanks because of poor data, it presents a worrying picture to anybody with a stake in the economy.
The white paper concludes that China is in the midst of a bad credit boom. Those booms generally end, according to the report, in banking crises. Not only is that the potential the direction China is heading in, it’s bringing the world along with it because China has that economic clout now.
If the thesis bears out, there is no telling when the system will finally cease to function. The first chart above seems to imply that it could happen this year; however, despite the similarities to other crises, China is not like any other industrial economy. Directed Capitalism’s effect on the vulnerabilities it created will be interesting to watch.
Au, pa mi imamo gotovo isti bubble od onog iz 2008. + stigla je i Japanov osamdesetih + sustiže i onaj Japanov interni dug iz devedesetih.
Biće ludilo kada eksplodiraju sve ove divne stvari, ako budeš ogladneo posle eksplozije usled nove krize, javi mi se, dobićeš $$$ da se naručkaš malo!
Uvek sam bio humanitarac.
A pošto nam bilo kako kineski rast opada i dalje, fora ti nikako nije uspela.
Krivo mi je u tvoje ime, bez brige, saosećajan sam lik
China's slowdown deepens, raises risks to global economy
By Annalyn Censky @CNNMoney July 13, 2012: 11:07 AM ET
China's economic growth recently slowed to its weakest pace since early 2009.
NEW YORK (CNNMoney) -- China is growing at its slowest pace since the recession -- a worrisome sign for the broader global economy.
Compared to a year earlier, China's economy grew 7.6% in the second quarter, the National Bureau of Statistics said Friday, marking a deceleration from an 8.1% growth rate in the prior quarter and the slowest growth since early 2009.
10 largest economies
G-20 nations at a glance
While the rate still sounds fast compared to paltry 2% growth in the United States, it marks an uncomfortable soft patch for China. Over the last three decades, the country has barreled ahead at an average of about 10% a year.
The slowdown can be blamed on a variety of factors. China's government was aiming for a slight deceleration, as it tried to tame its real estate boom and rapid inflation.
Those measures have largely worked, with ongoing real estate regulations weakening property sales. Meanwhile, inflation recently fell to its lowest rate in two years.
But the timing of those efforts has coincided with turmoil in the global economy. Weaker demand from foreign customers, especially in Europe and the United States, has hit Chinese exports hard, and its manufacturing sector has slowed.
Overall, the economy is now slowing more quickly than initially hoped, and the ripple effect can be felt especially at large multi-national companies.
China is the United States' third largest customer for exports, after Canada and Mexico, and many American companies are relying on strong sales there to boost their bottom lines.
"American and European companies that have been seeing really poor performance at home, were coming to rely on China to be the growth engine for their company," said David Hartman, practice director at Blue Canyon Partners in Beijing. "They're worried now, what happens if that growth engine slows down?"
Advanced Micro Devices (AMD, Fortune 500), a chip maker based in Sunnyvale, Calif., lowered its sales outlook earlier this week, citing softer demand in China. So too did Cummins, an engine-maker based in Columbus, Ind.
Chinese steel manufacturer Baoshan Iron & Steel announced it will lower steel prices, implying demand from infrastructure projects is waning. Aluminum maker Alcoa (AA, Fortune 500) also cited "delayed infrastructure spending" in China in its latest earnings release.
Related: Meet China's middle class
While the construction and industrial boom has been slowing, Chinese consumers have not been feeling the slowdown as dramatically. Retail sales have been holding up strong -- a sign that government efforts to shift the economy toward more domestic demand may be working.
Income for urban households was up 9.7%, comparing the first half of 2012 to that same period last year. For rural households, income was up 12.4%, adjusted for inflation.
"On the street there is absolutely no visible slowdown at all," Hartman said. "The retail stores are still full. People are still shopping and buying things."
Stabilizing the economy is now China's top priority, Premier Wen Jiabao said this week.
"As a developing nation, China needs to maintain a certain level of economic growth so as to provide a foundation for economic and social development, as well as the improvement of people's livelihoods," Wen said, according to official news agency Xinhua.
As part of its stimulative efforts, the People's Bank of China cut interest rates twice since June and has also tried to spur growth by freeing up bank reserves.
Bank lending has started to pick up in China, and economists are hopeful that this will lead to stronger economic growth in the second half of the year. To top of page
Will the music stop for China's economy?
By Stan Grant, CNN
October 18, 2012 -- Updated 0724 GMT (1524 HKT)
China's explosive growth is slowing as economy expands at lowest level in three years
Growth is the source of legitimacy and authority for China's Communist Party
There is a growing prosperity divide as Beijing tries to move economy toward domestic consumption
Victor Chu: "The whole legitimacy of this one party rule depends on the ability to deliver"
Beijing (CNN) -- You can see them each night on street corners or public squares of Beijing, hundreds of Chinese couples ballroom dancing to music blaring from makeshift speakers.
Some have this down to a fine art, twirling and sweeping across the pavement. This is entertainment for the armies of migrant workers who have flocked to China's cities over the past 20 years on the promise of a better life.
For so many of them the dream has come true. China's breakneck economic growth -- inspired by former leader Deng Xiaoping's call "to get rich is glorious" -- has turned one time peasant farmers into factory hands, construction workers, sales people and shop assistants. Some have indeed become rich starting companies or riding the property boom.
For the Communist Party, the country's unelected supreme leaders, this is the source of their legitimacy and authority: keep the engines of growth turning, and the people busy and prosperous. It has worked, so far. But strains are appearing. The gap between rich and poor is widening and the economy itself is weakening. The growth figures for the latest quarter are at 7.4 %, the slowest in three years.
China's GDP growth slides to 7.4%
"It will take generation to get to remodel that growth formula. It is easier said than done, to make sure that people feel that they are safe to spend," says Victor Chu, chairman of First Eastern Investment Group.
Chu has faith in China's leaders -- they have more tools in their box than the rest of the world, he says.
