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From the G7, to the G8, to the G20

On October 25, 2010, in Asia, Europe, by Tim

A recent Bloomberg Chart of the the Day goes a long way in explaining why the G7 and G8 are now all but irrelevant and how recent concessions by both the G20 and the IMF aimed at giving a bigger voice to emerging market countries are long overdue.

Recall that, back in 1999, Russia was added to the G7 – the U.S., Japan, Germany, the U.K., France, Italy and Canada – to become the G8, but, for whatever reason, there was no further expansion to include China, as might be expected given the slope of the red curve above.

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China’s Impressive Economic Data

On October 21, 2010, in Asia, by Tim

You never quite know what to believe from the Chinese government when they report their economic data, but according to this story at xinhuanet, they seem to be having some success in dialing back on growth while keeping things humming.

China’s economy slows to 9.6 pct in Q3, inflation picks up

China’s GDP grew 9.6 percent in the third quarter from the same period last year, the National Bureau of Statistics said on Thursday. The growth rate slowed down from 11.9 percent in the first quarter and the 10.3 percent in the second quarter. Full story

China’s September CPI up 3.6%, a 23-month high

The consumer price index (CPI), China’s main gauge of inflation, rose by a 23-month high of 3.6 percent in September from one year earlier, the National Bureau of Statistics (NBS) said Thursday. The growth rate was 0.1 percentage point higher compared with that in August, NBS spokesman Sheng Laiyun said here at a press conference. Full story

China’s retail sales of consumer goods up 18.3% in Jan-Sept

China’s retail sales of consumer goods rose 18.3 percent in the first three quarters year on year, the National Bureau of Statistics (NBS) said Thursday. The retail sales of consumer goods in the January-September period totaled 11.1 billion yuan, NBS spokesman Sheng Laiyun said at a press conference. Full story

China’s fixed asset investment up 24% in first nine months

China’s fixed asset investment rose 24 percent in the first nine months year on year to 19.22 trillion yuan (2.89 trillion U.S. dollars), China’s statistics authority said Thursday. Urban fixed asset investment rose by 24.5 percent from a year earlier to 16.59 trillion yuan while rural investment increased by 20.5 percent to 2.64 trillion yuan, according to the National Bureau of Statistics (NBS). Full story

Chinese rural, urban residents’ incomes rise steadily for Q3

The income of China’s urban and rural residents continued to increase in the first nine months of this year, the National Bureau of Statistics (NBS) said here Thursday. In the first three quarters of the year, per-capita disposable income for urban dwellers reached 14,334 yuan (2,139.4 U.S. dollars), up 10.5 percent year on year. After deducting inflation, the actual growth was 7.5 percent, said NBS spokesperson Sheng Laiyun. Full story

Growth slowing to 9.6 percent is something that U.S. policymakers can only dream about. The last time we had anything close to that was a growth rate of 8.0 percent in the second quarter of 2000, just as the stock market bubble was bursting.

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The US, China, Currencies, and the G20

On October 20, 2010, in Asia, Currencies, by Tim

The upcoming G20 meeting could be a bit more intriguing than usual (though, that wouldn’t be saying much) as it seems to have eclipsed the IMF gatherings and those of the G8 in importance for reasons that should be obvious – the developing world is playing a much bigger role in this economic “recovery” and would very much like to be heard.

Of course, many think that, instead of increasing the number after the “G”, it should be reduced – to two – as talks between just the U.S. and China might be more productive in curing some of the many global imbalances we see today. As evidenced by China’s rate hike announcement and Treasury Secretary Tim Geithner’s pledge not to devalue the dollar earlier in the week, positions are being staked out as detailed in this report at Reuters:

The United States wants the Group of 20 countries to reduce global economic imbalances by committing to curb trade surpluses or deficits and by letting currencies rise more freely, a senior U.S. official said on Wednesday.

Ahead of weekend meetings of G20 finance ministers in Gyeongju, South Korea, the Treasury Department official made clear Washington wants currency values to be a focal point and sees current account levels as a vital part of the discussion.

China wasn’t mentioned by name but Beijing’s practice of managing the value of its yuan has angered the United States, which argues the currency’s low value is fostering global currency tensions.

“When large economies with undervalued exchange rates act to keep their currencies from appreciating, that compels other countries to do the same, setting off a dynamic of competitive nonappreciation,” the official said at a news briefing.

China in turn has argued U.S. policies are the root of strained currency relationships.

While it seems that they’ve been having this same debate for years, there is good reason for that – they have. Those looking for anything substantive from this gathering would be well advised to lower their expectations.

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The Big Mac Index Says…

On October 18, 2010, in Currencies, by Tim

For what it’s worth (and many people think not much), an update to The Economist’s Big Mac Index shows the latest relative purchasing power of the world’s major currencies.

There’s a bit more in this related story, but you have to wonder if, for example, U.S. Treasury Secretary Tim Geithner might slip a copy of this chart to his Chinese counterpart at the upcoming G20 meeting or, if the Swiss will get some pity from other attendees.

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Consumer Credit Expands Around the World

On October 14, 2010, in Asia, Banks, Our Culture, by Tim

I’ve long argued that, once people in emerging market countries realize how much fun it is to buy stuff they don’t need with money they don’t have, there will be a multi-decade long economic boom the likes of which the world hasn’t seen since the U.S. set out on its orgy of credit expansion in the 1980s. According to this report at the Wall Street Jounal Real Time Economics blog, that process may have already begun.

In 2009, the year the global recession hit bottom, the aggregate credit-card balances of Chinese consumers rose 17.1% even as those of U.S. consumers fell 8.7%, according to a study by financial consultancy Lafferty Group. Brazilians increased their balances by 28.9%, part of a 9.2% rise throughout Latin America.

Now, don’t get too excited about the numbers highlighted above as this is likely a classic case of how percentage changes can be very misleading. The Chinese are undoubtedly coming up from a low base and we’ve got nowhere else to go but down. Per this item at CreditCards.com, average U.S. credit card debt is currently over $8,000 per person (and heading down) while I’m guessing that it’s still close to zero in China.

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Currency Wars!

On October 11, 2010, in Currencies, by Tim

You’ve got to hand it to Ambrose Evans-Pritchard who, in this piece at the Telegraph, neatly summarizes the growing problem with establishing proper relative value for the world’s paper money and details how “currency wars” are now escalating, though he does seem to be too easily seduced by the idea that a lack of aggregate demand is the proximate cause of our collective current problems, a point that is made clear in the very first paragraph.

The overwhelming fact of the global currency system is that America needs a much weaker dollar to bring its economy back into kilter and avoid slow ruin, yet the rest of the world cannot easily handle the consequences of such a wrenching adjustment. There is not enough demand to go around.

Asian investment in plant has run ahead of Western ability to consume. The debt-strapped households of Middle America, or Britain and Spain, can no longer hold up the dysfunctional edifice. Asians must take over, or it will come down on their own heads.

The countries actively intervening in exchange markets to suppress their currencies – China, Japan, Korea, Thailand, even Switzerland, to name a few – are all too often the same ones that have the biggest trade surpluses with the US.

They are also the countries that know all too well what happened to Japan when the 1985 Plaza Accord led to the yen rising sharply in the years that followed, subsequently leading to all sorts of asset bubbles and lost decades from which they are still trying to recover.

(more…)

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