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View Full Version : Ka-Poom Theory Update Two – Part I: Bang or a whimper - Eric Janszen



EJ
04-30-12, 10:44 AM
Ka-Poom Theory Update Two – Part I: Bang or a whimper


http://www.itulip.com/images2/KaPoomTheoryPowerMed1.png

What would Robert Triffin (1910 - 1993) say about Ka-Poom Theory? This two part section of our multi-part Ka-Poom Theory Update Two series delve into the works of Belgian economist Robert Triffin. We summarize his in-depth critique of the international monetary system (IMS), his vision for a workable alternative in the 1960s and 1970s, and exhaustively quote and comment on his long-lost and forgotten final book, "IMS: International Monetary System or Scandal?" That book includes petulant protests penned in the final years of his life in the early 1990s as he observed the danger of an epic monetary crisis growing yet ignored by the international central banking community. He became disillusioned with “powerful politicians” and “special interests” that in his opinion thwarted IMS reform efforts for decades, reforms urgently needed to avert catastrophe. A fresh global monetary crisis has been building for 20 years since his last warning in 1992 a year before his death. Imbalances in the IMS have reached a breaking point over the years following the American Financial Crisis, and Triffin's analysis or the problem and his admonitions are more relevant than ever.

CI: Before we get to Triffin, how does the euro crisis relate to your Ka-Poom Theory? Is austerity for Greece and Spain the right solution? What would Triffin say?
EJ: You could say Triffin predicted Europe’s current crisis. In a rush to isolate and protect Europe from a usurious and dangerous US-centric IMS, Europe failed to get the structure right.

We got our hands on the last book Triffin published in 1992, a year before his death, provocatively titled "IMS: International Monetary System or Scandal?" It was published only in Europe by a relatively obscure organization, The European Policy Unit at the European University Institute. In it Triffin complains that IMS reforms were agreed to by the majority of major powers in 1974 but these were repeatedly vetoed by the US and UK. As a consequence of decades of delay, he warned that accumulated USD liabilities threatened the world economy with a currency crisis of epic proportions. That was 20 years ago when liabilities look quaint compared to 2012 levels.


http://www.itulip.com/images2/TriffinUSD1995vs2011wtmk.png
US Dollars held as currency reserves at the time of Triffin’s 1992 warning increased 300% relative to global GDP by 2011.

CI: Briefly, who is Robert Triffin?
EJ: Belgian economist Robert Triffin predicted in 1959 that the Bretton Woods monetary system of currencies fixed to the dollar and redeemable in gold was doomed, which forecast proved accurate in 1971 when the Nixon administration ended gold redeem-ability. Below is a video of French President Charles de Gaulle echoing Triffin's concerns in 1965 and calling for reform.


<iframe width="653" height="367" src="http://www.youtube.com/embed/Q9r1NLMFixo" frameborder="0" allowfullscreen=""></iframe>

After 1971 the IMS became based on a U.S. Treasury bond standard, that is, the debt-based fiat currency of the United States. Currencies then “floated” relative to each other. In practice that meant that rather than governments buying and selling currency to influence the quantity and thus the price of a currency to maintain exchange rates in a narrow band of less than 1%, governments allowed exchange rates to rise and fall with market demand, intervening only in times of crisis.

CI: Did Triffin anticipate the euro?
EJ: Triffin had a very clear vision of how a European currency needed to operate and was a proponent of a European central bank. He believed that first and foremost the point of a European currency was to insulate Europe from the disadvantages and unseemly risks posed by the US dollar based IMS that Charles de Gaulle refereed to as the "exorbitant privilege." In his words, “It [the euro] would, first of all, enable the monetary authorities of a United Europe to sterilize in the form of “consols” the vast overhang of short-term dollar indebtedness inherited from former US balance~of-payments deficits and threatening at any time a collapse of the dollar on the world exchange markets.”

CI: That was in 1992? Did Europe get the euro Triffin wanted?
EJ: No, it got half a currency. Europe wasn’t politically ready for a whole currency. To have a whole currency a complete set of institutions and mechanisms is needed to ensure, in Triffin’s words, “the harmonization of budgetary and monetary policies indispensable to the irrevocable stabilization of exchange rates.” In other words not only an institution to act as lender of last resort and maintain inflation but a federal European tax and budgetary authority to prevent “excessive or persistent financing of the countries in deficit by the countries in surplus.” He warned that if the euro was not so structured, “Germany runs the risk of becoming the ‘milch cow’ (vache à lait) of inflationary Community members.” And so it was.

CI: Triffin famously predicted the collapse of the international gold standard. Now we can say he predicted the euro’s present troubles?
EJ: The 1992 book is a goldmine of insights into the flaws in the IMS and their implications. That said, Triffin’s reform ideas had flaws of their own. He was kind of the George Soros of his day, with well-intentioned ideas about helping poor countries but with heavy government action (read: spending) to achieve it. We’ll focus on him in Part II and quote his book extensively.

To answer your question on austerity for Greece and Spain, the euro was badly structured; in the wake of recession caused by the American Financial Crisis, Germany has become the milch cow of Greece and Spain, at least in the eyes of German voters, as was feared in the earliest days of euro planning. Germany’s leaders have to contend with a chorus of “I told you so” from early euro skeptics among Germany’s elite, and the majority opinion of a voting public that Greece needs to go through painful economic restructuring as Germany did after unification with East Germany in the early 1990s. Austerity for Greece is politically sensible but economically insane.

CI: How do you mean?
EJ: Austerity for Greece now means a reduction in government expenditure during the recession that was caused by the American Financial Crisis in 2008. Such a policy is the exact opposite of the one followed at the time by the country with the world’s largest external debt and the worst budget deficit as a percent of GDP when it was in recession in 2008, the United States. Imagine the largest lender to the US, China, demanding that the US tighten its belt and get it fiscal house in order in 2008 and 2009. Instead, China tripled its loans to the US from $400 billion to $1.2 trillion. China used the crisis to gain leverage. Within the political confines of the EU, Germany cannot be so strategic.

CI: What’s happened to Greece, then?
EJ: The predictable result of austerity during a recession, as you can see below, is even higher unemployment and even more rapidly shrinking output.


http://www.itulip.com/images2/greekausterity1998-2011.png
Unemployment and GDP rates in Greece after the recession caused by the American Financial Crisis
was followed up with austerity measures that worsened both.

Obviously an economy that is shrinking is not growing its way out of debt.

The whole point of austerity is ostensibly to increase savings. An economy that is not able to invest in its future capacity to grow – spend on plant and equipment versus consumption – will never, ever be able to grow its way out of debt. Austerity has sent Greece into a death spiral.


http://www.itulip.com/images2/greekausterityGFCA1998-2011.png
Investment in the future of the Greek economy has plummeted 43% from €53 billion in 2007
to €30 billion in 2011 annually.

CI: Why is austerity being imposed on Greece if the policy is making matters worse for creditors?
EJ: The perverse logic of the euro’s institutional framework created this ludicrous “solution” for Greece that makes political sense but no economic sense. The policy is the inevitable outcome of a mis-match of monetary institutions and political institutions of the currency union. A similar mismatch is bringing down the IMS as a whole, in my opinion.

CI: Playing devil’s advocate here. Why can’t Greece change its economy the way the US did in the 1980s after the tough austerity programs of 1979 to 1983? The US boomed for decades after those recessions.
EJ: In 1983 the US had little private sector debt compared to today. Debt had been inflated away over the previous decade. Also, the US had little public debt and no external debt to speak of. If the Fed tried doing today as the Fed did in the early 1980s and the US economy would first collapse into a deflationary recession then, if the crisis went unresolved by a fresh round of external demand for US debt, a hyperinflationary depression. The US economy lives on the edge of that precipice and has since 2008.

CI: So austerity has no chance of working in Greece?
EJ: By analogy, say you take out a mortgage from the bank to buy a house and the payments consume 50% of your income instead of 20% or 30% as is usual because the bank was greedy and more interested in maximizing the asset, your debt, than in guaranteeing a flow of payments should boom times not last forever. Then you borrow more to buy a car. Those payments consume another 10% of your income. You have three jobs to cover the debt payments and all of your other expenses. You can barely keep up. You economize. You don’t eat out. You wife cuts your hair. You cancel your cable service. Then recession hits. You lose one of your three jobs. Your income falls. You warn the bank that you may miss a payment. “No, no, no. We can’t have that,” says the loan officer. “We lent you more money that we should have but that’s your problem not ours. We analyzed your finances and here is our demand: You must sell your car so that you can afford to keep making mortgage payments to us.” And you say, “But if I sell my car I can’t get to one of the two jobs I have left. My income will fall even more! I’ll be less not better able to pay my mortgage.” To which the loan officer replies, “That’s not our problem. My boss says that’s the only way.” You reply, “Well how about forgiving the part of the mortgage that you should not have lent me in the first place?” To which the bank replies, “We are contractually entitled to the loan in full.”

CI: So what happens?
EJ: If you sell your car and lose one of your jobs. You are, as a result, forced to default on the mortgage. You invoke your homestead exemption, the US property owner’s equivalent of national sovereignty. Your credit rating goes to hell and the bank loses everything. But soon another bank is at your door trying to lend you money.

CI: Do you think that eventually Greece be forced to bolt the euro like an over-indebted homeowner defaulting on a mortgage and invoking the homestead exemption, i.e., default on euro debts and operate with full sovereignty?
EJ: I don't see it at this point. A safer bet is that it works out in whatever way is best for the strongest members of the system, Germany and France. The history of all currency and monetary systems is the history of strong countries imposing their will on the weak. The strong are the creditors. The weak are the debtors. It has always been so. If Germany was stupid enough to put itself in harm’s way by allowing Greece to take on debts it can’t repay, then it is both the weak and the strong who will suffer the consequences. Greece is a small country with no capacity to work its way out of debt in the short term. Among the world’s economies it ranks 37th in GDP and 33rd in GDP-per-capita. Its main industry is tourism. Watch for Greek politics to become more radicalized. Look for candidates to begin to run on platforms split along pro- and anti-European Union lines. If you start to hear the phrase "Greek sovereignty" used in campaign speeches, then it is time to start thinking about Greek exiting the euro.

