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World edges closer to deflationary slump as money contracts in China
The Telegraph ^ | 5/13/2012 | Ambrose Evans-Pritchard

Posted on 05/14/2012 12:41:11 AM PDT by bruinbirdman

All key indicators of China's money supply are flashing warning signs. The broader measures have slumped to stagnation levels not seen since the late 1990s.


Chinese ghost city

Narrow M1 data for April is the weakest since modern records began. Real M1 deposits – a leading indicator of economic growth six months or so ahead – have contracted since November.

They are shrinking faster that at any time during the 2008-2009 crisis, and faster than in Spain right now, according to Simon Ward at Henderson Global Investors.

If China were a normal country, it would be hurtling into a brick wall. A "hard-landing" later this year would already be baked into the pie.

Whether this hybrid system of market Leninism – with banks run by Party bosses – conforms to Western monetary theory is a hotly contested point. The issue will be settled one way or the other soon.

What seems clear is that China's economy did not bottom out as expected in the first quarter. It is flirting with real trouble. Yao Wei from Societe Generale says a blizzard of awful data "screams out for easing".

China's electricity output – watched religiously by bears – slumped in April. It is up just 0.7pc over the last year. State investment in railways has fallen 44pc, with an accelerating downward lurch over recent months. Highway construction has dropped 2.7pc. "The data shows extreme weakness in the Chinese economy," said Alistair Thornton from IHS Global Insight in Beijing.

The Yangtze shipyards tell the tale. Caixin magazine said eight of the 10 largest builders in the country have not received a single new order this year. "A wave of closures in the shipbuilding industry has yet to begin. A hurricane is approaching," said one official.

Housing sales slumped

(Excerpt) Read more at telegraph.co.uk ...


TOPICS: Business/Economy; Crime/Corruption; Foreign Affairs; News/Current Events
KEYWORDS:

1 posted on 05/14/2012 12:41:23 AM PDT by bruinbirdman
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To: bruinbirdman

I’ve read quotes from Chinese officials and generals stating much to the effect that if some economic crash came to China, they would direct the frustrations and energies of their people “into a fist, striking outward.”


2 posted on 05/14/2012 12:50:57 AM PDT by RaisingCain
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To: bruinbirdman

Close, but not quite accurate.

We’ll see hyperinflation re necessities (obama is already causing this re energy, and entirely on purpose), but deflation of all non-necessities. Since non-necessities make up the majority of the world’s economies, this will mean few people will be able to afford necessities.

This is a recipe for utter disaster, and it’s almost too late to change paths...


3 posted on 05/14/2012 12:58:58 AM PDT by piytar (The predator-class is furious that their prey are shooting back.)
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To: RaisingCain
Can we point them at the Middle East and let them go medieval? Maybe provide air cover, too?
4 posted on 05/14/2012 1:01:53 AM PDT by piytar (The predator-class is furious that their prey are shooting back.)
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To: bruinbirdman

The article overlooks a fundamental difference between China and other countries, that being the savings rates of its citizens. Traditionally the Chinese save 50 percent of their income or more.

Chinese are also far more used to doing without. Pent up consumerism certainly was unleashed in the last 15 years so they have gotten more comfortable but the Chinese are still far more adept at doing without and making do.

This article mentions Chinese rail construction has slowed. But that construction has put in a national system of bullet trains in just 10 years. It is as if the writer thinks that pace should go on forever.

Certainly China’s bankers have been pressured to make loans they would not otherwise prudently make. Perhaps that is going to cause a crash.

If that is the point then fine. But I can’t help think that if China is bad off for that, then what does it say about the U.S. The U.S. financial position seems far, far worse.


5 posted on 05/14/2012 1:11:30 AM PDT by gunsequalfreedom (Conservative is not a label of convenience. It is a guide to your actions.)
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To: piytar

“We’ll see hyperinflation re necessities (obama is already causing this re energy, and entirely on purpose), but deflation of all non-necessities. Since non-necessities make up the majority of the world’s economies, this will mean few people will be able to afford necessities.”


Sounds like freakin revelation! “and see thou hurt not the oil and the wine!” if memory serves, regarding the horse representing famine.


