Sunday, February 16, 2014

China's Growth Story: Running on Vapor (Musical Tribute)

The following chart shows the US trade deficit with China divided by the price of crude oil (annualized billions of barrels).


Click to enlarge.

It shows the amount of oil China could buy if they were to use their entire trade surplus with us to do so. That's assuming the price of oil would not be driven even higher in response to increased purchases of course, which is no doubt a bad assumption.

The next chart plots the natural log so that constant exponential growth can be seen as a straight line.


Click to enlarge.

China "sent" us ever increasing amounts of stuff that we want, yet we do not seem to be returning the favor by sending them ever increasing amounts of the stuff that they want (barrels of oil). Note that I used "sent" instead of "sends." The next chart explains why. It shows the annual growth rate of imports from China.


Click to enlarge.

As seen in the chart, the nominal growth rate is just about dead now. The growth rate in the middle of the channel is roughly 0%, which oddly enough is what the Fed feels short-term interest rates should be over an "extended period."

ZIRP-a-Dee-Doo-Dah


For what it is worth, I am not even remotely bullish on China (nor have I been since starting this blog in 2007). I also don't believe that I will ever feel the need to bribe a border guard to let me on the last plane to China. You know, as a desperate attempt to protect my future standard of living and freedoms (Patriot Act notwithstanding). Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2
St. Louis Fed: Custom Chart #3

3 comments:

Troy said...

I don't know anything, but I'm 'bullish' on China.

2020 Population pyramid of China

Shows China is entering a demographic pressure point now but in 10 years this will pass.

Now, India -- India is (bad word)-ed demographically.

US population pyramid, 2015

is a different story. We've got a buncha boomers who want their first-class, unpaid for standard of living preserved, and this has to be shouldered by Gens X and Y, while Gen Y has to also pay for a rising number of kiddies.

MMT is in our future, it's the only way to square this circle, given that the electorate took tax rises (on them) off the table in 1994.

China's come from such a bad spot that US-style poverty is almost the good life there.

I don't think they have the unabashed rent-seeking problem we have, in health care or housing, though of course their housing sector is very bubbly due to tulip mania dynamics and savers looking for inflation hedges.

hmm, CPI in China is tamer than I thought:

http://research.stlouisfed.org/fred2/graph/?g=saO

http://www.financialsense.com/contributors/leslie-cuadra/2011/08/31/list-of-worlds-largest-creditor-and-debtor-nations

is the beginning and end of economic wisdom as far as I am concerned. China has 3 entries in the top 10, adding up to Japan's NIIP.

I don't know how, if, or when this unwinds, but I'd rather be in Chinese shoes than US.

Well, I probably already am, but . . .

One the whole, I suspect China will continue to be adjusting upwards, and the US will continue to be adjusting downwards. This is their century to lose.

Troy said...

"Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government's deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government's activities per se."

http://research.stlouisfed.org/fred2/graph/?g=saR

Our baby boom is aged 50 to 68 this year. Expenditures on them are going to skyrocket this decade and next. Taxes on Gen Y are not.

Devaluation i.e. printing is baked into the cake.

http://research.stlouisfed.org/fred2/series/EXCHUS

shows the end of the weak-yuan regime has come already, and it will probably go to 4 soon enough.

This doesn't make their existing hoard of dollars more valuable, but it does make their currency more competitive as an alternative to holding USD for their trade partners.

Stagflationary Mark said...

Troy,

I don't know anything, but I'm 'bullish' on China.

I am clearly not but differences of opinions are what makes markets.

What does China's population do for work when all factories are fully automated? More than a billion people in an area roughly the size of the United States? That's got pain written all over it if/when the @#$% hits the fan in earnest.

Their stock market is performing horribly. Something's amiss in the bullish camp.

December 13, 2013
Why it's time to get short: Jim Chanos

Elsewhere in the market, the prominent short-seller said China is in a lot of trouble.

Although I have never shorted stocks (nor would I), I am in the Chanos camp. I would not invest in China.

Just opinions of course.