CI: Are you saying Germany needs to write off more of the Greece’s debt? Isn’t the crisis also the fault of corrupt Greek government for failing to collect taxes from the Greek elite?
EJ: Fair point about Greece’s regressive tax policies, but it’s not like Germany has the moral high ground. German lenders knew perfectly well that Greece’s finances were awful and the Greek government was lying about its fiscal position. The Drachma fell 26% versus the dollar in the two years immediately before Greece joined the euro in Jan. 2000, a clear warning that Greece was unable to manage its finances in a way that markets found convincing. But in those days the US tech bubble economy was booming and the fever spread worldwide. No one in power was thinking about a future euro crisis. The euro as structured is fundamentally a glorified currency board. Germany went along with Greece joining the euro because Germany wanted Greece to buy German BMWs and German weapons. That was the quid pro quo. But that part of the calculation of blame is lsot on the German people; looking like the leader who allows Germany to be treated like a milch cow by Greece and Spain is politically untenable.


http://www.itulip.com/images2/Drachma1981-2-13TheoreticalDefaultwtmk.png
If Greece defaulted and left the euro in 2013, the Drachma/US Dollar exchange rate might look like this.

CI: What if Greece did revert to the Drachma?
EJ: Best case the Drachma continued to decline at the same rate "under the peg" so to speak, since 2000 as from 1998 to 2000, around 30% againts the USD. In an actual default where Greek euro denominated debt is repudiated, I estimate the Drachma quickly loses another 50% over a six to 12 month period. It would be devastating for Greece and for the entire euro system, which is why I think it will be averted and German cow will keep supplying milk.

CI: Why so bad for the rest of the euro zone?
EJ: Because the euro, without the institutions that the US has behind the dollar, has had to count on the commercial banks to bail out Green, Spain, and others to hold up the euro -- and China, too. That means the banks are largely capitalized with euro bonds. If the euro bonds issued by Greece go to zero, those of Italy and others fall, too. The banks become insolvent and you have a European financial crisis to rival the US version, but instead of worthless mortgage-backed securities you have worthless or nearly worthless sovereign debt.

CI: Does China’s leadership look weak with respect to its loans to the US the say you are saying the German leadership will if it didn't push Greece for austerity? The US has worse total balance sheet liabilities than Greece does. Why doesn't China press the US to clean up its fiscal house?
EJ: The US is not a tiny Mediterranean country with little to offer and on the verge of default. The US, unlike Greece, can always pay its debts by expanding its federal balance sheet. US creditors may not like the resulting loss in purchasing power of the principle and interest payments they receive but they full well know the alternative in the context of the operation of the IMS -- collapse. It is no accident that China stepped up to bail out the US from its self-inflicted disaster in 2008 and 2009. China ensured a continuation of an IMS that, while unfair, has allowed them to grow and stay in power, while also buying more chips to play to control US foreign policy that impacts China.


http://www.itulip.com/images2/MajorTIC2000-2011wo-errorswtmk.png
China increased its holdings of US Treasury bonds 300% from $400 billion before the American Financial Crisis
To $1,200 after. Japan increased holdings 30% from $600 billion to $900 billion.
Russia increased holdings 1,309% from $34 billion to $138 billion.

The composition of major foreign holders of US Treasury Bonds (UST) changed in 2008 with the American Financial Crisis. Countries that are not under the de factor American military protectorate, notably China and Russia, picked up a large part of the tab. I don’t think they will ever demand cold turkey austerity for the US. Unlike German leaders who have an election cycle to deal with, China’s leaders are strategic. China can apply pressure on the US to reduce spending where they want us to. For example they can get us to back off on confrontations over China’s “unfair” currency policies, to stay out of their way in Africa and Latin America, their inroads into the Middle East, and so on. My contacts in China suggest that this has been going on through political back channels for years. This is why you see, for example, major reductions in US military spending today, apparently out of nowhere when reductions in other areas will be more effective from the standpoint of reducing liabilities and improving the US fiscal position.

CI: You think China is cheating on the rimnimbi/dollar exchange rate?
EJ: The IMS has since 1971 been in principle a floating exchange rate system. Markets not governments determine exchange rates, although under the system governments can intervene to stabilize rates at the extremes. Every major country in the world abides this arrangement except for China. China maintains a peg to the dollar under 1% as was the arrangement for all countries under the Bretton Woods system of fixed exchange rates. We in the US are in no position to complain. We owe China too much money.

CI: You paint a picture of a US that is already subservient to China.
EJ: If asked how much foreign debt is too much, the simple answer is this. Too much foreign debt is the amount that causes a nation to stop making political decisions in its own interest. The US passed that point with China long ago. We are no longer a sovereign nation in relation to to China. We are afraid to call China out on its mobster ruling class of the Chinese police state, a fact that becomes painfully obvious when on occasion a foreign national gets offed or a dissident's family is rounded and jailed. Going into debt to China will turn out to be the worst economic policy error in America’s history, right up there with the Argentine’s going into debt to the British in the 1850s -- it was all downhill from there (http://www.cato.org/pubs/journal/cj26n2/cj26n2-14.pdf). I can't think of a worse country to be in debt to.

CI: Is this a change to your Economic MAD (http://www.itulip.com/economicMAD.htm) theory from April 2006 when you said China and the US are bound by a balance of economic terror? You said, “China and the U.S. are running inter-dependent bubble economies, relying on the economic equivalent of Mutually Assured Destruction (M.A.D.) to keep one from blowing up the other’s economy. Whether by intent or accident, sooner or later market forces will assert themselves and both economies will go through tough transitions.” Still true?
EJ: My formulation made it to the highest levels of policy making in China, I’m told, and it’s still the most rational way to look at the underlying dynamics of the relationship. Over the years you have seen the idea picked up and discussed such as it is in the article: US-China: The Threat of Economic MAD (http://www.nationalstrategy.com/NSFReview/NationalStrategyForumReviewSummer2008/USChinaThreatofEconomicMADNSFRSummer2008.aspx). But much has happened since I came up with that way of looking at the relationship, notably the American Financial Crisis and the first Peak Cheap Oil crisis in 2008. China has gained the upper hand and they are starting to play it.

Ka-Poom Theory Update Two – Part II: The pigs get fat and the hogs get slaughtered ($ubscription) (http://www.itulip.com/forums/showthread.php/22328-Ka-Poom-Theory-Update-Two-%C2%96-Part-II-The-pigs-get-fat-and-the-hogs-get-slaughtered-Eric-Janszen?p=227290#post227290)


http://www.itulip.com/images2/KaPoomTheoryPowerMED2.png

CI: Does a Ka-Poom dollar and debt crisis have to happen?
EJ: We’re talking about a total foreign liability of $10.2 trillion in highly liquid USD currency reserves held by foreign central and commercial banks, mostly in U.S. Treasury bonds, plus $5 trillion in federal debt held by foreign individuals, institutions and governments, also as interest bearing U.S. Treasury bonds. I'll answer your question with three more: International USD reserves alone totaled 14% of global GDP as of Q4 2011. How is it possible that these liabilities have grown so large since de Gaulle’s and Triffin’s warnings? Did Triffin misunderstand how the IMS was going to develop? What will happen?

There are two scenarios, as I see it. Keep in mind that the liabilities themselves are a result of the US blocking reform for decades but that today it is the scale of the liabilities themselves that forms the primary obstacle to reform. To negotiate such a vast quantity of U.S. federal government liabilities away, the terms of the IMS that generated it over the past 40 years will have to be re-negotiated by three major monetary interest groups with widely differing interests and objectives and an unequal level of the power to get their way, one led by the US and the other two led by China -- although “led” is too strong a word. “Influenced” is a better word.

In the first Ka-Poom crisis scenario, this negotiation takes place under the duress, without an institutional framework designed to operate in such a crisis, and with the US doing everything in its power to maintain the status quo as we have for the past 40 years. Ka-Poom is a disorderly end to the IMS as in 1971 but without the US as a dominant power able to shove everyone else on the planet into line over the course of a decade until the system is working. In that scenario, if you thought the monetary chaos that produced the Great Inflation of the 1970s was bad, in the Ka-Poom scenario it’s ever nation for itself, and you’d better have a decent-sized gold reserve to stay in the global trade game. In that scenario, Treasury bond yields rise into double digits and the dollar exchange rate falls to $5000 per ounce of gold or worse.

CI: Worse? $5000 gold sounds good to me!
EJ: But it isn't. If you own gold you really want the second scenario, the less dramatic "bleed them out" scenario as China and her allies work the system to marginalize the US over decades. You may still get to $5000 gold but without the unseemly political chaos and financial hardship that billions of people would endure, including friends and family.

In the “bleed them out” scenario, the dollar keeps falling and gold keeps rising as it has since second 2001. It’s a consequence of a contest between the US commercial banks that set US economic policy and have called the shots in determining the global IMS on one side of the deal and China’s mercantilist, centrally planned, FIRE Economy on the other. In that scenario, China and its allies neutralize the US dominance of the IMS and force the US to stop living off its exorbitant privilege and then gradually reduce USD liabilities over time. We'll look at the first scenario later, but as the second is new to readers let’s start with the second scenario.

CI: I’m lost. Why can’t China, the US, and other countries just get together and hammer out a new IMS?
EJ: The Bretton Woods system was the first fully negotiated versus ad hoc or semi-ad hoc IMS. By the early 1960’s it was apparent that Triffin was right, that the IMS faced an eventual crisis because the US didn’t have enough gold to cover its constantly growing external liabilities due to the perpetual current account deficit that the US runs under the system. As the inevitable dollar crisis approached, a dozen meetings and conferences were held to look for ways to avert the crisis. None of them came to anything. The system finally collapsed in 1971 followed by nine years of global monetary chaos. Out of that chaos we got the IMS we have today, a lop-sided contraption that has gained legitimacy by legions of coin operated economists directly or indirectly on the payroll of the American and British commercial banks and financial institutions that benefit from the system.

It appears to work because under the IMS central banks learned after the 1970s inflation crisis how to manage inflation without a gold standard. This turned out to be both a blessing and a curse. A blessing because financial markets operate far more efficiently with low inflation and low inflation volatility, that is, predictably low inflation because long-term loans are safe from principle losses due to the inflation tax. But sustained low interest rates are also a curse because they encourage over-indebtedness. One of the better books we read for this series is “A History of Interest Rates: Third Edition” by Sidney Homer. In this exhaustive tome that is the first and last word on interest rate history, they argue persuasively that the primary reason for periods of over-indebtedness that lead to debt crisis is government manipulation of interest rates downward.