6 posted on 05/14/2012 1:35:43 AM PDT by RaisingCain
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To: piytar

Deflation looks like it is in the cards. China is the clincher.

I knew something was up when gold dealers on TV started advertizing selling at dealer cost with little or no commission. That told me that the smart money was selling their hoard or at least a lot of it.

I know the story about hyperinflation replacing deflation but when? You better have some cash on the side in the meantime.

Maybe Helicopter Ben will given every home owner 100K in cash if the fhit hits the san this time. Maybe that will help get it going.


7 posted on 05/14/2012 2:09:03 AM PDT by Uncle Lonny
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To: RaisingCain
“I’ve read quotes from Chinese officials and generals stating much to the effect that if some economic crash came to China, they would direct the frustrations and energies of their people “into a fist, striking outward.”

I think it is inevitable that their economy is going to slow, for a variety of reasons, including the fact that more and more people are starting to avoid the purchase of made in China goods. The ‘fist striking outward’ approach will just hurt them more as it will breed a consumer backlash.

8 posted on 05/14/2012 2:26:57 AM PDT by pieceofthepuzzle
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To: bruinbirdman

I’ve heard convincing arguments that the core of the problem lies with the repeal of the Glass–Steagall Act around 1999. Only 8 years later, we had our inevitable crisis.


9 posted on 05/14/2012 3:00:16 AM PDT by Lazamataz (To the wall, street occupiers!!!!!)
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To: Uncle Lonny

All the smart money was in deflation, and is still in deflation. Why do you think Bernanke panicked back in 2009? It was because prices were going down not up, to reflect lowered demand, and that was going to crush Bernanke’s debt positions.


10 posted on 05/14/2012 3:01:44 AM PDT by JCBreckenridge
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To: bruinbirdman

At some point the thing about missing 70,000,000 women has to start to create gigantic grief.


11 posted on 05/14/2012 3:03:36 AM PDT by varmintman
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To: Uncle Lonny
Helicopter Ben...

Dropping money out of a helicopter won't fix anything, you have to create money and then spend it INTELLIGENTLY AND PRODUCTIVELY. It's those last two items which are tricky. Also it's best if governments at some level can simply create money rather than borrow it into existence as our government does. At least if a government creates money out of thin air itself we're not sitting here paying interest on it to banks which create it out of thin air.....

12 posted on 05/14/2012 3:14:47 AM PDT by varmintman
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To: bruinbirdman

See, all those who have insisted the debt was going to result in hyperinflation have been hard pressed to explain why prices have just not been going up much, or fast. Well, if China is experiencing heavy deflation, it would more than offset inflationary tendencies here.


13 posted on 05/14/2012 3:19:54 AM PDT by LS ("Castles Made of Sand, Fall in the Sea . . . Eventually (Hendrix))
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To: bruinbirdman

Remember this? Seems growing the economy can’t be done by Stimulus, in the long term. China also had no debt like the USA does.

Chinese economic stimulus program
http://en.wikipedia.org/wiki/Chinese_economic_stimulus_program
he 2008–2009 Chinese economic stimulus plan is a RMB¥ 4 trillion (US$ 586 billion) stimulus package announced by the Central People’s Government of the People’s Republic of China on 9 November 2008 as an attempt to minimize the impact of the global financial crisis on the world’s second largest economy.


14 posted on 05/14/2012 3:23:51 AM PDT by Son House (The Economic Boom Heard Around The World => TEA Party 2012)
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To: varmintman

I’ve been saying similar for a few years. I bet at some point many of the excess males end up in Africa.


15 posted on 05/14/2012 3:28:23 AM PDT by FreedomPoster (Islam delenda est)
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To: JCBreckenridge; LS; Lazamataz

You get inflation from the destruction of the means of production/service of an economy.

Why did Zimbabwe get hyperinflation? They took over their farms and gave the farms to non-farmers.

OK, why do you get deflation? In a credit-based economy, you get deflation when credit availability is destroyed.

Thus, if printing more cash destroys more credit availability, then you get deflation.

Deflation is an economic reaction to a slowing speed of money. Lower prices encourage spending sooner.

On Sale Now, Sale Ends in 24 hours!