Other big thinkers in the world of business agree. Faced with the potential of a "hard landing" of plummeting growth, many foresee a "soft landing" -- a controlled slowdown leading to more quality growth.
"The last 10 years developed a very good track record of economic management," says John Quelch, dean of the China Europe International Business School. "Obviously there are global challenges affecting the China growth path. China needs to rebalance towards domestic consumption, but I'm pretty confident that the quality of the management in Beijing, financially speaking, is very very good."
As the world's second biggest economy -- and many economists predict that one day, not far away, China is destined to overtake the United States at number one -- what happens here is now felt around the world.
It's become a hot button issue during the U.S election campaign. Candidates Mitt Romney and Barack Obama have used the presidential debates to try to "out-tough" each other on China. China is accused of not playing fair, keeping its currency low to gain an export advantage and taking American jobs. If elected, Governor Romney says he would declare China a "currency manipulator" on the first day of his presidency. President Obama says he's lodged successful cases against China at the World Trade Organization.
U.S. debate: Tough talk on China
China's Foreign Ministry has hit back, saying that U.S politicians need to treat China fairly and that trade should be a win-win.
Sir Martin Sorrell, CEO of advertising giant WPP, does a lot of business in China. He says the rest of the world can't blame Beijing for its ills.
"We have mismanaged our economy, not the Chinese," Sorrell says. "Look back in the history, we've been here before, early 19th Century, China and India were 40-50% of worldwide GNP. They are going be again ... the only question is when."
But economists point out China's leaders should be under no illusions about the task ahead.
The gap between rich and poor is widening, and poor Chinese complain that the opportunities are drying up. Then there are questions about social cohesion, the rule of law and human rights.
In many ways China's incoming rulers are in a race against time. Reform the economy before the people turn against the Party.
"The whole legitimacy of this one party rule depends on the ability to deliver. And in the last 30 years, hundreds of million have been brought above the poverty line. So going forward is going to be challenging, but the only way they can survive is to deliver," warns Victor Chu.
Tonight the ball room dancers will be back on the streets, but the question remains what will become of them if the music stops
Is China facing a Japanese future?
By Michael SchumanFeb.
So it’s official. China has become the second-largest economy in the world, overtaking Japan. Based on Japan’s 2010 GDP results, released on Monday, China’s economy is about 7% bigger. China’s ascension to No.2 (behind the U.S.) is yet another sign of the shifting fortunes of Asia’s two great economic powers, and yet another milestone in China’s march to superpower status. Japan was once the roaring tiger of Asia, but for the last 20 years, it has been trapped in an economic funk that has eaten away at its global influence. Now China, routinely defying gravity with 10%-plus growth rates, has replaced Japan as the premier symbol of a rising East.
What is more interesting, though, is the fact that China today is using similar policies and practices to climb up the charts of the world’s biggest economies that Japan employed during its go-go years. Both countries are “state capitalists,” which mix government control and free enterprise to produce rapid economic growth and industrial development. But as the case of Japan shows, that “state capitalist” system has as many flaws and dangers as benefits. The same system that drove Japan’s economic miracle ended up dooming the economy. Thus the big questions facing China are: Will Beijing’s version of state capitalism triumph where Japan’s has failed? Can China avoid Japan’s fate?
Japan was, in fact, the original Asian state capitalist. It started devising its state-led system back in the 19th century, and the model really hit its stride from the 1950s to the 1970s, when Japan produced China-style growth rates. Industrious bureaucrats determined how resources would get allocated in the economy by “picking winners” – selecting favored industries – then ensuring the banks funneled money to the preferred companies and projects. Though the government didn’t own many of the banks, it effectively controlled their lending practices. Large domestic savings was shoved into industrial investment. The system generated giant current account surpluses by promoting exports at the expense of domestic consumption, and Japan was accused of keeping the yen artificially cheap to keep its exports extra competitive. Not only did Japan’s state capitalism produce remarkably rapid growth, it also fostered new, globally competitive industries, such as steel and semiconductors. Back in the 1970s and 1980s, it was popular in the U.S. to believe that Japan had created a superior economic model to that of the West, better able to absorb shocks, preserve growth and jobs during downturns and promote future industries. Some experts advocated that the U.S. needed to copy Japanese methods in order to compete.
China is following the same pattern. China’s government directs lending through a state-owned banking system to “pillar” industries, including steel and automobile manufacturing. The bureaucrats help develop new industries, like green energy, though special financial support. China runs up huge surpluses by keeping its currency super cheap to promote exports. Chinese consumers tend to be savers, not spenders, and the economy grows through investment. And there is no shortage of pundits, businessmen and journalists who have become enraptured by China’s “state capitalism” in the same way they once were with Japan’s. While the U.S. and the euro zone struggle to maintain competitiveness and create employment, China is busily investing in the industries of the future and securing stores of natural resources around the world. The implied argument here is that the U.S. has to become more Chinese – to turn “state capitalist” and match China’s industrial policies in order to compete in the future – just as it once had to become more Japanese.
Yet the Asian state capitalist system also has inherent flaws – flaws that in the case of Japan proved to be its undoing. The way in which Japanese state capitalism worked was to lower the cost and risk of industrial investment, but that practice at the same time skewed the incentive structure within the Japanese economy, resulting in excess capacity. Bureaucratic meddling, combined with tight ties between government, business and banking, created a financial system that allocated funds based on government preferences or personal relationships. In other words, the economy didn’t operate on clear “rules” based on credit risk or corporate governance. Eventually, the Japanese state capitalist system collapsed into crisis. Policymakers desperate to maintain soaring growth rates kept money too cheap for too long and inflated a stock-and-property bubble in the late 1980s. After it burst, debt-heavy companies with too much capacity that had lived on the easy-credit gravy train became incapacitated. These “zombie” companies represented the excess investment and capacity that probably had no reason to exist in the first place. The financial sector was left a ruined wasteland.