It happens in two stages. In the latest instance the nearly 30-year-long bull market in bonds that started in 1983 is the result of interest rates falling from 14% in 1983 to 5% at the time of the 2001 crash. That interest rate decline was due to markets responding to falling interest rates. The extension of the bull market since 2001 is the result of the Fed and Treasury fixing the price of Treasury bonds via extraordinary purchases, foreign and domestic. We charted the extraordinary purchases by China above, the foreign side of the reflation equation. Below we show the domestic side, the impact of the Fed trying to fix the price of long-term Treasury bonds, a policy central bankers prefer to refer to as "shaping the yield curve." The result is long rates pushed from 4% to 2% between the middle of 2008 and the end of 2011.


http://www.itulip.com/images2/yieldcurveshaping2010-2012wtmk.png
The Fed “shapes the yield curve, aka bond price fixing.

http://www.itulip.com/images2/BondBullBearMarkets1957-2012wtmk.png
Bond bull markets, over-indebtedness, and global economic crisis.

The “lesson” that central bankers “learned” from the Great Depression was that deflation is the enemy of economic and political stability and monetary policies must to be aimed at preventing it, starting with the abolition of the deflationary gold standard. Then the “lesson” of 1970s was that without the discipline of the gold standard, inflation is the enemy of economic and political stability and monetary policies must to be aimed at preventing that. I think after 20 years of policies aimed at trying to control bond markets the lesson for central banks after the next crisis will be this: Stop Trying to Price Fix Bond Prices. Inflation is as necessary a part of the operation of markets as deflation to flush bad debt out of the economy.

CI: Not to take you off track, and this has been an eye opener for me, but what about Modern Monetary Theory or MMT? It holds that a sovereign government doesn’t have to sell debt for a market price ever.
EJ: I’ve tried to engage the MMT crowd but they are too ideological for my purposes. Put a question in front of them backed by data that contests major MMT claims and they either run away or provide nonsensical responses. For example, this chart questions the blanket assertion that a sovereign government can always set the interest rate on its bonds.


http://www.itulip.com/images2/MMTisWrongAboutInterestRateswtmk.png
Markets force the US government to rely on the kindness of foreign central banks to buy UST in 1978. They did this
buy choice? Really?

The response I got is that the US government set the rates high intentionally. Well, no, at one point during the Great Inflation crisis foreign central banks of countries aligned with the US were the only buyers of US Treasury bonds. The US started to issue Treasury bonds in foreign currencies. Not until 1979 did the Fed set rates above the rate of inflation and get things back under control. I have no use for theories that do not conform to the facts and the data. (continued $ubscription 5500 more words, 10 charts) (http://www.itulip.com/forums/showthread.php/22328-Ka-Poom-Theory-Update-Two-%C2%96-Part-II-The-pigs-get-fat-and-the-hogs-get-slaughtered-Eric-Janszen?p=227290#post227290)

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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Chris Coles
05-01-12, 03:58 AM
Ka-Poom Theory Update Two – Part I: Bang or a whimper


http://www.itulip.com/images2/KaPoomTheoryPowerMed1.png

CI: Is this a change to your Economic MAD (http://www.itulip.com/economicMAD.htm) theory from April 2006 when you said China and the US are bound by a balance of economic terror? You said, “China and the U.S. are running inter-dependent bubble economies, relying on the economic equivalent of Mutually Assured Destruction (M.A.D.) to keep one from blowing up the other’s economy. Whether by intent or accident, sooner or later market forces will assert themselves and both economies will go through tough transitions.” Still true?
EJ: My formulation made it to the highest levels of policy making in China, I’m told, and it’s still the most rational way to look at the underlying dynamics of the relationship. Over the years you have seen the idea picked up and discussed such as it is in the article: US-China: The Threat of Economic MAD (http://www.nationalstrategy.com/NSFReview/NationalStrategyForumReviewSummer2008/USChinaThreatofEconomicMADNSFRSummer2008.aspx). But much has happened since I came up with that way of looking at the relationship, notably the American Financial Crisis and the first Peak Cheap Oil crisis in 2008. China has gained the upper hand and they are starting to play it.


What is most interesting about this is that there are reasons to believe that EJ, (and others), have influenced the internal policies of China in such a way that just might result in a better outlook for the rest of the planet, (as well as China itself), due to a more proactive, sensible, well thought out long term strategy for stability.

Mega
05-01-12, 06:52 AM
Hmmmmm
I DO rather like the idea of $5,000 Gold Eric.........& if it means PAIN for all the BMW drivers, even better !!!!!
Mike

Chris
05-01-12, 07:33 AM
What is most interesting about this is that there are reasons to believe that EJ, (and others), have influenced the internal policies of China in such a way that just might result in a better outlook for the rest of the planet, (as well as China itself), due to a more proactive, sensible, well thought out long term strategy for stability.

Or they may use them to gain an even bigger advantage as the US does nothing.

dbarberic
05-01-12, 08:57 AM
Hmmmmm
I DO rather like the idea of $5,000 Gold Eric.........& if it means PAIN for all the BMW drivers, even better !!!!!
Mike

$5K gold does sound nice, but what makes me nervous is how quickly the economic and political environment can deteriorate under a big-bang situation. One could wake up one morning to learn that private ownership of gold is banned and the media tells us that the only people who buy/sell gold are terrorists sent to prison without trial.

Gold is only as good as one's ability to exit the position.

FRED
05-01-12, 09:54 AM
Hmmmmm
I DO rather like the idea of $5,000 Gold Eric.........& if it means PAIN for all the BMW drivers, even better !!!!!
Mike

We have been forecasting $2500 to $5000 gold since August 2001 when we took our 15% BUY position @ $270. In this series we develop a more comprehensive understanding of the the underlying market and macro economic processes that are taking it there so that we know when to SELL. We bought silver @ $4.25 in 2001 and sold silver @ $48.50 at the end of April 2011.


http://www.itulip.com/images2/GoldvsBubble1978-2012.png

Mega
05-01-12, 05:00 PM
If you get the chance, i recall the panic of 08...Italy agreed to go back to a Gold standard, but only if everyone else was TAXED to Mars!

"They must not be allowed to profit from it..."

Scumbags.
Mike

bart
05-01-12, 07:55 PM
Totally agree on the MMT folk, have had the same experiences.

I post charts on various forum threads, like on pragcap - and the silence is virtually deafening.





Here's a TIC Major Holders in log, a little easier to see the detail:

http://www.nowandfutures.com/images/tic_major_holders.png

gnk
05-02-12, 08:38 AM
In a rush to isolate and protect Europe from a usurious and dangerous US-centric IMS, Europe failed to get the structure right.

This is where I get confused. I understand Europe's ultimate geopolitical goal for creating the Euro. And I also can see how many interests within Europe had other goals - the banking system, individual exporting nations, manufacturers that didn't need to face exchange rates, etc...

Obviously the EU could never get full European Monetary, Fiscal and Political, integration from the get go.

Which leaves us with this question:

Do the EU architects still have any control? Will they be able to use this crisis to fully integrate Europe? Judging from the outside, it looks to me that the EU leadership has lost all control and is slogging through one ad hoc policy to the next.

Or are they doing something else behind the scenes?

Is anyone running the show anymore? Is the EU rudderless? Or by adhering to austerity and Maastricht are they forcing themselves into complying to a de facto gold standard in preparation for the real thing?

I agree with your assessment, but I also have not ruled out the possible scenario I just described.

Will Germany always be the milch cow, or will Brussels eventually take over as the real capital of the EU, with full fiscal and political control?

[edit - I will be voting this weekend in the Greek elections - I'm voting for the libertarian party Drassi. The mood here is similar (to a degree) to the U.S. elections in 1992 when Clinton won with merely 43% of the popular vote. Here in Greece, the two-party system status quo has failed for many but unlike the U.S. in 1992, there is no Ross Perot here. There are 32 parties running in the election.]

dcarrigg
05-02-12, 10:38 AM
[edit - I will be voting this weekend in the Greek elections - I'm voting for the libertarian party Drassi. The mood here is similar (to a degree) to the U.S. elections in 1992 when Clinton won with merely 43% of the popular vote. Here in Greece, the two-party system status quo has failed for many but unlike the U.S. in 1992, there is no Ross Perot here. There are 32 parties running in the election.]

It seems to me that in Greece the main center-left party committed suicide and now the left is very fractured. So the center-right party will win a plurality henceforth. Would you agree with that as a general assessment of the situation as someone on the ground?

gnk
05-02-12, 11:43 AM
It seems to me that in Greece the main center-left party committed suicide and now the left is very fractured. So the center-right party will win a plurality henceforth. Would you agree with that as a general assessment of the situation as someone on the ground?

I know many people that will either not vote, or will vote for a third party. This is unusual for Greece where the two main parties combined historically have gotten a large part of the vote (80% or more).

I agree with you about PASOK - the center-left party. But I think the center-right party - New Democracy, will have to do a lot of horsetrading with other parties to form a government. And even then, we're talking about a shaky government with a potentially short lifespan.

The leader of New Democracy - Samaras, has lost a lot of credibility. When the crisis with the Papandreou government flared up last fall, and again with the recent bailout, Samaras seemed disruptive. He came off as, "we'll do what the Troika says, then we'll do whatever we want afterwards." How believable is that?

Of course the French election is more important, as only France can challenge Germany and set a new direction for the EU. But the Greek election has its own significance. If a strong coalition can not be formed, and things deteriorate further in Greece, how long can Greece stay in the Eurozone? And what is the significance of that?

One other thing to think about. People 40 and under. Just about everyone I know in this category, especially those unemployed (a lot) or those that work in the private sector, have very little allegiance to either major party. If they are government employees, it's different - they're more for the status quo, if there is such a thing in these times, or may even go far left. But the rest... they are willing to roll the dice with any other party.

Here's a decent article written in english on the upcoming elections:

The Greek election could be the start of a European spring (http://www.guardian.co.uk/commentisfree/2012/may/01/greece-vote-european-spring?newsfeed=true)

chene
05-02-12, 01:15 PM
Hi EJ,
Thanks for your always very interesting analysis.

The big picture : The world (especially China) is psychologically prepared to get rid of the USD status in international transaction which gave the USA an unfair advantage and destabilize the world with excess credit and world imbalance... The US dollars will lose its "reserve status" as GBP did ... with the same consequences : (very) hot inflation... The alternative is gold as the ultimate collateral in international transaction to rely on during debt deflation...

But, in short why painting Europe as a pig ?

1- USA and China are exposed to USD, but Europe, not that much.... no ?

