This snappy clip from the Mint.com blog (tip of the hat to Nathan's Economic Edge) examines official U.S. unemployment criteria and argues that the real jobless rate is not 10% but 17%.
As governments on both sides of the Atlantic continue to flounder, perhaps we can expect more misleading information and carefully-biased definitions. The inflation rate looks like another good candidate for this kind of treatment.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Sunday, December 06, 2009
Saturday, December 05, 2009
Britain faces stagflation, says Walayat
Sheffield-based market analyst Nadeem Walayat argues that Britain's debt burden will continue to increase, accompanied by inflation as the government prints more money and the pound weakens against other currencies. Interest rates will have to rise to attract further lending to the UK, and the result will be economic stagnation.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Friday, December 04, 2009
China takes the long view
From Pension Pulse:
Keith thinks that all this talk of excess capacity in China is missing the bigger picture. He told me that China is planning and preparing for the future so they have every reason to over-invest now and build up their infrastructure aand stockpile the resources. It makes sense when you think about it; they saw all the mistakes the Western world made and decided its best to be better prepared for the future.
There are still problems in China, most notably the disparities between the rural and urban population, but they're making leaps and bounds in almost every area, including clean energy where China is securing first mover advantage in the market for renewable energy.
Keith thinks that all this talk of excess capacity in China is missing the bigger picture. He told me that China is planning and preparing for the future so they have every reason to over-invest now and build up their infrastructure aand stockpile the resources. It makes sense when you think about it; they saw all the mistakes the Western world made and decided its best to be better prepared for the future.
There are still problems in China, most notably the disparities between the rural and urban population, but they're making leaps and bounds in almost every area, including clean energy where China is securing first mover advantage in the market for renewable energy.
Thursday, December 03, 2009
Could Japan inadvertently start a run on America's credit?
Florida-based professional investor Karl Denninger comments on a rumour that Japan is considering selling U.S. government bonds ("Treasuries"). He reflects that such a move could begin a run on U.S. Treasuries, and the largest holder by far is China, who some think may have up to $1 trillion of U.S. debt.
A selloff would put pressure on the U.S. to raise interest rates, and this could have a domino effect in other countries. Higher interest rates make businesses' finance tougher, as well as hitting their customers' disposable income and therefore reducing demand for goods and services. So a crisis of faith in America's ability to repay its debts, and to maintain the exchange value of the dollar, could plunge the world economy back into recession. The investment outlook in this scenario would not be positive.
Denninger is a long-standing Cassandra on the U.S. economy, but he has a fairly sizeable following in the American personal investment community and despite his tendency to express himself in stark terms, his views and information should not be lightly dismissed.
A further reason to take him seriously is what has been happening between China and its U.S. debtors. It's been said some time ago, that China has been selling the debt of U.S. States and corporations in favour of U.S. Treasuries, because the latter are fully backed by the American Government. In retrospect, this seems to have been a very prudent move, since a number of U.S. States are now having significant difficulty in balancing their budgets, owing to a shrinking tax income and rising bills for unemployment benefit. It's understood that China has also been selling longer-term Treasuries to buy shorter-dated ones, because the latter offer an earlier exit should America's credit rating and currency weaken. So the notion that China might suddenly need or want to sell off Treasuries, is not entirely implausible.
On the other hand, America is China's best customer and if the dollar fell sharply or consumer spending reduced even more severely than it has already done, this would hit Chinese exports and increase unemployment in China, which is already a significant problem. It is in both parties' interests to manage the situation. The wider picture, many believe, is a long economic decline in the West as the East develops markets closer to its home, but at this stage everyone will prefer an ebbing tide to a tsunami in reverse.
Perhaps we should instead expect a slowing in the rate at which U.S. debt to China is increasing; and maybe an increasing reluctance on the part of the Chinese to purchase new Treasuries when the old ones mature.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
A selloff would put pressure on the U.S. to raise interest rates, and this could have a domino effect in other countries. Higher interest rates make businesses' finance tougher, as well as hitting their customers' disposable income and therefore reducing demand for goods and services. So a crisis of faith in America's ability to repay its debts, and to maintain the exchange value of the dollar, could plunge the world economy back into recession. The investment outlook in this scenario would not be positive.
Denninger is a long-standing Cassandra on the U.S. economy, but he has a fairly sizeable following in the American personal investment community and despite his tendency to express himself in stark terms, his views and information should not be lightly dismissed.