Other countries that copied aspects of the Japanese system faced the same disasters. South Korea employed a very similar model to Japan’s beginning in the 1960s, with similar results – incredibly high growth and the emergence of globally competitive industries, like shipbuilding. But Korea’s policies created similar problems to those in Japan, and the entire system broke down in the 1997 Asian financial crisis. Bank lending influenced by government preferences and historical personal connections had created what could be called a “factory bubble,” in which firms invested in industrial capacity way out of line with reality. When the crisis hit, the corporate system collapsed under its debts. The most famous case was Daewoo, which built car factory after car factory for buyers that didn’t exist. It went under in 1999.
The bottom line here is that Asian state capitalism generated some strong years of growth, created jobs and eliminated poverty, but also planted the seeds of its future destruction. What happened is that the state so altered the rules within the economy that investment became disassociated from risk. State capitalism resulted in the misallocation of resources that eventually was corrected at great cost.
There is good reason to at least ask if China is getting itself into the same mess today. The state capitalist system in China is arguably creating the same debt-driven excess capacity that got Japan and Korea into trouble. The Chinese government itself complains that there is too much capacity in certain industries like steel. There are clearly close links between government, finance and business in China — many companies and banks are outright owned by the state, and state banks often lend to state companies. Easy money aimed at propping up growth is fueling a giant surge in property investment and prices. What’s happening? Loose money, directed lending and government support is twisting the incentives in the economy in ways that may be propelling the rapid advancement of industry, but also may be misallocating resources and inflating asset bubbles. In other words, China’s state capitalism is destroying the concept of risk just as it did in Japan and Korea.
Nego gde smo mi beše stali sa novostima, a da, ovde
Borg Says U.K. Exit From EU Would Be ‘Big Risk’ to Bank Funding
By Jonas Bergman - Jan 24, 2013 9:44 AM GMT+0100
Swedish Finance Minister Anders Borg said it would be a “big risk” for his country if the U.K. left the European Union because the Nordic nation’s banks and biggest companies rely on London for their funding.
“Swedish banks are refinancing in London and you can’t have one legal system for banking and one for industry,” Borg said today in an interview in the Swiss city of Davos with Bloomberg Television’s Francine Lacqua. “Our multinationals do most of their banking through London and for them to be competitive in the world market, and safe, it’s very difficult to have their banking business outside the EU and their main customers inside.”
Enlarge image Swedish Finance Minister Anders Borg
Swedish Finance Minister Anders Borg said, “Swedish banks are refinancing in London and you can’t have one legal system for banking and one for industry.” Photographer: Casper Hedberg/Bloomberg
U.K. Prime Minister David Cameron yesterday pledged a referendum by the end of 2017 on whether to leave the EU. Borg said last week that a U.K. exit from the union would threaten London’s status as a financial hub.
Borg, who is pushing through stricter capital requirements for Sweden’s biggest banks than those set elsewhere, said in November that the government may limit bank borrowing in foreign currencies by introducing a levy. About 90 percent of short-term funding for Sweden’s biggest banks is in foreign currencies, Mattias Persson, head of the financial stability department at the Riksbank, said on Nov. 27.
Borg said today his push for stricter capital requirements at home has boosted investor trust in Sweden’s banks.
“That gives us a sign we need to continue in this direction,” he said.
Sad teška srca moram da razočaram domestic stručnjake, glasanje vam nije uspelo, promašili ste opciju, predlažem da glasate ponovo!
Jimmy daj covece malkice krace postove treba coveku vremena bre da ovo sve procita.
Ček da razmislim... još razmišljam...još...još... mmm, ne, neće biti kraći!
Nego ove liste su malkice bezveze svugde u prvih sto po 10 britanskih univerziteta a 1-3 nemackih sto kad im se pogleda privreda nekako nije usaglaseno.
E, a znaš šta će Jimmy sad da ti kaže, to šta je tebi bezveze ljude boli bubregče!
SrBski intelektualac, ono izvinjavam se!
Nego sad sam se setio, ae nam postavi bilo koju drugu listu, po tvom izboru, pa da je vidimo, može?
Eto odlučio sam da ću ti dati tu privilegiju da nađeš neku prilagodniju listu!
Inače, i mojoj babi je televizor u boji bio bezveze, šteta što je već 4 decenije pod zemljom, pa ne može da te podrži u ovoj patriJotskoj borbi za pravdu!
DakleM, to smo revizirali, zagrcnuo si se, a ne možeš da progutaš bez mene!
Zanima me majstore da li su imigranti generalno obrazovaniji sloj stanovnistva,a to mi nisi odgovorio vec si se naspamovao
Fazon ti je neuspešan
Dođe vernik ateisti i kaže: ti si sektaš!
Ono, nema drugi odgovor, a mora nešto da kaže da bi prividno ispalo da je nešto shvatio!
Samo tebi nije uspelo ni to
A sad batice da vidiš kako Jimmy raskrinkava, oduvek sam bio najbolji, pa tako i sad; bio bih jako happy kad bi ti sad citirao to tvoje pitanje gde si spomenuo migrante (ono ja sam ih prvi spomenuo posle tvoje poruke), pa da nam pokažeš sam kako usled mog nadmoćnog uragana moraš da bežiš u druge, izmišljene događaje!
Nego, tek to kida
Za obrazovanje ti je odgovor ko da si citao zalopojke ovdasnjih politicara na odliv mozgova.
sa nekim pricama o pametnim glavicama koje kupuju karte u jednom pravcu a domovine im ostadose ucveljene jer ih ovi napustise.