2- The political culture is different in Europe

* Europe is prepared to let the debt that can't be payed default ...
(Greek and Iceland lesson: the world did not end on default)

* Europe won't go to austerity measures path and favor "made in Europe" and growth measures
( Hollande will favor EUROBOND on infrastructure project and have learned British lesson on austerity... )

3- Europe can play a decisive role between USA and China that can bring a new political power


When an empire weaken, currency fall and the periphery fall first...

A- UK : choose austerity, rely on finance for its growth and is the periphery of USA. It will probably see its currency weaken first...

B- Gold at 5000 in USD... Ok, may be more in GBP .... but in EUR ?

Investment : Gold OK, but why not European stocks ?

raja
05-03-12, 10:33 AM
Briefly off-topic for a moment . . . .

If I were writing articles read by many people, I would, at a minimum, use a spell checker before posting. I also would probably spend the minimal amount of money it would take to have somebody proof-read my articles, especially if I were publishing only one relatively brief article per month.

Why would I do this?

1) After spending a lot of time and effort crafting an ariticle, I would not want minor writing errors to detract from it.

2) I would not want my readers to think I was careless. I would be afraid that they might think that if I am careless about my writing, I also might be careless about what I was writing about.

3) I would not want my readers to feel insulted that I didn't care about them enough even to take a minute to run a spell checker, or spend a small sum to have someone do a proof-reading.

4) I would not want want my readers to misunderstand what I was trying to communicate due to jumbled sentences or other errors.

5) I would want to project a professional image to confer credibility on my work, rather than one that connotes carelessness.



So . . . why would I not use a spell checker or have my articles proof-read?

metalman
05-03-12, 10:41 AM
Briefly off-topic for a moment . . . .

If I were writing articles read by many people, I would, at a minimum, use a spell checker before posting. I also would probably spend the minimal amount of money it would take to have somebody proof-read my articles, especially if I were publishing only one relatively brief article per month.

Why would I do this?
1) After spending a lot of time and effort crafting an ariticle, I would not want minor writing errors to detract from it.

2) I would not want my readers to think I was careless. I would be afraid that they might think that if I am careless about my writing, I also might be careless about what I was writing about.

3) I would not want my readers to feel insulted that I didn't care about them enough even to take a minute to run a spell checker, or spend a small sum to have someone do a proof-reading.

4) I would not want want my readers to misunderstand what I was trying to communicate due to jumbled sentences or other errors.

5) I would want to project a professional image to confer credibility on my work, rather than one that connotes carelessness.



So . . . why would I not use a spell checker or have my articles proof-read?

if i were trolling a web site, i'd never offer any positive comments on the material but instead i'd whine about irrelevant crap... such as about 2 or 3 spelling errors in an article with 10,000+ words & 30 charts.

i'd refer to a 10,000+ word article as 'relatively brief' even though it's 2x longer than the long form articles available anywhere else.

i'd ignore the fact there there are no more spelling errors in an itulip article than i see every day in nytimes, yahoo, etc.

if i were not trolling i might pitch in an point out the 2 - 3 spelling errors the way other itulipers do... not me, tho. too lazy... i fix it.

Prazak
05-03-12, 11:43 AM
Briefly off-topic for a moment . . . .

If I were writing articles read by many people, I would, at a minimum, use a spell checker before posting. I also would probably spend the minimal amount of money it would take to have somebody proof-read my articles, especially if I were publishing only one relatively brief article per month.

Why would I do this?
1) After spending a lot of time and effort crafting an ariticle, I would not want minor writing errors to detract from it.

2) I would not want my readers to think I was careless. I would be afraid that they might think that if I am careless about my writing, I also might be careless about what I was writing about.

3) I would not want my readers to feel insulted that I didn't care about them enough even to take a minute to run a spell checker, or spend a small sum to have someone do a proof-reading.

4) I would not want want my readers to misunderstand what I was trying to communicate due to jumbled sentences or other errors.

5) I would want to project a professional image to confer credibility on my work, rather than one that connotes carelessness.



So . . . why would I not use a spell checker or have my articles proof-read?

I feel that way about job applicants not taking the time to proof their resumes, or about employees who submit a finished product that contains superficial errors. But not about iTulip and EJ. The strength of substance in EJ's analysis overwhelms whatever handful of typos and grammar-os that might remain in the published version. Indeed, there's an overall ricketiness about this website, an absence of slick presentation and an understated emphasis of substance over style, that I find enjoyable.

So to each his/her own, I guess.

c1ue
05-03-12, 12:19 PM
EJ,

Perhaps this is discussed in the Select section, but the above analysis does not talk about the possibility (or probability?) of a China slowdown due to a bursting of the China real estate bubble. This, and/or the pain of transition from an export economy to an internal demand economy, would seem to be significant pain points for China to execute its 'slow bleed out' strategy, as the US is still a very major customer for China exports.

My question then is whether the above points affect either the outcome or trajectory of the 3 possible paths mentioned in your excellent article.

jiimbergin
05-03-12, 12:41 PM
EJ,

Perhaps this is discussed in the Select section, but the above analysis does not talk about the possibility (or probability?) of a China slowdown due to a bursting of the China real estate bubble. This, and/or the pain of transition from an export economy to an internal demand economy, would seem to be significant pain points for China to execute its 'slow bleed out' strategy, as the US is still a very major customer for China exports.

My question then is whether the above points affect either the outcome or trajectory of the 3 possible paths mentioned in your excellent article.

C1ue, I still suggest that you finally break your principle of not paying for investment advice and join us behind the paywall where you might find your answer.

flintlock
05-03-12, 01:13 PM
Too much foreign debt is the amount that causes a nation to stop making political decisions in its own interest.

Best definition of too much foreign debt I've seen yet.;_TU

EJ
05-03-12, 01:18 PM
EJ,

Perhaps this is discussed in the Select section, but the above analysis does not talk about the possibility (or probability?) of a China slowdown due to a bursting of the China real estate bubble. This, and/or the pain of transition from an export economy to an internal demand economy, would seem to be significant pain points for China to execute its 'slow bleed out' strategy, as the US is still a very major customer for China exports.

My question then is whether the above points affect either the outcome or trajectory of the 3 possible paths mentioned in your excellent article.

I appreciate questions from readers. They hone the arguments that each article makes. In the process of answering subscriber questions, our understanding is further refined. Occasionally the investigation of a subscriber question will lead to a contradiction of an argument. These are the most useful questions of all because they disabuse us of misconceptions and improve our chances of getting our forecasts right.

Unfortunately, I do not have time to do justice to all the thoughtful questions I get. To be fair to subscribers I must give them priority and even then I am not always able to get to all of them.

To give readers a sense of what I strive for in my replies to subscriber questions, the following is my answer from a question from JK in Part II related to the significance of US consumer demand for Chinese exports, the relationship between US consumer demand and Chinese lending, and speculation on China's motives to increase lending to the US when the importance of US consumer demand is waning.


http://www.itulip.com/images2/WorldTop10ExportersPercent2010wtmk.png
China is the world's largest merchandise exporter, exporting more than 10% of world merchandise in 2010.
The US is second at over 8%, Germany roughly equal to the US, Japan following at under 4%, and the rest
between 4% and 2%. The Top 10 export 51% of the world's merchandise.

http://www.itulip.com/images2/WorldTop10ExportersTradeBalance2010wtmk.png
Of the top 10 merchandise exporters, all run merchandise trade surpluses except the US, France, Italy
and the UK. The US ran a staggering $691 billion trade deficit with the world in 2010.

http://www.itulip.com/images2/USTop5ExportersBalance2010wtmk.png
Of the $691 billion trade deficit that the US ran in 2010, $291 billion was with China, $88 billion
with the EU, $69 billion with Mexico, $63 billion with Japan, and $31 billion with Canada.

http://www.itulip.com/images2/ChinaExportsUSvsWorld2010wtmk.png
China's $383 billion in exports to the US in 2010 were 24% of China's nearly $1.6 trillion in
exports worldwide.

http://www.itulip.com/images2/ChinaExportsUSvsWorld2006wtmk.png
The US share of China's exports has fallen 25% since before the recession. It was 32% of the world share
in 2006. The US continues to be a less and less relevant source of demand for China's exports.
The US consumer market has been shrinking as a portion of the whole for many years.
Current course and speed, the US portion of China's export demand will decline into single digits
within 10 years.

http://www.itulip.com/images2/ChinavsUSATradeShare2006vs2010wtmk.png
Thee US and China traded places in the wake of the American Financial Crisis with the US share of
global merchandise trade falling from 8.2% to 8% while China's increased from 8% to 10%.

At the same time as the US share of global marchandise trade falls and the US share of China's export dwindles, China's investment in the US tripled.


http://www.itulip.com/images2/MajorTIC2000-2011wo-errorswtmk.png
China increased its holdings of US Treasury bonds 300% from $400 billion before the American Financial Crisis
To $1,200 after. Japan increased holdings 30% from $600 billion to $900 billion.
Russia increased holdings 1,309% from $34 billion to $138 billion.

China's "investment" in the USA is increasingly uneconomical, leading me to conclude that the loans are political, for leverage over US foreign policy toward China.

What does China want?

China wants the US to:

1. Acquiesce to China's USD currency peg to permit continued de-industrialization of the West
2. Leave China alone to buy Africa and gradually develop its own protection racket for Middle East Oil
3. Leave China alone as it develops Central and South America and right up to our doorstep in the Caribbean (http://www.economist.com/node/21549971)
4. Not interfere in China's thuggish treatment of its citizens
5. Fade away

This is related back to Triffin's original point that the IMS is a relic of the Cold War. China is exploiting the IMS to gain strategic leverage over the US.

Obviously I cannot answer all questions this throughly but I do when they are central to the argument.

flintlock
05-03-12, 02:43 PM
Very clear China is maneuvering itself into a position where it will be able to cut the US adrift at some point. I watched a Dan Rather special the other night on China's involvement in the Caribbean. I was shocked at how invested they are there. I seriously doubt most Americans realize the extent of what China is doing and the ramifications. Is this even on the political radar in America today? Amazing how far we've come from the days of the Red scare. People could not be less concerned. Or will China do itself in by expanding too fast, saving the US from disaster? Are our politicians even concerned about this?

bart
05-03-12, 02:49 PM
...
Indeed, there's an overall ricketiness about this website, an absence of slick presentation and an understated emphasis of substance over style, that I find enjoyable.


