230 comments on For all practical purposes the markets are closed right now
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230 comments on For all practical purposes the markets are closed right now
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Dang, Nate, that would be true if the US was the whole world, but it's not. Instead, the US would just be priced out of the oil market, and "our" oil would just go to the higher bidder overseas. We are probably going to see a Weimar type hyperinflation that leaves just about everything produced overseas priced out of reach.
the credit crunch is not just going to affect the US - globalization/international trade has effectively connected ALL countries at least in the OECD. If we sneeze someone else will get the flu - some countries milder than others. China has built massive infrastructure and production capacity in last 5 years - if US goes into deep recession what do you think happens to China? Everything is linked - thats part of the problem
But China has 10% growth. An economic crisis, for them, means 5% growth or thereabouts. At that range, you still have demand growth for oil and other energy sources. That is likely to be enough to keep the markets tight, given that our own elasticity is not huge.
5% growth for China is not just an economic crisis, but also a political crisis. Those who have looked at China over the past number of years know that the place is a giant mess, physically, socially and economically. Slow down the growth that everybody over there depends on even slightly, and you can have giant riots on your hands in no time. And the Chinese gov't doesn't play games in using force against its own people, especially when they're protesting the gov't (see Tiannamin square).
IF the above scenario happens, and China's growth slows, it is possible that the Chinese economy could collapse, since it was built on the predication of high growth rates-somewhat similar to what we're seeing here in the US credit crisis, but more extreme (with possibly more extreme consequences/results).
Best hopes for a soft, managed landing (sorry Alan)
Franc (penguinzee)
I agree with Nate and Penguinzee on this. China is far from immune to any downturn here. Moreover, the Chinese revolution is only 58 or so years old -- there are many millions who still remember the revolution. The Chinese gov't is a giant labor contractor -- should the demand for goods in the West shrink significantly, they have a tremendous problem on their hands. The situation is quite different from the 30s -- whatever one might think of Stalin, the SU at that time was to a considerable extent immune to the economic disaster in the West -- but not the military consequences of course.
"Wars will come and governments will change, but the land and the people will go on." -paraphrased
-from "The Good Earth" by Pearl S. Buck
Dave: Stalin? The Soviet Union in the 30s? Open your eyes-China's economy is already almost as large as the USA. This was done in less than 30 years.
"China's economy is already almost as large as the USA."
Source please? By GDP China's GDP in 2006 was less than 20% of the US, and was still behind Germany and Japan, according to the IMF.
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)
Shaman: CIA Factbook has it at approx 77% of USA (PPP). China is already the largest consumer market in the world for every product except autos. It is the second largest exporter. Does that sound to you like a country 20% the size of the USA? At the current pace, China will be the largest consumer market in the world by 2015 and by far the largest exporter.
Thanks for the source. I wish they had more detail about their methodology on PPP - it would appear that they are valuing the Yuan at four times its official rate. I must say I'm a bit skeptical about that, but that's a gut feeling, not based on inside knowledge.
It's tough to predict China's trajectory - we're in uncharted territory.
Massive importer of food, but strong agrarian base. Low domestic energy production, but very low energy requirement for basic survival. Catastrophic environmental depletion, but lots of resources in the empty quarter to the North. And the biggest standing army in the world.
Low domestic energy production?!
Chinese coal production is huge (and then there's Daqing)! The biggest increase in global primary energy supply during the last 10 years has very likely come from exploding Chinese coal mining.
Sure, domestic demand is even greater than the domestic supply, but you can say that too about another vast energy producer, the USA.
You call it uncharted territory. The Chinese could simply call it another "five year plan", one which involves a certain staged withdrawal and some "healthy" austerity measures.
The capacity for China to revert back to one bowl of rice per day, two sets of green pajamas and a rusty bicycle is not to be dismissed. I think a lot of people are underestimating the Chinese government's willingness to strike an abrupt 180 degree turn seemingly overnight.
Why do you assume collapse is linear?
I highly doubt that international markets will fare well during a US recession or depression.
During the market rout this last week did any exchanges in any other nations avoid tumbling?
It is a global market now, not national.
No assumptions. Just saying that it will take more than a recession to stop demand growth. It would take an outright depression, or some other kind of meltdown.
It's by no means impossible, of course. But oddly enough, in that situation, energy probably won't be the biggest issue of the day.
Thats my point. Energy IS the issue of the day, but its going to be obfuscated by other issues and when the average person next notices it, its teeth will be sharper and bigger.
Jerome- has this/will this credit selloff effect wind project financings?
Project finance is always late compared to other types of financings (lots of inertia, long lead times for the underlying projects, etc...), so we're still in boom mode right now.
And renewable energy is especially booming right now, so no lack of work. In fact, I worry about how insane the end of the year is likely to be for me.
Even if the markets crash, renewable energy, thanks to both favorable regulation (guaranteed tariffs, i.e. no volume and no price risk, are going to be a risk banks love in the context of a market meltdown) and the overall favorable context (global warming, energy independence, etc...) is unlikely to suffer as much as other sectors.
Shanghai wasn't correlating....
Not the FXI BS, the actual SSE was up thurs, not fri, and again today. It's the only market that bucked on thurs, i do believe. Honestly, China has 1.2 Trillion in USD paper, so they can sterilize any downturn in their economy for awhile. Like some have noted, they are much larger than most people think. We're all stuck with this podunk image of China, but when you do the numbers they are doubling in under seven years. Our image is off each month they add that 1% more.
Revisit history...why did the ROARING twenties happen? We were loaning massive amts to Britian after WWI. The money supply was exploding, then the unthinkable happened. The pound sterling defaulted and the dollar became defacto world reserve currency. What's changed? The US is in debt to the Chinese (& Japan, but lets simplify) and the Yuan will become the new world reserve currency. It's hard for you patriots to accept I know, but it's going to happen and history will once again rhyme.
http://thefinancedude.blogspot.com
I've commented on that for the last year and a half, that I believe it will be the yuan and not the euro that will succeed the dollar. Though far from identical, there are some interesting parallels between the historical fall of the pound and the rise of the dollar versus the current fall of the dollar and rise of the yuan.
"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone
But isn't that 10% growth fueled by both international sales and increased domestic consumption by a rising middle class? If international sales drop, won't that then impact the middle class and their spending thereby creating a ripple effect and a much larger drop in the economy?
Jerome,
Last few years have given China high growth in GDP (9.5%, non agricultural), but surprisingly low growth in employment (3%).
The explanation could be that capital was too cheap for labor.
Another interesting tidbit:
Via the Big Picture
90% foreign sounds very suspect - one usually reads estimates around 60% quoted, and they can only cite "internal figures" meaning they have no source.
Except that the Chinese government is fully prepared to lay waste to twenty years of ventures into capitalistic experiments and plunge their citizenry back into 1949 at the drop of a hat, even if they have to kill off a third of their population in order to make it so.
Please remember that a purge in China is not limited to size, severity or duration, but rather linked to a goal set forth by the old moustaches who own or control the bulk of economic power in the region.
If China sees that it is in its best interests to punish the West or "teach it a lesson" they will do so, even if they must invent a new "Gang of Four" and restart the purges.
China must prevail, or die, and something tells me that we won't be seeing the largest nation on earth dissolve itself just because a few rich capitalists wish it to be so.
That dog might hunt in the rotted corpses of Europe and the North American continent but not in the Asian Empire.
And by this action we WILL see China ultimately prevail and re-emerge as the top superpower in the world.
China plays for the long term win, it only dabbles for the short term glory, and it only gambles what it is willing to lose.
China is and always has been willing to lose a lot in order to make a point.