Au batice, odakle ti to, pa to nisu "vaši-naši-naci", već naši drugari iz svih krajića našeg divnog i šarenog sveta
Realno i ja bi bio ucveljen da mi pametne glavice odu nakon što mi isprazne državnu kasicu prasicu i svoj intelekt i kapitalče iskoriste negde druge, pretpostavljaš gde
UK students switch to US universities
By Sean Coughlan BBC News education correspondent
Jason Parisi, Yale From Leighton Buzzard to Yale: Jason Parisi will have saved money by studying in the US
Within four years, a quarter of sixth formers at a leading UK independent school will be heading for universities in the United States.
That's the prediction of Anthony Seldon, head of Wellington College in Berkshire.
Dr Seldon, one of the UK's most prominent head teachers, says that ambitious teenagers are looking further afield than ever before in their university choices.
The lure of well-funded US universities, with more broad-based course options, is proving increasingly attractive to youngsters in the UK, he says.
At a recent talk with pupils, he said that about 40% claimed to want to go to US universities, with the expectation that many of these will actually go on to enrol.
This surge in academic wanderlust reflects the experience of the Fulbright Commission, which promotes educational links between the US and UK.
The level of interest is "rising sharply" this year, says commission director Lauren Welch.
They were taken aback when 4,000 students turned up for a US university recruitment fair in London last month - double previous years.
Anthony Seldon Anthony Seldon says that young people are looking at wider horizons for university
When admissions figures are known in the new year, she expects a spike in applications.
The most recent figures, from this autumn's intake, saw big increases in applications from students in the UK to universities such as Harvard, Yale and the University of Pennsylvania.
Students wanting to apply to US universities can take the SAT common entrance test in the UK - and the College Board which runs the test reported a 30% increase in such UK candidates.
The introduction of higher tuition fees at UK universities, up to £9,000 per year, is pushing students to think much harder about their options. It's also changing the balance of what is affordable.
Dr Seldon says that universities in the UK are going to have to take more care about what they're offering in terms of contact hours, subject options and pastoral care. The competition is now global.
He says that for the price of UK fees, students are being offered courses in Hong Kong, with change for the air fares home. There are also pupils looking at universities in Canada, Australia, China, South Africa and in continental Europe, he says.
Budget Harvard
The headline price of US universities can be dauntingly high - the top bracket are above $50,000 (£32,000) per year - but this is often offset by high levels of means-tested financial support.
Fulbright Commission: Southwestern University UK students Road trip, Southwestern University: UK students are drawn to the adventure of going to a US university
Harvard spokesman Jeff Neal says the university has seen growing numbers of students from the UK and that families with "low and middle incomes will likely pay no more to send their students to Harvard than to a UK university".
From next year, students at Harvard from families earning below $65,000 (£41,000) per year will not have to pay any tuition fees.
The most competitive US universities, hungry for the most talented students, recruit from around the world, with means-tested support available.
So what's it like to go from a school in England to an Ivy League institution?
Jason Parisi, from Leighton Buzzard in Bedfordshire, has started this term at Yale and talks enthusiastically about his experiences.
He says he was drawn by the quality of the course on offer, and the belief that the international experience would give him an advantage in the jobs market when he returned, marking him out from the rest of the graduates.
The idea of an international education - gaining a more global perspective - appealed to him and he says that the "insular culture" which sees UK students stay at home is beginning to change.
He is studying Mandarin, economics, English and physics. "There is nowhere in the UK where I could have had that combination. You can build your own education here," he says.
Wealthy colleges
Major US universities are extremely wealthy institutions - Yale's endowment rose to $19.4bn (£12.3bn) this year - and he says he was "very surprised by the amount of resources".
Yale and Harvard football game Yale versus Harvard: Will the competition be for the brightest UK students?
"Whatever you want to do, as long as you provide the motivation, you'll get the funding," he says.
Perhaps more surprising is that the four years in Yale won't cost him anything, as the financial aid package is covering all his fees and costs, including travel. It's support worth about $250,000 (£158,000).
It's not just the big beasts of US higher education which are finding themselves increasingly popular with UK students.
Norman Renshaw, managing director of InTuition Scholarships, says his firm has been "inundated" with inquiries this year about applications for US universities, increasing threefold on last year.
He connects would-be applicants with US universities offering academic and sports scholarships, representing about 100 institutions stretched between Michigan and Florida.
The typical cost for students, after scholarships, is about £6,500 to £8,000 per year, he says.
Global market
"Clearly tuition fees is the key driver, although I think the lack of availability of places at UK universities is also an underestimated factor," he says.
David Ravensbergen German universities teach in English with no tuition fees: Canadian David Ravensbergen studied in Berlin
There is a wider trend too, he suggests, related to anxiety about getting an advantage in the graduate jobs market.
"It's becoming an international market. We're no longer just competing with each other. Employers are looking for people who have an international awareness."
When ministers in London announced plans to encourage more competition in the university system, the expectation was that overseas institutions would set up in the UK. Instead it seems that students are heading in the opposite direction.
It's not just US universities who are recruiting. Continental European universities are offering courses taught in English, with low or no tuition fees. Dutch universities, such as Utrecht, are touring schools in London and inviting applications. Maastricht has said it would like to become part of the Ucas admissions system.
Highly-internationalised German universities are teaching courses in English to native English speakers, without charging such overseas students any tuition fees.
Perhaps what has been odd before is that so few students from the UK had applied abroad.
'Global skills' lacking
If numbers going to the US are now climbing upwards it's from a low base, because there has been remarkably little tradition of travelling abroad to study, particularly for state school pupils. For every 10 overseas students coming into the UK, only one UK student goes in the other direction.
Utrecht, Holland Utrecht calling: Dutch universities have been visiting UK schools this autumn on a recruiting drive
The most recent US figures showed 723,000 overseas students in its institutions, paying $21bn (£13.3bn) each year into the US economy.
Almost half of these places were taken by students from three countries: China, India and South Korea, the rising education superpowers. Only about 1% of overseas students in the US were from the UK, fewer in number than from countries such as Nepal, Turkey and Saudi Arabia.