+1

This place is truly delightfully unique, nowhere else is even vaguely like it. It's the only forum I've stayed active on since 2005.

thriftyandboringinohio
05-03-12, 03:41 PM
Very clear China is maneuvering itself into a position where it will be able to cut the US adrift at some point. I watched a Dan Rather special the other night on China's involvement in the Caribbean. I was shocked at how invested they are there. I seriously doubt most Americans realize the extent of what China is doing and the ramifications. Is this even on the political radar in America today? Amazing how far we've come from the days of the Red scare. People could not be less concerned. Or will China do itself in by expanding too fast, saving the US from disaster? Are our politicians even concerned about this?

Part of me hopes for the US to stop being boss-of-the-world. It costs all of us a ton of tax money to keep this giant military astride the planet, and I don't see that our constant meddling in things abroad has had outcomes all good for us or for them.

It might be a welcome change to become a second-tier nation among the G-8, strong but not preeminent, with our attention focused mostly within our own borders and on our own affairs. I'm getting weary of being the schoolyard bully constantly threatening to beat up the others, or being the bossy neighbor that just has to be in charge of every single thing at the church picnic and PTA.

jpatter666
05-03-12, 04:07 PM
Very clear China is maneuvering itself into a position where it will be able to cut the US adrift at some point. I watched a Dan Rather special the other night on China's involvement in the Caribbean. I was shocked at how invested they are there. I seriously doubt most Americans realize the extent of what China is doing and the ramifications. Is this even on the political radar in America today? Amazing how far we've come from the days of the Red scare. People could not be less concerned. Or will China do itself in by expanding too fast, saving the US from disaster? Are our politicians even concerned about this?

No. Because everyone has convinced themselves that this must be a repeat of the 80s when Japan was buying everything. In the end it turned out that they had massively overpaid for many "showcase" items and that the US titans of finance had pulled a great one on the overseas rubes.

Most people see what they want to see.

Prazak
05-03-12, 05:47 PM
No. Because everyone has convinced themselves that this must be a repeat of the 80s when Japan was buying everything. In the end it turned out that they had massively overpaid for many "showcase" items and that the US titans of finance had pulled a great one on the overseas rubes.

Most people see what they want to see.

There was a pretty good interview with Ed Luce in a recent FP on this topic of the unwillingness or inability of the U.S. leadership and populace to face up to its relative decline: http://www.foreignpolicy.com/articles/2012/04/16/ed_luce_interview?page=0,0&page=full

ER59
05-03-12, 06:39 PM
+1

No other place like iTulip. iTulip and its community is the first place on internet I visit when I have time. It's essential for my family survival.

raja
05-03-12, 06:44 PM
Indeed, there's an overall ricketiness about this website, an absence of slick presentation and an understated emphasis of substance over style, that I find enjoyable.

Don't get me wrong . . . .
I look forward to EJ's articles, and read them all because I usually find something of value in them.

And, yes, the occasional spelling error is no big deal in the big picture.
But in the last article there was one sentence that was jumbled in such a way that I simple could not understand it, and it's not the first time that's occurred. Clearly no one with competent editing skill is proofing the articles, and it makes me wonder why.

I also think that whatever tendency causes iTulip to not take the trouble to spend one minute to run the articles through a spell checker is indicative of some underlying problem, which makes me wary of the objectivity of the economic analysis.

Will I stop reading EJ's analysis because of a few spelling errors and the occasional incomprehensible senctence? Of course not.
Does the failure to use a spell checker or employ the services of a good proofreader over the last 6 years suggest some underlying problem. Yes.
So, despite the objections and accusation of trolling, I think my criticism is valid.

lakedaemonian
05-03-12, 07:43 PM
Don't get me wrong . . . .
I look forward to EJ's articles, and read them all because I usually find something of value in them.

And, yes, the occasional spelling error is no big deal in the big picture.
But in the last article there was one sentence that was jumbled in such a way that I simple could not understand it, and it's not the first time that's occurred. Clearly no one with competent editing skill is proofing the articles, and it makes me wonder why.

I also think that whatever tendency causes iTulip to not take the trouble to spend one minute to run the articles through a spell checker is indicative of some underlying problem, which makes me wary of the objectivity of the economic analysis.

Will I stop reading EJ's analysis because of a few spelling errors and the occasional incomprehensible senctence? Of course not.
Does the failure to use a spell checker or employ the services of a good proofreader over the last 6 years suggest some underlying problem. Yes.
So, despite the objections and accusation of trolling, I think my criticism is valid.

I'd sort of agree to a point.

I'm more concerned about a desire to see an underpromise/overdeliver ethos......we've had a few "head's ups" about upcoming forum/website changes......but I'm the type best NOT to tell that to....I guess I prefer a happy suprise over an unfortunate delay. :)

And I guess my frustration goes along the lines of, like with the recent private equity deal and investment fund deals.....I just want to see MORE of that stuff SOONER......but you can't force quality.

I just see a lot of yet unexploited potential with the iTulip community....and it's not just of the EJ variety.

I'm a strong believer in my own businesses that the greatest asset I "have" is in my employees/partners/friends that turn up to work each and every day...not the brands we actually own and manage.

I can imagine the iTulip network being leveraged even better in the future.....I just want to see it yesterday :)

I'm not worried about any underlying issues with the odd spelling mistake and failure to spellcheck/edit.

To me it's a very minor annoyance......I know my staff get a bit aggro with me and take the piss of me for keeping a messy office desk, the rest of our facilities are spotless and highly organized.....but that's my idiosyncracy I'm sort of allowed to h=get away with by being the boss.....in my case I think it's endearing until enough folks think it's not. :)

astonas
05-03-12, 08:06 PM
Don't get me wrong . . . .
I look forward to EJ's articles, and read them all because I usually find something of value in them.

And, yes, the occasional spelling error is no big deal in the big picture.
But in the last article there was one sentence that was jumbled in such a way that I simple could not understand it, and it's not the first time that's occurred. Clearly no one with competent editing skill is proofing the articles, and it makes me wonder why.

I also think that whatever tendency causes iTulip to not take the trouble to spend one minute to run the articles through a spell checker is indicative of some underlying problem, which makes me wary of the objectivity of the economic analysis.

Will I stop reading EJ's analysis because of a few spelling errors and the occasional incomprehensible senctence? Of course not.
Does the failure to use a spell checker or employ the services of a good proofreader over the last 6 years suggest some underlying problem. Yes.
So, despite the objections and accusation of trolling, I think my criticism is valid.

Don't get me wrong, Raja, I can absolutely nit-pick with the best of them when I'm so inclined. There are even a few fellow 'tulipers who will readily agree that if anything, I do so to a fault. :D I do think that clarity of communication is related to clarity of thought, and I do take care to check my own work as best I can, so I can certainly sympathize with your viewpoint. I'll even say that I have in the past quietly grumbled to myself over the editing of EJ's texts on iTulip from time to time, in spite of the fact that I should know better than to do so.

HOWEVER, for me, the matter of "why it's not edited" ultimately boils down to two issues: comparative advantage, and diminishing returns.

When EJ is faced with a choice of focusing more on wrestling with big thoughts, or focusing more on editing, I would certainly hope he chooses substantial work over editing minutia every time. That produces the greater value for me as a reader, since it maximizes comparative advantage: That is the part that EJ does better than anyone. Everyone wins if he focuses on doing that.

And regarding hiring someone else to fill the role of editor, this is when diminishing returns comes into play. Would the text be more polished? Certainly. Might I be able to read it slightly more quickly? I would. But do I really want my subscription rate to be raised just to clarify a few muddled sentences? Not really. And more importantly, do I really want to delay or filter the writing process more than necessary? Certainly not! If I really value a "clean" text, I should sit down again with one of his books. But I come to this site for a different reason.


Perhaps the dissonance between our views is that you see yourself as buying a finished product with your subscription, rather than a constantly-evolving work-in-progress? In that case, I must disagree with you about the advisability of this expectation. A finished product is by definition unchanging. In a changing world, that also means it is obsolete. It is better by far to seek a transitory, evolving answer, even if it begins flawed, as such an answer will be further refined by discussion, and so be clarified. I generally assume (just my guess, I haven't checked with EJ on this) that EJ has most likely chosen his process intentionally: presenting MOSTLY complete ideas to critical review in the forums, might be one of the things that helps EJ take his work to the next level. It's not exactly peer-review (for who among us claims to be his peer?) but nevertheless one can see an evolution of his ideas over time, and a great part of the fun in coming to this site is the opportunity to participate in the dialogue, and perhaps even contribute a new perspective oneself on occasion.

In a sense, I see this community not as merely a dry blog, but as a dialogue that, on good days, furthers EJ's thinking, as well as ours. Demanding a perfect product essentially requires that he not take advantage of the community's feedback until after the work is "finished." I am of course not speaking for him, but if I were in his place, I would consider a requirement to work with less feedback to be an unnecessary disadvantage. And this is why I am willing to give him the benefit of the doubt when it comes to the occasional error. The method he has chosen is the one that produces the best thinking, if not always the best text. And I respect that. If anything, the world could do with more people who focus on substance over form.

I personally think the best way to deal with the issues you describe is by crowd-sourcing the problem. If you see a minor edit, send a quick P.M. to FRED clearly identifying the line, and the text will generally be clarified in short order, for the benefit of all. Everyone wins: you get your answer, and the text is now improved so that the next reader has an easier time with it. And the best part is that in struggling with the text a little, one generally is forced to engage with it at a deeper level than one might a more polished text, which one is more likely to skim over quickly.

Just my perspective, no claims that it's the best one out there. :)

jiimbergin
05-03-12, 08:13 PM
Don't get me wrong, Raja, I can absolutely nit-pick with the best of them when I'm so inclined. There are even a few fellow 'tulipers who will readily agree that if anything, I do so to a fault. :D I do think that clarity of communication is related to clarity of thought, and I do take care to check my own work as best I can, so I can certainly sympathize with your viewpoint. I'll even say that I have in the past quietly grumbled to myself over the editing of EJ's texts on iTulip from time to time, in spite of the fact that I should know better than to do so.

HOWEVER, for me, the matter of "why it's not edited" ultimately boils down to two issues: comparative advantage, and diminishing returns.

When EJ is faced with a choice of focusing more on wrestling with big thoughts, or focusing more on editing, I would certainly hope he chooses substantial work over editing minutia every time. That produces the greater value for me as a reader, since it maximizes comparative advantage: That is the part that EJ does better than anyone. Everyone wins if he focuses on doing that.

And regarding hiring someone else to fill the role of editor, this is when diminishing returns comes into play. Would the text be more polished? Certainly. Might I be able to read it slightly more quickly? I would. But do I really want my subscription rate to be raised just to clarify a few muddled sentences? Not really. And more importantly, do I really want to delay or filter the writing process more than necessary? Certainly not! If I really value a "clean" text, I should sit down again with one of his books. But I come to this site for a different reason.