A further reason to take him seriously is what has been happening between China and its U.S. debtors. It's been said some time ago, that China has been selling the debt of U.S. States and corporations in favour of U.S. Treasuries, because the latter are fully backed by the American Government. In retrospect, this seems to have been a very prudent move, since a number of U.S. States are now having significant difficulty in balancing their budgets, owing to a shrinking tax income and rising bills for unemployment benefit. It's understood that China has also been selling longer-term Treasuries to buy shorter-dated ones, because the latter offer an earlier exit should America's credit rating and currency weaken. So the notion that China might suddenly need or want to sell off Treasuries, is not entirely implausible.
On the other hand, America is China's best customer and if the dollar fell sharply or consumer spending reduced even more severely than it has already done, this would hit Chinese exports and increase unemployment in China, which is already a significant problem. It is in both parties' interests to manage the situation. The wider picture, many believe, is a long economic decline in the West as the East develops markets closer to its home, but at this stage everyone will prefer an ebbing tide to a tsunami in reverse.
Perhaps we should instead expect a slowing in the rate at which U.S. debt to China is increasing; and maybe an increasing reluctance on the part of the Chinese to purchase new Treasuries when the old ones mature.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Tuesday, December 01, 2009
India: reasons to be cheerful?
A briefing from SimplyBiz (the IFA support company) gives reasons why India may be an economy worth watching in years to come.
The demographics are in favour (half are under 25), the system is entrepreneurial and there is a large class of well-educated people.
The country has not yet adequately developed the infrastructure to support a booming industrial economy, but the government intends to spend $500 billion in the next five years to remedy this - and half a trillion dollars buys a lot more in India.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
The demographics are in favour (half are under 25), the system is entrepreneurial and there is a large class of well-educated people.
The country has not yet adequately developed the infrastructure to support a booming industrial economy, but the government intends to spend $500 billion in the next five years to remedy this - and half a trillion dollars buys a lot more in India.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Is inflation on the way?
According to one commentator I follow, Japan has been pumping extra money into its system, seemingly with a view to making its currency weaker, which would make its exports cheaper and so stimulate extra demand.
If that was the plan, the first part of it seems to have worked, except in weakening the Yen vs the US dollar. The dollar went lower on world currency exchanges and Mr Pollock's reading is that the markets have started to wonder whether America will seek to do the same as Japan.
Pollock compares this situation to the beggar-thy-neighbour system between the two World Wars, when countries imposed tariffs on each other's exports to protect their own industries. Devaluing currencies was not so easy when they were backed by gold; now, nations can more easily expand their money supply to create inflation.
If other countries follow suit*, then the relationship of money to real things will alter and people will look to get rid of cash and buy things that will hold their value. Perhaps this is one of the factors behind the rise in the price of gold, but there's lots of other ways we could invest our money. Few are guaranteed to counter inflation, except products like National Savings Index-Linked Certificates; and even there we have the question of how the Government calculates the rate of inflation.
It is unsettling for the ordinary saver. Just when it seemed that "cash is king" and the prudent, frugal person was going to be rewarded by seeing prices drop (look at houses, cars, cruises, TVs and computers etc), the value of his/her money may be hit by inflation once again.
UPDATE (1st December):
* North Korea has just done something far worse. It has replaced the old currency with a new one, but only allowing a certain amount of the old to be changed into the new - effectively, a robbery of the larger saver.
UPDATE (4th December):
Koreans burning old money in protest, Korean government easing restrictions on converting currency (BBC) - (hat-tip to Credit Writedowns)
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
If that was the plan, the first part of it seems to have worked, except in weakening the Yen vs the US dollar. The dollar went lower on world currency exchanges and Mr Pollock's reading is that the markets have started to wonder whether America will seek to do the same as Japan.
Pollock compares this situation to the beggar-thy-neighbour system between the two World Wars, when countries imposed tariffs on each other's exports to protect their own industries. Devaluing currencies was not so easy when they were backed by gold; now, nations can more easily expand their money supply to create inflation.
If other countries follow suit*, then the relationship of money to real things will alter and people will look to get rid of cash and buy things that will hold their value. Perhaps this is one of the factors behind the rise in the price of gold, but there's lots of other ways we could invest our money. Few are guaranteed to counter inflation, except products like National Savings Index-Linked Certificates; and even there we have the question of how the Government calculates the rate of inflation.
It is unsettling for the ordinary saver. Just when it seemed that "cash is king" and the prudent, frugal person was going to be rewarded by seeing prices drop (look at houses, cars, cruises, TVs and computers etc), the value of his/her money may be hit by inflation once again.
UPDATE (1st December):
* North Korea has just done something far worse. It has replaced the old currency with a new one, but only allowing a certain amount of the old to be changed into the new - effectively, a robbery of the larger saver.
UPDATE (4th December):
Koreans burning old money in protest, Korean government easing restrictions on converting currency (BBC) - (hat-tip to Credit Writedowns)
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
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