A cluster of reports and organisations have warned against the dangers of such a stay-at-home tendency, when young people need to be able to navigate a globalised economy.
A report from the Association of Graduate Recruiters and the Council for Industry and Higher Education, published last week, said that UK students were "lagging behind" in the skills needed by employers in a global economy.
The report said major employers, operating across international borders, wanted competencies such as "global knowledge", "a global mindset" and "cultural agility".
The British Council's Richard Everitt also backed an increase in students moving between the UK and US.
"Increased mobility between students in both directions can only strengthen our current ties, and create mutual opportunities for greater prosperity," he said.
The 1994 Group of research universities in the UK last week warned that internationalisation had to be a priority for higher education, including creating more overseas campuses.
"Ensuring that UK universities have the support needed to thrive on the world stage is a key factor in driving growth, and should be at the heart of the government's economic strategy," said the group's chairman, Michael Farthing.
Among the most high-profile pioneers of such a global strategy has been John Sexton, president of New York University.
"Talent is found around the world and to ever greater degrees it flows around the world. That reality will radically re-shape US higher education in the years to come," he said.
Fueled by immigration, Asians are fastest-growing U.S. group
Surpassing the influx of Latinos, Asian Americans lead the general public in education and income, according to the Pew Research Center.
June 18, 2012|By Rebecca Trounson, Los Angeles Times
Asian Americans are now the nation's fastest-growing racial group, overtaking Latinos in recent years as the largest stream of new immigrants arriving annually in the United States.
In an economy that increasingly depends on highly skilled workers, Asian Americans are also the country's best educated and highest-income racial or ethnic group, according to a new report from the Pew Research Center.
In fact, U.S. Asians, who trace their roots to dozens of countries in the Far East, the Indian subcontinent and Southeast Asia, are arguably the most highly educated immigrant group in U.S. history, the study shows. And although there are significant differences among them by country of origin, on the whole they have found remarkable success in their new land.
"These aren't the poor, tired, huddled masses that Emma Lazarus described in that inscription on the Statue of Liberty," said Paul Taylor, the research center's executive vice president.
In fact, the Asian newcomers' achievements are likely to change the way many Americans think about immigrants, typically as strivers who work hard in the hope that their children and grandchildren will have easier lives and find greater success in this country, Taylor said.
For U.S. Asians, especially those who arrived in recent years, the first generation itself is doing well, outpacing Americans as a whole when it comes to education, household income and family wealth, according to the report released Tuesday.
Asian Americans also tend to be more satisfied than most Americans with their own lives, the survey found, and they hold more traditional views than the general public on the value of marriage, parenthood and hard work.
As a whole, Asian Americans are more likely than the general public to prefer a big government that provides more services. They also lean Democratic and a majority approves of President Obama's job performance.
Although the first large wave of Asian immigrants came to the U.S. in the early 19th century, the population grew slowly for more than a century, held down by severe restrictions and official prohibitions, some explicitly racist. Most Asian Americans now living in the U.S. arrived after 1965 legislation that allowed immigration from a wider range of countries.
Asian Americans now make up nearly 6%, or 18.2 million, of the U.S. population, the latest figures from theU.S. Census Bureaushow. Nearly three-quarters were born abroad, and about 8 million came to this country in the last 30 years.
Geographically, nearly half of all U.S. Asians live in the Western states. California, the traditional gateway for Asian immigrants, has by far the largest number, almost 6 million. Of the major Asian subgroups, in fact, only those from India are relatively evenly distributed throughout the country, with the largest share, 31%, living in the Northeast.
Asian immigration has grown rapidly in recent years, with nearly 3 million arriving since 2000. At the same time, Latino immigration, especially from Mexico, has slowed sharply, mainly because of the weakened U.S. economy and tougher border enforcement.
As a result, the number of newly arrived Asian immigrants has outpaced Latinos each year since 2009, according to Pew's analysis of census data. In 2010, for instance, 36% of new U.S. immigrants were Asian, compared with 31% who were Latino.
The most recent immigrants have arrived even as the economy has boomed in many Asian countries and the standard of living has risen. Taylor said the reason many Asians move to the U.S. include shifts in U.S. immigration policies, changes in their home countries and U.S. labor needs for science, engineering and math graduates.
The Pew study combines recent census and economic data with an extensive, nationally representative survey of 3,500 Asian Americans. The interviews, conducted from January to March, were done in English and seven Asian languages.
Chinese Americans are the largest Asian immigrant group, with more than 4 million who identified as Chinese, followed by Filipinos, Indians, Vietnamese, Korean and Japanese.
U.S. Asians as a whole are more satisfied than most Americans with their lives overall (82% compared to 75%), with their personal finances (51% compared to 35%) and with the general direction of the country (43% compared to 21%).
More than half of adult Asian Americans say that having a successful marriage is one of the most important things in life; 34% of all American adults agree. Asian Americans are more likely than American adults in general to be married (59% compared to 51%) and their newborns are less likely than U.S. infants as a whole to have an unmarried mother (16% compared to 41%).
Experts praised the study, saying that it was likely to change views of U.S. Asians for scholars and the public alike.
"This really opens up a conversation and sheds light on a community that is extremely heterogenous and very complex," said Tritia Toyota, a former Los Angeles television reporter who is now an adjunct professor of anthropology and Asian studies at UCLA.
Karthick Ramakrishnan, an associate professor of political science at UC Riverside, also noted that in terms of their education, recent Asian immigrants are an elite group. More than two-thirds of recent adult immigrants are either college students or college graduates, the study showed. So, he said, experts should be careful when comparing their characteristics with other Americans.
"This is a select group even in their own countries," he said.
Inače, svrati do neke gimnazije onako u prolazu, ja bio pre par meseci u jednoj vojvođanskoj, malo casha dati, hebiga, obaveza ugovorom, i uglavnom devojke/učenice sa torbicama USA, majčice, američki fazoni po holovima, ovo-ono.