Perhaps the dissonance between our views is that you see yourself as buying a finished product with your subscription, rather than a constantly-evolving work-in-progress? In that case, I must disagree with you about the advisability of this expectation. A finished product is by definition unchanging. In a changing world, that also means it is obsolete. It is better by far to seek a transitory, evolving answer, even if it begins flawed, as such an answer will be further refined by discussion, and so be clarified. I generally assume (just my guess, I haven't checked with EJ on this) that EJ has most likely chosen his process intentionally: presenting MOSTLY complete ideas to critical review in the forums, might be one of the things that helps EJ take his work to the next level. It's not exactly peer-review (for who among us claims to be his peer?) but nevertheless one can see an evolution of his ideas over time, and a great part of the fun in coming to this site is the opportunity to participate in the dialogue, and perhaps even contribute a new perspective oneself on occasion.

In a sense, I see this community not as merely a dry blog, but as a dialogue that, on good days, furthers EJ's thinking, as well as ours. Demanding a perfect product essentially requires that he not take advantage of the community's feedback until after the work is "finished." I am of course not speaking for him, but if I were in his place, I would consider a requirement to work with less feedback to be an unnecessary disadvantage. And this is why I am willing to give him the benefit of the doubt when it comes to the occasional error. The method he has chosen is the one that produces the best thinking, if not always the best text. And I respect that. If anything, the world could do with more people who focus on substance over form.

I personally think the best way to deal with the issues you describe is by crowd-sourcing the problem. If you see a minor edit, send a quick P.M. to FRED clearly identifying the line, and the text will generally be clarified in short order, for the benefit of all. Everyone wins: you get your answer, and the text is now improved so that the next reader has an easier time with it. And the best part is that in struggling with the text a little, one generally is forced to engage with it at a deeper level than one might a more polished text, which one is more likely to skim over quickly.

Just my perspective, no claims that it's the best one out there. :)

+1

EJ
05-03-12, 10:23 PM
I'd sort of agree to a point.

I'm more concerned about a desire to see an underpromise/overdeliver ethos......we've had a few "head's ups" about upcoming forum/website changes......but I'm the type best NOT to tell that to....I guess I prefer a happy suprise over an unfortunate delay. :)

And I guess my frustration goes along the lines of, like with the recent private equity deal and investment fund deals.....I just want to see MORE of that stuff SOONER......but you can't force quality.

I just see a lot of yet unexploited potential with the iTulip community....and it's not just of the EJ variety.

I'm a strong believer in my own businesses that the greatest asset I "have" is in my employees/partners/friends that turn up to work each and every day...not the brands we actually own and manage.

I can imagine the iTulip network being leveraged even better in the future.....I just want to see it yesterday :)

I'm not worried about any underlying issues with the odd spelling mistake and failure to spellcheck/edit.

To me it's a very minor annoyance......I know my staff get a bit aggro with me and take the piss of me for keeping a messy office desk, the rest of our facilities are spotless and highly organized.....but that's my idiosyncracy I'm sort of allowed to h=get away with by being the boss.....in my case I think it's endearing until enough folks think it's not. :)

I regret that grammatical and spelling errors are perceived as inconsiderate. Unfortunately they are an unavoidable side effect of our unique process of insite discovery. We follow the path that the data take us on rather than, as is done everywhere else, search out data to support an argument. For every word you see in a finished article we throw away three and for every chart we throw away ten. Eliminating every blemish from the result is not practical.

lakedaemonian
05-04-12, 01:25 AM
I regret that grammatical and spelling errors are perceived as inconsiderate. Unfortunately they are an unavoidable side effect of our unique process of insite discovery. We follow the path that the data take us on rather than, as is done everywhere else, search out data to support an argument. For every word you see in a finished article we throw away three and for every chart we throw away ten. Eliminating every blemish from the result is not practical.

No real complaints from me EJ......I think Astonas made a good point on the iTulip community crowd sourcing bit....the community here, particularly the ones clearly sitting at the adults table being able to help polish/clarify posts for those of us(myself included) not yet certified as finance/economic Jedi Masters.

I feel genuinely privileged to be a part of the community here....it is truly different from any other community I've been a part of online or off.

Personally, I just want to see it shaped and squeezed to fulfill it's considerable potential.....and all sorted and refined no later than yesterday. :)

The pursuit of excellence and all that.

The odd spelling or grammatical error is nothing....you should see the state of my office......you'd think either a 4 year old was running the place or a paper IED had just gone off.

Chris Coles
05-04-12, 04:06 AM
All my posts on the likes of The Times London are done on MS Word and pasted into the newspapers web page on screen and THEN I use ieSpell which with a single right click gives me excellent spelling. I recommend it for everyone. You just write or past into the text box and a right click will complete the process in seconds. Much much better than any other.

http://www.iespell.com/
<TBODY>

ieSpell - A Spell Checker for Internet Explorer





<!-- #BeginEditable "body" -->
<TBODY>

IntroductionieSpell is a free Internet Explorer browser extension that spell checks text input boxes on a webpage. It should come in particularly handy for users who do a lot of web-based text entry (e.g. web mails, forums, blogs, diaries). Even if your web application already includes spell checking functionality, you might still want to install this utility because it is definitely much faster than a server-side solution. Plus you get to store and use your personal word list across all your applications, instead of maintaining separate ones on each application.
The program installs as a new button in the IE toolbar (as well as a new menu item under "Tools") - after filling in a form, just hit the ieSpell button and it pops up a dialog, similar to the MS Word spell check. ieSpell also works (right-click menu only) on other IE based browsers such as SlimBrowser (http://www.flashpeak.com/sbrowser/sbrowser.htm), CrazyBrowser (http://www.crazybrowser.com/), MSN (http://explorer.msn.com/home.htm), MyIE (http://changyou.mainpage.net/), etc.
ieSpell is not spyware or adware. It's free for personal use only. All other use requires a commercial license. See Licensing (http://www.itulip.com/forums/pricing.htm) for more information.
If you find ieSpell useful, please express your satisfaction by buying us a beer (https://www.paypal.com/xclick/business=donate@iespell.com&return=http%3A//www.iespell.com/&cancel_return=http%3A//www.iespell.com/&no_shipping=1). Drunk developers create great software! Just kidding!



Features

Completely standalone spell checker for your web browser. Does not require Microsoft Office or any other third party components.
Integrates flawlessly with Internet Explorer and other IE based browsers.
Three ways to start the spell check; via the right click context menu, the toolbar or the menu bar.
Supports a wide range of web applications including simple text forms, rich text editors, forums, blogs, webmail (including Outlook Web Access and Lotus iNotes) and more!
Spell check in any of the 3 variants (US, UK and Canadian) of the English Language!
Suggestions are sorted by the degree of closeness with the misspelled word.
Intelligent suggesting for misspelled words using typographic “looks like” matching.
Easily add/remove your personal words in ieSpell via an intuitive user interface!
Organise your personal words in individual custom dictionaries! Share them with your friends and co-workers over the network!
Integrates with Microsoft Office's proofing tools. Have ieSpell share the same copy of the custom dictionary so that when you add/remove your personal words in ieSpell, the same is reflected in Microsoft Office and vice versa!
ieSpell suggested a word that you are not familiar with? Look up its meaning in an online dictionary!
Powerful API for web application developers.

Force users to spell check the document before submission.
Ignore certain text fields.
Refuse a form submission if the user cancels the spell check!



</TBODY>


</TBODY>

Prazak
05-04-12, 10:02 AM
But in the last article there was one sentence that was jumbled in such a way that I simple could not understand it, and it's not the first time that's occurred. Clearly no one with competent editing skill is proofing the articles, and it makes me wonder why.

The phrase "I simple could not understand it" is flawed. Do you mean "I, simple, could not understand it"? Or "I simply could not understand it"?


I also think that whatever tendency causes iTulip to not take the trouble to spend one minute to run the articles through a spell checker is indicative of some underlying problem, which makes me wary of the objectivity of the economic analysis.

The phrase "to not take the trouble" is a split-infinitive. You should have written "not to take the trouble . . .".


Will I stop reading EJ's analysis because of a few spelling errors and the occasional incomprehensible senctence? Of course not.
Does the failure to use a spell checker or employ the services of a good proofreader over the last 6 years suggest some underlying problem. Yes.

Nearly a week had passed between the time EJ advertised a new installment for the following day and the time the installment arrived. It is a long, thoughtful, well-researched and, with a few niggling typos and gramm-os, lucidly written piece. I'm glad he got it out to the iTulip readership sooner rather than letting it sit another day to apply one additional polishing. The quality of the work speaks for itself. Challenge the work if you disagree, or stop reading if EJ's unwillingness to spend money on an editor truly bothers you. But carping on niggling technical errors is unbecoming.

bart
05-04-12, 10:33 AM
http://www.nowandfutures.com/grins/g3/day_of_the_triffins1.jpg

c1ue
05-04-12, 12:51 PM
China's "investment" in the USA is increasingly uneconomical, leading me to conclude that the loans are political, for leverage over US foreign policy toward China.

What does China want?

China wants the US to:

1. Acquiesce to China's USD currency peg to permit continued de-industrialization of the West
2. Leave China alone to buy Africa and gradually develop its own protection racket for Middle East Oil
3. Leave China alone as it develops Central and South America and right up to our doorstep in the Caribbean (http://www.economist.com/node/21549971)
4. Not interfere in China's thuggish treatment of its citizens
5. Fade away

This is related back to Triffin's original point that the IMS is a relic of the Cold War. China is exploiting the IMS to gain strategic leverage over the US.

Obviously I cannot answer all questions this throughly but I do when they are central to the argument.

Thank you for the glimpse.

In summary, China's ongoing investment into the US will increasingly be fueled by profits from China's exports to the ROW while the economic risks from China's internal bubble(s) will not change the trajectory of China's economic course in the next few years.

I have no disagreement with the analysis on China's strategy with respect to the US. It is similar to what I'd noted in other posts: ultimately China only has to employ wuwei in order for the US' overreach to correct itself.

Of course there are risks attendant to this strategy as well: for one thing, a purely IMS based economic restraint on a military power still presumes said power will not perform actions ranging from outright repudiation on down. While I do not believe the present US political structure would ever contemplate such actions, at the same time the increasing societal dissatisfaction in the US coupled with political stagnation ratchets up the possibility of the emergence of a demagogue.