16 posted on 05/14/2012 3:31:37 AM PDT by Southack (Media Bias means that Castro won't be punished for Cuban war crimes against Black Angolans in Africa)
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To: Southack
I always love your perspective, bro.

You seen some of the editorial work I've been up to?

BTW: I'm SO different than when you knew me.....

17 posted on 05/14/2012 3:35:07 AM PDT by Lazamataz (To the wall, street occupiers!!!!!)
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To: Southack

The point is, in an integrated worldwide economy, the velocity of money in major countries (I don’t think Zim really counts here) is closely tied to ALL business expectations, not just those of the US or Europe. A Chinese contraction would cause velocity everywhere to slow.


18 posted on 05/14/2012 3:39:51 AM PDT by LS ("Castles Made of Sand, Fall in the Sea . . . Eventually (Hendrix))
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To: Southack

Falling prices over time reward delayed purchases, creating a vicious cycle as sellers become increasingly desperate for buyers, who begin to delay every purchase as much as possible. Credit naturally contracts without deliberate intervention due to bad debt caused by loss of collateral value.

What we’ve seen is massive intervention resulting in commodity bubbles. Stimulus is finding its way into the few areas with reliable demand.


19 posted on 05/14/2012 3:52:43 AM PDT by RegulatorCountry
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To: Southack

Slumping overall demand is the root cause for deflation.


20 posted on 05/14/2012 3:54:06 AM PDT by JCBreckenridge
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To: piytar

We owe the Chinese lots and lots of money. Just Friday it was announced that the Green River oil shale had about as much recoverable reserves as the entire rest of the world. http://www.freerepublic.com/focus/news/2882771/posts?page=41


21 posted on 05/14/2012 4:00:04 AM PDT by muawiyah
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To: Southack
Deflation will happen as a direct consequence of lower costs of production, delivery, and sale brought about by mechanization, automation, robotics, computerization and improved methods (smart guys thinking about it).

The United States currently has 20 million people unemployed as a consequence of these processes. We'll probably end up with another 20 million unemployed from the same processes in just a decade.

We have to figure out how to keep folks employed and paid.

22 posted on 05/14/2012 4:03:01 AM PDT by muawiyah
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To: piytar

The biggest item in most people’s budgets is a place to live. While homes could deflate still further, rental costs will likely inflate.


23 posted on 05/14/2012 4:05:39 AM PDT by rbg81
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To: muawiyah
The United States currently has 20 million people unemployed as a consequence of these processes. We'll probably end up with another 20 million unemployed from the same processes in just a decade. We have to figure out how to keep folks employed and paid.

How about the Post Office?

;^)

24 posted on 05/14/2012 4:07:16 AM PDT by Lazamataz (To the wall, street occupiers!!!!!)
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To: Uncle Lonny
India has several hundred ancient temples where it is known that gold was set aside. They popped one of them open several months ago. First reports were that it had billions in gold. Then they said $45 billion in gold. More recently stories have circulated that it was $145 billion, and they were still digging through the network of underground rooms finding more.

Now what do you imagine news like that does to the price of gold?

25 posted on 05/14/2012 4:08:09 AM PDT by muawiyah
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To: Lazamataz
We mechanized, automated and computerized the bejaysus out of postal operations. They only need about 300,000 people these days and are looking to layoff 250,000 in short order.

If you wanted to do a study on DEFLATIONARY PRESSURES AND THEIR CONSEQUENCES you could start at USPS.

Since the early 1970s they had a 700% increase in productivity per workhour. I was one of the first of the budding young employees at Headquarters to come up with a device that would displace one employee for every one device purchased. That became a goal or ambition of others as well, and they worked it to the bone.

26 posted on 05/14/2012 4:16:43 AM PDT by muawiyah
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To: rbg81
You can buy a house in the DC suburbs for $250,000 to $350,000 ~ and rent it out for $2000 to $2700 per month.

That would enable you to pay off the mortgage before you'd exhausted the depreciation.

27 posted on 05/14/2012 4:18:58 AM PDT by muawiyah
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To: Lazamataz
I’ve heard convincing arguments that the core of the problem lies with the repeal of the Glass–Steagall Act around 1999. Only 8 years later, we had our inevitable crisis.