Mladi prosperitetni ljudi hoće preko okeana i USA, pa to ti je!
Pitam se šta bi mi rekle da sam ih pitao "izvin'te drugari, gde ste kupile ovo divno, da niste kod Kineza?".
Baš sam pomislio dobro je da srBski dinosaurusi nisu upropastili ovu new age omladinu, ima nade dakle za Srbiju, kad Jimmy kaže, to je tako.
Doduše, to se odnosi na obrazovane naravno, Kina/Rusija/Vijetnam i te fore su uglavnom po onim ne znam kako ih zovete, nisu gimnazije ali njen pandem, uglavnom školicama gde se uči za stolara, čistača ulica i tako ta IN zanimanja.
I na kraju jel se setas po onim naseljima kraj puteva gde sve kuce imaju resetke a trokrilni crnci se seckaju i merkaju jel kome pukla guma.
Uglavnom se vozim.
Šetam se po Beverli Hilsu, dele nas dva (i po) naselja, pa se prošećkam sa ženčetom (ili provozam prostitukom) kad imam vremena!
Mada sad treba da kupim malo nekretninica po USA, verovatno ću svratiti do američkih "podavićemo se u vodu" drugara, pa ću ti javiti šta sam kupio!
E, sve je idila u našoj divnoj konverzaciji, još kad bi i u ostalim državama bilo likova koji mogu tako da kupe, kako bi nam naša planetica bila a happy place for happy people!
"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" said Greenspan on NBC's Meet the Press.
This is basically true, but it's also interesting that Greenspan in the past has expressed alarm about the ballooning size of the national debt.
So it would seem that the Greenspan view of the debt is: It's a big problem, but if the US needs an escape hatch, it can always reach up and hit the PRINT button, and take care of things.
But the printing press is not an escape hatch, or an emergency measure. It's actually the basis of how the US spends money.
Currency in circulation has done nothing but go up for basically ever.
And it's got nothing to do with The Fed or anything like that.
While the Fed Funds rate has gone lower over time, no period of "tightening" (reverse printing, if you think about it that way) has ever had an impact on the amount of money there is out there.
There's also no discernible correlation between the amount of currency out there, and the value of the dollar. For a long time, the value of the dollar rose alongside the amount of currency.
Finally, one more.
There's definitely no relationship between the amount of money out there, and the rate of inflation, which generally has trended lower since the early 80s.
So, the bottom line is, currency continues to go up without inflation, regardless of the Fed's activities, and basically independently of the value of the dollar.
In other words, we're always printing. It's not an escape hatch where we go into inflation overdrive to pay our debts. It's just what we do every day. And the market is fine with it.
The Greenspans and the S&P's seem to think that printing is an emergency measure. The market intuitively gets that it's not a big deal. That's why US yields don't spike when credit is downgraded. And it's why UK CDS (a country that prints money) are now lower than German CDS (a country that can't print money).
Where printing money is the foundation of the monetary system, markets don't freak out about the debt. Countries that are reliant on a third party to print money (like Italy hoping that the ECB will bail it out) do have problems.
Firing Up the Money Printing Presses
Robbing Main Street to help Wall Street.
While Americans were largely focused on the debacle that the Obama administration's Middle East foreign policy has become, Federal Reserve Chairman Ben Bernanke was quietly reinforcing the Obama administration's Keynesian-inspired economic policy that is every bit as dangerous. Last Thursday, the Fed announced it will pursue its third round of Quantitative Easing (QE3), and begin buying $40 billion of mortgage-backed securities every month -- ad infinitum. Simultaneously, the Federal Open Market Committee (FOMC) announced it would keep its federal funds interest rate near zero though at least mid-2015. Both moves are ostensibly aimed at improving an economy dangerously close to a double-dip recession, yet the political implications are far more transparent: the Fed is playing its part in attempting to get Barack Obama re-elected.
Both moves are indicative of one over-riding reality: the economy remains a shambles. And it remains that way despite earlier massive infusions of cash into the system, in the form of two previous QE packages (QE1 and QE2) totaling $2 trillion, the $700 billion TARP program, and the $865 billion stimulus package enacted in 2009. It remains that way despite near-zero interest rates, that haven't induced anyone to borrow money. That the Fed would re-visit such ideas, despite their previous failures is also indicative of another over-riding reality: the Fed is in an ideological strait-jacket of its own making, and even if that ideology keeps the nation on a path towards economic disaster, it will be pursued with dogged determination.
It is an ideology centered around the idea that stimulating the demand side of economy, by injecting massive amounts of cash into the system -- dollars the Fed creates out of thin air -- will result in lower interest rates and encourage Americans to start buying houses again, spur banks to lend money to businesses, and spur businesses themselves to borrow money for expansion leading to more jobs. In turn, such activity would then pull the economy out of it current malaise.
Yet Americans aren't borrowing money, or buying houses, banks aren't lending, and businesses aren't expanding or hiring new employees. The reasons for that are simple: this administration has produced a level of fear and uncertainty that doesn't allow for anything resembling responsible planning for the future. In short, the Obama administration remains a runaway freight train generating trillions of dollars of deficit spending in the public sector, even as it maintains contempt for the wealth-producers in the private sector who are critical to getting the nation back on its economic feet.
Politically speaking however, QE3 does stimulate a stock market addicted to such easy money policies. The stock market component is critical. It is the one bright spot on an otherwise dismal economic landscape, and when Bernanke announced his latest move, the Dow rose over 200 points, reaching its highest close since December 2007, the first month of the recession. Yet such brightness is illusory at best: while the value of the market goes up, the value of our currency goes down. This currency debasement is the principle reason Americans are paying far more for gas at the pump and food at the supermarket. In fact, gas prices have more than doubled since Obama became president, rising from $1.84 per gallon to $3.85 per gallon. And wholesale prices rose 1.7 percent in August as well, the most in three years.