I am a little less sanguine about the impact of burst bubbles in China; while the leadership in China is far more measured and steadfast, the population there is more volatile. China's leadership may understand that 'this too will pass', but the people may not.

raja
05-04-12, 02:11 PM
The quality of the work speaks for itself. Challenge the work if you disagree, or stop reading if EJ's unwillingness to spend money on an editor truly bothers you. But carping on niggling technical errors is unbecoming.
Do you not consider that the posts of the website's founder -- its public face, and the main attraction here -- should be held to a higher standard than those of the many thousands of members? I guess not, otherwise you wouldn't be using my writing defects to make your case.

If you don't understand that already, there's probably nothing I can say that will change your mind.

astonas
05-04-12, 02:26 PM
Do you not consider that the posts of the website's founder -- its public face, and the main attraction here -- should be held to a higher standard than those of the many thousands of members?

In short, no.

We all come here to learn, exchange ideas, and contribute. For this reason we should all hold ourselves to the standards we expect of others. This reciprocity of courtesy is not a function of the organization or fee structure of the site. It is based on the fact that we are civilized people.

On what basis do you consider the organization of the site to permit the suspension of basic human courtesy? I would argue that NO site's organization should allow that.

Do you believe that the waiter who serves you at a restaurant to be worthy of disdain or mistreatment just because your custom provides for their wage? If so, it is you, not they, who are worthy of disdain.

raja
05-04-12, 02:28 PM
duplicate post

bart
05-04-12, 02:30 PM
Hey guys - can we give it a rest please?

We know typos etc. exist and have for a while, and that there are lots of opinions in the area. I vote "so what" on a net basis.

astonas
05-04-12, 02:37 PM
Hey guys - can we give it a rest please?

We know typos etc. exist and have for a while, and that there are lots of opinions in the area. I vote "so what" on a net basis.

Thanks for the reminder, bart. It's all too easy to get caught up in irrelevant garbage sometimes. I'll stop now.

raja
05-04-12, 02:38 PM
I am a little less sanguine about the impact of burst bubbles in China; while the leadership in China is far more measured and steadfast, the population there is more volatile. China's leadership may understand that 'this too will pass', but the people may not.
As has happened in the past, once again EJ's conclusions are overly optimistic . . . in this case about China's future.

When the global economic crash arrives, starting with a depression in Europe, the exporting countries will all suffer, especially China. There will be no decoupling.

When China takes the big hit, the Chinese government will have its hands full with its own problems, and there will be no opportunity to pursue a plan of domination against the US. I agree with c1ue on this part.

bart
05-04-12, 02:55 PM
As has happened in the past, once again EJ's conclusions are overly optimistic . . . in this case about China's future.

When the global economic crash arrives, starting with a depression in Europe, the exporting countries will all suffer, especially China. There will be no uncoupling.

When China takes the big hit, the Chinese government will have its hands full with its own problems, and there will be no opportunity to pursue a plan of domination against the US.


It's my belief that there is always time for the greed & control freaks.


I still also believe that part of the "solution" in IMS land (just corrected a typo of INS, quality Freudian moment! ;-) will involve the IMF, partly as "negotiator" between the "challenged" primary 3 or 4 players. A one world currency is very much a political solution.

touchring
05-04-12, 03:00 PM
As has happened in the past, once again EJ's conclusions are overly optimistic . . . in this case about China's future.

When the global economic crash arrives, starting with a depression in Europe, the exporting countries will all suffer, especially China. There will be no uncoupling.

When China takes the big hit, the Chinese government will have its hands full with its own problems, and there will be no opportunity to pursue a plan of domination against the US.


I don't know that much about economics but one thing which I'm quite aware is that China is not a unified country as many Americans will tend to believe. Although politically unified for 2000 years, the fact remains that there are distinct cultures and even languages within China just like Europe or India. The Chinese from Hong Kong speak cantonese and are different from the Chinese from Beijing. They look different also - although not obvious to foreigners. The only difference from India and Europe is that there is a unified written language and a common lingua franca.

The other point is that individualism in China is very extreme. There is no real loyalty to the country. To every Chinese, their only loyalty is only to their own immediate family. If there's a war, no one will volunteer to fight. They will need to conscript. Chinese politicians stash money abroad at every single opportunity.

This is the reason why Chinese politicians are so scared of a slowdown. They know that the only thing that holds China together is profit. Once you take that profit away, no one knows what will happen and whether the people will revolt. Or worst, the local governments revolt against the central government.

Therefore I think we cannot make any prediction what China will do or can do 10 years from today.

flintlock
05-04-12, 03:19 PM
Part of me hopes for the US to stop being boss-of-the-world. It costs all of us a ton of tax money to keep this giant military astride the planet, and I don't see that our constant meddling in things abroad has had outcomes all good for us or for them.

It might be a welcome change to become a second-tier nation among the G-8, strong but not preeminent, with our attention focused mostly within our own borders and on our own affairs. I'm getting weary of being the schoolyard bully constantly threatening to beat up the others, or being the bossy neighbor that just has to be in charge of every single thing at the church picnic and PTA.

Yes, I'd like to see a lot less "World Police" role for the US also. But I can't help but think we still should be concerned about what is going on right at our own doorstep. I mean, China may indeed be buying stuff everywhere, but why the Caribbean? The Rather report mentioned oil but I didn't realize there was much oil in that region outside of Venezuela and Mexico. Or do they have other motives? Sounds like Cold War paranoia I know.;_CC

It would be nice to know if our leadership has a plan B in case things don't work out with China. I'm thinking the trend might be towards a more inward looking, self reliant economy in the US. As some point in time, if trends continue, the world won't need us like it used to. We won't be able to make anything cheap enough. We won't necessarily have any technological advantages. Perhaps it wont be so bad to go back to a more autnomous, self-reliant economy, that is not dependent on our military to help "sell" our exports. Hopefully we will still be able to make or do something people actually want.

Actually I remember now that some of this had more to do with China gaining "friends" at the UN than anything sinister. Taiwan is locked in a long term struggle with China and they are actually wooing friends in the Caribbean as well, for the same reason.

flintlock
05-04-12, 03:27 PM
Hey guys - can we give it a rest please?

We know typos etc. exist and have for a while, and that there are lots of opinions in the area. I vote "so what" on a net basis.

Amen!

EJ
05-04-12, 04:06 PM
Thank you for the glimpse.

In summary, China's ongoing investment into the US will increasingly be fueled by profits from China's exports to the ROW while the economic risks from China's internal bubble(s) will not change the trajectory of China's economic course in the next few years.

I have no disagreement with the analysis on China's strategy with respect to the US. It is similar to what I'd noted in other posts: ultimately China only has to employ wuwei in order for the US' overreach to correct itself.

Of course there are risks attendant to this strategy as well: for one thing, a purely IMS based economic restraint on a military power still presumes said power will not perform actions ranging from outright repudiation on down. While I do not believe the present US political structure would ever contemplate such actions, at the same time the increasing societal dissatisfaction in the US coupled with political stagnation ratchets up the possibility of the emergence of a demagogue.

I am a little less sanguine about the impact of burst bubbles in China; while the leadership in China is far more measured and steadfast, the population there is more volatile. China's leadership may understand that 'this too will pass', but the people may not.

China Crash 2011 - Part I: The repetition compulsion of central bankers (http://www.itulip.com/forums/showthread.php/17311-China-Crash-2011-Part-I-The-repetition-compulsion-of-central-bankers-Eric-Janszen) accurately forecast the impact of the Bank of China's effort to pop the property bubble. It crashed right on schedule nine months later, but then the BOC quickly reflated it before the macro-economy followed the property market down the tubes. It was back to the drawing board to figure out why.

My conclusion? What I call "China's Great Wall of Money," a FIRE Economy that does not depend on foreign investment flows the way the US FIRE Economy does. Without outside accountability, China can make up new rules as it goes along, like the rules of Calvin and Hobbes' Calvinball. "I'm broke," says the regional bank. "No you aren't," says the central government as it adds another billion to the bank's balance sheet and gives the bank its monthly a loan quota. The whole system is financed via mercantile trade policy. The Productive Economy the also centrally planned the way the FIRE Economy is in both the US and China, thus transmission of the crash into the "real" economy from the financial economy through the banking system can be halted as quickly as policy can be decided. There's no bi-partison bickering over issues like debt ceilings because there are no elections, so policy decisions are immediate as are the results.

I detailed my theory in a speech last year to the Florida Council of 100 and in an article in the subscription area of this site. As both are paid venues, it's not appropriate for me to go into the theory in detail here. The two other economists who were also paid speakers told me they were impressed that I'd "worked it out," which is gratifying. I expect readers will see the concept presented over time by other parties, but I won't hold my breath waiting for attribution.

That was also, by the way, the event where I tried to pin down Marco Rubio down on his take on crony capitalism, a topic brought up by one of two other economists who also spoke. He dodged the question, which is unfortunately because I'm otherwise pre-diposed to like pro-entrepreneur candidates.

Chris Coles
05-04-12, 04:08 PM
Yes, I'd like to see a lot less "World Police" role for the US also. But I can't help but think we still should be concerned about what is going on right at our own doorstep. I mean, China may indeed be buying stuff everywhere, but why the Caribbean?

Recently I renewed an old business friendship who had married into a Jamaican born family. It would appear that when the plantations were freed from slavery, the previous slaves proposed a deal where they worked part time for the landowners so that they could also spend some time on their land. What happened was that the Chinese that were also on the island decided to replace the slaves and work full time for the plantation owners. That single decision, meaning that all the ongoing prosperity became the income of the Chinese, has, over a very long period, meant that all the shops are now Chinese owned, rather than owned by the indigenous population.

If that story is correct, then all that is occurring in the Caribbean is a further consolidation of the long term investment by the Chinese community. Nothing different to the same process in the likes of China Town in San Francisco.

In which case, perhaps it is appropriate to suggest that we should relax and stop making mountains out of molehills.

Prazak
05-04-12, 04:39 PM
China Crash 2011 - Part I: The repetition compulsion of central bankers (http://www.itulip.com/forums/showthread.php/17311-China-Crash-2011-Part-I-The-repetition-compulsion-of-central-bankers-Eric-Janszen) accurately forecast the impact of the Bank of China's effort to pop the property bubble. It crashed right on schedule nine months later, but then the BOC quickly reflated it before the macro-economy followed the property market down the tubes. It was back to the drawing board to figure out why.