BINGO!!

The dynamite (CRF) was already in place, but Gramm-Leach-Bliley (1999) put the match to the fuse.

28 posted on 05/14/2012 4:25:56 AM PDT by Roccus
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To: Son House
China has a substitute for debt that works just as well to stagnate things ~ it's called 'a spare billion people'. Even as the number two economic powerhouse in the world, everybody there is still, on average, hopelessly impoverished.

Those spare billion would not, even with a doubling or tripling of income, be able to capitalize on their newfound wealth. Rather, fewer would starve, or die young, or be slaughtered as babies.

More hootches would be built, but they'd be the same mud-walled tarpaper augmented roof designs everybody else has. Pig breeding would not be done in a more elegant fashion ~ that being limited to the amount of food available, and no more fields would be put to the plough than they are now able to work.

The ducks would quack, the noodles would slurp, green onions would pop up in protected window boxes ~ and China ~ the real China ~ would slumber on into the immedate post neolithic future!

29 posted on 05/14/2012 4:26:40 AM PDT by muawiyah
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To: muawiyah
Couldn't we just hire them into the Post Office to stand there, idle, and look disinterested?

I mean, it's worked for so many decades....

;^)

30 posted on 05/14/2012 4:29:54 AM PDT by Lazamataz (To the wall, street occupiers!!!!!)
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To: Lazamataz

We got rid of that stuff years ago. Nobody just stands around looking disinterested. They were incorporated into the operation of the Great Machine at the heart of the planet (or which will be eventually).


31 posted on 05/14/2012 5:23:16 AM PDT by muawiyah
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To: gunsequalfreedom

And those savings were used to back the construction of those “ghost apartments” pictured above


32 posted on 05/14/2012 5:27:57 AM PDT by tom paine 2
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To: Uncle Lonny

I knew something was up when gold dealers on TV started advertizing selling at dealer cost with little or no commission. That told me that the smart money was selling their hoard or at least a lot of it.


I don’t know if it is still going on, or even what the details were (minimum purchases?)but I saw some ads a few months ago where dealers were offering $250 cash or so to first time gold buyers.

I am also unsure if MSM covered Soros and Buffet predicting a *gold bubble*, but when I mentioned it to a friend who is heavily invested in physical and miners, she was scathing that the fundamentals didn’t support the term *bubble*. That’s true, but all I could think of was that in a manipulated market, none of the old methods still operate. She eventually agreed.

I mentioned those two predictions to an extreme liberal and she turned absolutely bloodless. I thought at the time that it was interesting that even die-hard supporters of zerO and Co. were hedged with gold.

And yet: still another friend works for an international manufacturer with a lot of infrastructure in China. They are actually all over the world and our friend spends half his time in a plane going to Saudi, Japan, China and a couple of places here in the USA. His employer is doing alright to the point where the employee is putting off retirement as long as possible.

There just may be a lot of denial out there or people are expecting enough government intervention to change the predicted outcome. Or the predictions are overwrought to begin with. I just don’t have enough real information to judge, however, I expect bi-flation and would not be surprised to see price controls at some point.

The worst of all worlds, in other words.


33 posted on 05/14/2012 5:57:38 AM PDT by reformedliberal
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To: muawiyah

I sold my NoVA house in 2006 when the market was at its peak. Prices have about halved since then. According to my old neighbor, the guy who bought my house would like a word (or more) with me. But, hey, no one put a gun to his head. That’s what homes were selling for at the time.


34 posted on 05/14/2012 7:43:27 AM PDT by rbg81
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To: tom paine 2
And those savings were used to back the construction of those “ghost apartments” pictured above.

All the stuff we bought at Walmart provided a bunch of the money too. My guess is the biggest threat to the ordinary Chinese citizen's savings will be inflation, not those buildings but I could be wrong.

35 posted on 05/14/2012 9:38:00 AM PDT by gunsequalfreedom (Conservative is not a label of convenience. It is a guide to your actions.)
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To: gunsequalfreedom

The banks that loaned out the money will collapse taking the investors with them.


36 posted on 05/14/2012 12:59:09 PM PDT by tom paine 2
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