Ironically, boosting Wall Street at the expense of Main Street is supposed to be completely anathema to the Obama administration's oft-stated determination to help the "little guy." Yet it is Wall Street that continues to party while ordinary Americans, especially those who have been financially responsible, are being squeezed on both sides of the fiscal equation. Rising prices are lowering Americans' buying power, and the Fed's zero interest rate policy is crushing peoples' ability to get a decent rate of return on what they have already saved.
The resultant message is as subtle as a sledgehammer: either invest in the Wall Street "casino," where economic fundamentals have become little more than quaint anachronisms, or remain on the outside looking in. In short, the Fed's twin policies represent the epitome of catering to both the fiscally irresponsible and the "one-percenters" (a redundancy in many cases), this administration ostensibly considers the root of America's economic problems.
Unfortunately, reality intrudes. A day after the Fed announced its new program -- the most frightening aspect of which is that it is open-ended, meaning the Fed will continue buying up mortgage-backed securities indefinitely -- it was revealed that industrial production in the U.S. "unexpectedly" fell in August by the most since March 2009. Another ratings firm, Egan-Jones, cut its credit rating of the federal government from AA to AA-minus, citing the debasement of the dollar that they contend increases the cost of commodities, thereby reducing business profitability and raising consumer costs, exactly as mentioned above. Weekly claims for unemployment benefits also rose "unexpectedly" last week, hitting 382,000 compared to a forecast of 370,000. "Initial claims and the four-week moving average are higher, as are revisions," said Joe Trevisani Chief Market Strategist for Worldwide Markets. "The negative implications of the rising claims numbers over the past two months were realized in the August payroll data. Expect another poor job report in September."
Expect worse than that. The New York Post's John Crudele explains the long-term consequences of the Fed's policy. "Bernanke would have us believe his policy of endlessly printing money saved us from another Depression. But what he really did was author the Never-Ending Recession, which could morph into something much more dangerous if our currency craps out," he writes. Yet it is Crudele's next observation that should frighten every thinking American. "(Thursday), Bernanke gave Wall Street what it wanted -- another round of 'quantitative easing,' which in layman's terms is the endless creation of more dollars that are used to buy securities nobody else wants." (Italic mine.)
It is one thing for a newspaper columnist to express the idea that the American dollar is being debased to the point where nobody else but the Federal Reserve wants it. It is quite another when the Treasury Secretary of the United States expresses the same idea. Yet if a recounting of last year's debt ceiling negotiations contained in author Bob Woodward's new book, "The Price of Politics," is accurate, that's exactly what happened. "Suppose we have an auction and no one shows up?" Geithner reportedly wondered out loud.
What indeed. The more the Fed is forced to print money to buy America's debt, the more devalued our currency becomes. Yet Bernanke clings to his Keynesian-based ideology in the hopes that this time -- as opposed to every other time -- it will work. "With their home prices rising, people will start to feel more confident about spending again, and companies will start increasing activity and hire more people," he said.
Some analysts weren't buying it. "We doubt it will be enough to get the economy on the right track," said economist Paul Ashworth at Capital Economics. "It's only a matter of time before speculation begins as to when the Fed will raise its purchases from $40 billion a month." In other words, Bernanke will be forced to print even more money, further debasing the currency, in what is becoming perhaps the most debilitating -- and potentially catastrophic -- vicious cycle in the history of world finance.
Fox Business Network senior correspondent Charles Gasparino explains the "why" behind Bernanke's thinking. Bernanke "thinks it's all worth the risk, considering the alternative: a nation falling back into severe recession because of a president with no clue about growing the economy, who thinks the best way to create jobs is to crush those who do the job-creating," he writes. He also notes what must eventually happen in the long run. "Bernanke is well aware of the consequences of printing money... And he knows that at some point he'll have to do just the opposite, and start contracting the money supply and raising short-term rates before full-fledged inflation kicks in. When he does, the 'wealth effect' of a rising stock market will evaporate, and so will the rest of the economy," he writes. As long as that evaporation happens after the election, Bernanke will have accomplished his mission.
Maddeningly, Bernanke knows what drives his furious attempts to "save" the economy: out-of-control government spending in a nation where a dauntingly large portion of Americans either don't know what's going on, or don't care -- as long as they get theirs. Moreover, as Mitt Romney rightly noted, when you attack success, as this administration and the Democrat party have done at every opportunity, you get less of it. When government spends trillions upon trillions of dollars of borrowed money, it saddles Americans of this generation and future generations with an unconscionable burden, while the rest of the world looks at us and wonders when it all reaches critical mass.
Furthermore, this latest round of easing demonstrates the philosophy of government-picked "winners" who remain insulated from both genuine competition, and the consequences of their gross malfeasance. Not a single major figure has been prosecuted for the financial crisis that began in 2008, nor was a single resignation demanded or tendered from the bankers or heads of financial institutions that received TARP funds.
Thus, QE3 proceeds. It is unlikely that it will improve the economy a much as the Federal Reserve may wish. And when that becomes apparent -- what then?
HOW TO SAVE EUROPE AND THE USA: PRINT MONEY LIKE THE ECONOMIC SUPERPOWER CHINA
China’s rise to economic superpower is largely due to the fact that it prints money without creating debt as explained by Vienna Economics University Professor Franz Hörmann in an interview in Der Standard newspaper called “Banks create money out of air.”
The Chinese government creates money without having to pay interest, and it also give loans to entrepreneurs without charging interest. As a result of using this money system, China has experienced phenomenal economic growth, rising standards of living and huge modernization programmes. Inflation can be easily controlled, as Hörmann explains, so that money creation need not mean a devaluation through inflation.
The USA and Europe could surely become economic superpowers just like China if they changed over to the same system of creating money. Right now, they are at a significant economic — and political — disadvantage.
The Chinese government has established a gigantic low wage sector – some might say, slave wage sector – to produce goods for export, so earning foreign currency.
With ist pockets full of this cash, China can now go on a buying spree to the USA and Europe, which are staggering under astronomical amounts of fractional-reserve banking and other debt. This wealth can also translate into political power.
How long until the USA and Europe change their money system and create money in the same way as China does?
German Economics Professor Bernd Senf explains why the western system of creatign money is inherently destructively and why we are all doomed by it to descend into ever greater debt – while China is set to soar.
When governments borrow money from private banks, they create a debt that can never be repaid by definition. This is because for every one unit of money created, one unit of money is owed, plus a unit of interest. But where is the money supposed to come from to pay that unit of interest? More money has to be created. The problem is that that this extra money also carries interest. The debt, therefore, always outpaces the money available.
Senf describes the exponential craziness of the money system, always growing to pay a debt that can never arithmetically be repaid.
When the USA switched over to this way of creating money in 1913 as the Federal Reserve was privatised, it resulted in the USA entering a cycle of booms and busts and wars because this way of managing the inherently instable debt system is extremely profitable for the banks.
On top of this, the private owners of the Federal Reserve use it as a cash cow for limitless funds while the government sinks into the debts of bailiouts, stimulus packages etc, which the people have to pay for in a confiscation of wealth.
While both the USA and Europe are handicapped by this catastrophic money system, Europe is currently having to deal with the added leg-iron of the euro currency.
The inherent problems with the eurozone have become so grave so fast that many people expect countries to have to adopt their own currency and form a free trade area to avoid major unrest.
Imbalances between the „core“ euro zone countries and the „peripheral“ countries such as Ireland, Italy and Greece, Portugal and Spain (PIIGS) were significant even before the euro was introduced. The result of the euro currency straitjacket has been to increase the imbalances because peripheral countries have become more uncompetitive.
Fractional reserve, paper banking debt due to the bursting of a liquidity bubble in the property market has been equated with souvereign debt, burdening tax payers. Fiscal austerity is leading not to a rebalancing of taxation and spending but to a deflationary depression. The IMF/EU loans and bailouts also have such high interest rates that they are driving countries into insolvency. The peripheral countries are sinking ever deeper into debt and there is no way out of this debt death cycle, creating massive social unrest.
The result is that the core countries are expected to shoulder the ever growing debt of ever more of their neighbours – or the euro has to break up. Germany evidently cannot shoulder the debt of the entire eurozone. And may not even be allowed to as its Constitutional Court will soon highly likely rule.
Without Germany paying all the debts, the euro has to break up; countries have to adopt their own currencies.
Either Germany introduces the Deutschmark or the peripheral countries leave the eurozone.
Only such a move can restore competitiveness to countries and stop Europe drowning in debt.
It clearly makes economic sense But politicians might be wondering how the people will take the news that a new currency is needed – or that the old one has to be reintroduced.
But people are used to changing over currencies.
What the people of Europe will surely never accept is seeing their jobs, education systems, pensions, savings, futures being eviscerated to pay interest on a mountain of paper debt because their politicians refuse to take the steps so evidently needed to „restructure“ this debt – ie force the banks to write it off – and also adopt their own currencies to restore competitiveness.
The logical result of the current eurozone system is that 400 million plus Europeans will be sacrificed for the profit of a handful of banks. And wasn’t this what hedge funder George Soros argued should in fact happen in a recent report in the Financial Times?
People can see this is where the trainwreck is heading and they are getting understandably furious.
If I were a politician, I would simply bite the bullet and take the steps needed to restore economic health. That is, allow countries to adopt their own currencies and restructure the debt.
Italians currently see 53% of their taxes going just to pay the interest on their national debt. This is wealth confiscation on a gigantic scale. There is no money, so says the Berlusconi government, for education. How can this continue?
By adopting the Lira, Italy and other PIIGS countries could more create jobs and generate tax revenues.
A sound economy will provide the basis for greater democracy, freedom and also peace in Europe.
The controlled corporate media may be suggesting that abandoning the euro is a catastrophe and un-European. But, of course, the people will not only accept this „correction“, they will expect it.
In Europe, there is a political tradition of democracy and good government that is 2,500 years old and that cultural tradition cannot be ignored. People just will not put up with seeing all their wealth confiscated by the banks.
If countries in Europe adopt their own currencies and intensify trade in 2011, there will be a rapid economic recovery.
In the long-term, Europe and the USA should, though, surely switch over to the Chinese method of printing money.
Just like China, they would experience an economic miracle.
This method of printing money would also allow the government flexibility to boost the areas such as culture, the arts, music, community projects as well as to ensure every person has sufficient money to live in dignity, especaly children and the elderly. So, there could be economic growth without an increase in industrial consumption.
Clearly, there is no need for a slave wage sector in Europe as long as Europe does not intend to create massive currency surpluses for use in waging economic warfare against neighbours who are drowning in debt because they failed to notice the problem with their money system. Europe could actually have the muscle to really help people in Africa and other countries, also by introducing this money system.
The current money system in the USA and Europe is not only economic suicide, it is not only totally undemocratic, it is also barbarically cruel to tens if not hundreds millions of people.
In the USA, there is an awareness that the Fed needs to be privatised – not just audited as Ron Paul says. It needs to be seized back by the government and a new money system has to be introduced such as China’s. However, John F Kennedy seems to have been assassinated to stop just that happening in the sixties and the battle for the Fed will be tough.
In Europe, politicians seem to be reluctant to abandon the euro because they identify it with Europe and peace – which the people do not.
Let’s hope 2011 be the year that European politicians throw aside the financial newspapers with their endless columns penned by professors funded by foundatios etc, and toss aside the bank lobby literature, and reconnect with their people and the real economy.
An effective communications strategy explaining the situation should be enough, especially including the Chinese model.
It could be the beginning of a new economic wonder and also a cultural revival.
) dakleM, za $$$.
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