My conclusion? What I call "China's Great Wall of Money," a FIRE Economy that does not depend on foreign investment flows the way the US FIRE Economy does. Without outside accountability, China can make up new rules as it goes along, like the rules of Calvin and Hobbes' Calvinball. "I'm broke," says the regional bank. "No you aren't," says the central government as it adds another billion to the bank's balance sheet and gives the bank its monthly a loan quota. The whole system is financed via mercantile trade policy. The Productive Economy the also centrally planned the way the FIRE Economy is in both the US and China, thus transmission of the crash into the "real" economy from the financial economy through the banking system can be halted as quickly as policy can be decided. There's no bi-partison bickering over issues like debt ceilings because there are no elections, so policy decisions are immediate as are the results.

I detailed my theory in a speech last year to the Florida Council of 100 and in an article in the subscription area of this site. As both are paid venues, it's not appropriate for me to go into the theory in detail here. The two other economists who were also paid speakers told me they were impressed that I'd "worked it out," which is gratifying. I expect readers will see the concept presented over time by other parties, but I won't hold my breath waiting for attribution.

That was also, by the way, the event where I tried to pin down Marco Rubio down on his take on crony capitalism, a topic brought up by one of two other economists who also spoke. He dodged the question, which is unfortunately because I'm otherwise pre-diposed to like pro-entrepreneur candidates.

Isn't China's mercantilist FIRE economy just as predicated on cheap oil as America's transportation grid and the sprawl of car-oriented development? Looking forward to your take on how Peak Cheap Oil plays out within the two biggest economies in the world.

lakedaemonian
05-04-12, 07:40 PM
Isn't China's mercantilist FIRE economy just as predicated on cheap oil as America's transportation grid and the sprawl of car-oriented development? Looking forward to your take on how Peak Cheap Oil plays out within the two biggest economies in the world.

I'm wondering the same.......I'm guessing energy/oil consumption per unit of GDP(where it's at today and where it's headed tomorrow) would play an important role in measuring relative pain in a Peak Cheap Oil environment.

I wonder if it will be inversely analogous to the relationship shared here in iTulip before on the diminishing returns on GDP with increasing credit/debt?

Hopefully further iTulip analysis on this topic might include a ranking of nations in terms of their relative vulnerability to Peak Cheap Oil.

bart
05-04-12, 09:21 PM
Here's two views of the GDP & energy usage picture.



http://www.nowandfutures.com/images/gdp_energy1.png






http://www.nowandfutures.com/images/gdp_energy2.png

lakedaemonian
05-04-12, 09:46 PM
Here's two views of the GDP & energy usage picture.



http://www.nowandfutures.com/images/gdp_energy1.png






http://www.nowandfutures.com/images/gdp_energy2.png

I've been having a hard time getting much sleep the last few days(been really busy), but if I'm looking at that correctly it looks like we're seeing diminishing returns on energy per unit of GDP created, much like we've seen with debt, but less pronounced?

It looks like we're getting 25% less economic $bang$ for every BTU in just the last 8 years and a similar % for every barrel of oil in the last 10? On the surface, that's pretty scary.......and it only leaves me with more questions such as why is it? What's so different in the last 8/10 year time frame for BTUs/oil respectively?

Would a chunk of that(if so is it possibl;e to determine how much) be the defense/war effort of the past decade?

Again IF I'm reading it correctly.....in my last post I had made the ASSumption that we would be going the other way.

Is there a clear and direct relationship between this chart and the previous ones seen here on iTulip on the diminishing GDP returns from increased debt?

bart
05-04-12, 09:57 PM
I've been having a hard time getting much sleep the last few days(been really busy), but if I'm looking at that correctly it looks like we're seeing diminishing returns on energy per unit of GDP created, much like we've seen with debt, but less pronounced?



Yes, that's what I see too.




It looks like we're getting 25% less economic $bang$ for every BTU in just the last 8 years and a similar % for every barrel of oil in the last 10? On the surface, that's pretty scary.......and it only leaves me with more questions such as why is it? What's so different in the last 8/10 year time frame for BTUs/oil respectively?



The majority of the effect in my opinion is that the gap between the GDP deflator (or CPI-U) and CPI w/o lies has grown much larger - around a 5% gap per my work.




Would a chunk of that(if so is it possibl;e to determine how much) be the defense/war effort of the past decade?


I think it would be, but the data wouldn't be easy or quick to locate. We know there have been a bunch of wars, and wars use lots f energy/


Again IF I'm reading it correctly.....in my last post I had made the ASSumption that we would be going the other way.

Is there a clear and direct relationship between this chart and the previous ones seen here on iTulip on the diminishing GDP returns from increased debt?


Very much so, but for different reasons. Reinhart and Rogoff's work on debt to gdp is probably what you're looking at, but the real and understated inflation hits everybody - including governments eventually.



http://www.nowandfutures.com/images/us_receipts_cpi_lies1900on_log.png






http://www.nowandfutures.com/images/us_spending_cpi_lies1900on_log.png

oboy
05-04-12, 10:56 PM
+1

lakedaemonian
05-04-12, 11:04 PM
Thanks Bart!

touchring
05-05-12, 01:01 AM
China Crash 2011 - Part I: The repetition compulsion of central bankers (http://www.itulip.com/forums/showthread.php/17311-China-Crash-2011-Part-I-The-repetition-compulsion-of-central-bankers-Eric-Janszen) accurately forecast the impact of the Bank of China's effort to pop the property bubble. It crashed right on schedule nine months later, but then the BOC quickly reflated it before the macro-economy followed the property market down the tubes. It was back to the drawing board to figure out why.


Can you actually reflate the China property bubble? Bear in mind that Shanghai real estate now cost as much as New York but young graduates earn 4000 Yuan ($630) a month. And 50% of apartments in Shanghai are actually empty - http://www.villable.com/market_commentary_list_content-lang2-1260.html

raja
05-05-12, 09:21 AM
"In China, as a result of the one-child policy and sex- selective abortion, that ratio has been 120 boys for every 100 girls. From 2000 to 2030, the percentage of men in their late 30s who have never been married is projected to quintuple. Eberstadt doesn’t believe that having an “army of unmarriageable young men” will improve the country’s economy or social cohesion."


My advice -- go long Chinese hookers; they will be busy :D

Just another reason China is headed for the dumpster (also posted in different form on another thread):


Bloomberg China’s Pending Population Crash (http://www.bloomberg.com/news/2012-04-30/china-s-population-crash-could-upend-u-s-policy.html)

Today’s most important population trend is falling birthrates. The world’s total fertility rate -- the number of children the average woman will bear over her lifetime -- has dropped to 2.6 today from 4.9 in 1960. Half of the people in the world live in countries where the fertility rate is below what demographers reckon is the replacement level of 2.1, and are thus in shrinking societies.

As Eberstadt points out, we can make predictions about the next 20 years with reasonable accuracy. The U.S.’s traditional allies in western Europe and Japan will have less weight in the world. Already the median age in western Europe is higher than that of the U.S.’s oldest state: Florida. That median age is rising 1.5 days every week. Japan had only 40 percent as many births in 2007 as it had in 1947.

These countries will have smaller workforces, lower savings rates and higher government debt as a result of their aging. They will probably lose dynamism, as well.

All these effects will, in turn, almost certainly make these countries even less willing than they already are to spend money on their armed forces. Americans who want Europe to bear more of the free world’s military burden -- or even provide for its own defense -- are probably going to be disappointed. So will those who expect Europe to take on humanitarian missions. It won’t even be able to maintain its current weight in future debates about the values of peace and democracy.

China’s rise over the last generation has been stunning, but straight-line projections of its future power and influence ignore that its birthrate is 30 percent below the replacement rate.

The Census Bureau predicts that China’s population will peak in 2026, just 14 years from now. Its labor force will shrink, and its over-65 population will more than double over the next 20 years, from 115 million to 240 million. It will age very rapidly. Only Japan has aged faster -- and Japan had the great advantage of growing rich before it grew old. By 2030, China will have a slightly higher proportion of the population that is elderly than western Europe does today -- and western Europe, recall, has a higher median age than Florida.

China’s Challenges

China, notoriously, has another demographic challenge. The normal sex ratio at birth is about 103 to 105 boys for every 100 girls. In China, as a result of the one-child policy and sex- selective abortion, that ratio has been 120 boys for every 100 girls. From 2000 to 2030, the percentage of men in their late 30s who have never been married is projected to quintuple. Eberstadt doesn’t believe that having an “army of unmarriageable young men” will improve the country’s economy or social cohesion.

Foreign-policy thinkers can often lose sight of demographic trends, Eberstadt says, because from a policy makers’ view “they tend to look really glacial. If it’s not happening in the next 48 to 72 hours, it’s not in the inbox.” But “population change gradually and very unforgivingly alters the realm of the possible.”

Polish_Silver
05-05-12, 11:37 AM
by 2030, China will have a slightly higher proportion of the population that is elderly than western Europe does today

Interesting Data! Peter Drucker was a big believer in demographic trends being very important for forecasting.
China's growth will slow down for multiple reasons:

1) aging population
2) bankruptcy in the nations they are trying to export to
3) internal bubbles

Polish_Silver
05-05-12, 11:51 AM
Oil prices will rise in the future. But the structure of the oil market could matter just as much as prices. A long time ago oil was sold in long term contracts between producers and consumers. The big international oil companies had vertically integrated systems from
oil field to gas pump. Relatively little oil was sold on spot market.

Mark Rich pioneered the modern oil market, where a large volume of oil is sold on a spot basis. The advantage of the spot market is that there is more competition, and prices tend to be lower. Only price matters, not nationality and pre-existing contracts.

Supposedly, China is reversing this trend. They are negotiating long term contracts with oil exporting governments. They are infiltrating oil producers on a business and political level.
Their influence will be to supply China at a known price, regardless of what the spot price is.

If the US neglects to lock in dedicated supply, we will have to rely on the spot market. When supply gets tight, spot market prices could rise dramatically, causing a deep recession. China would be insulated by it's long term supply guarantees. It will be very hard to resolve this, since China would have locked in the good sources. The US will have to become much less oil intensive. Currently, the US uses about 2X the oil per capita as other developed nations.

California discovered this in the 90's, when the spot market was unable to provide the needed electricity. Rolling blackouts occured throughout the state.

metalman
05-05-12, 12:04 PM
"In China, as a result of the one-child policy and sex- selective abortion, that ratio has been 120 boys for every 100 girls. From 2000 to 2030, the percentage of men in their late 30s who have never been married is projected to quintuple. Eberstadt doesn’t believe that having an “army of unmarriageable young men” will improve the country’s economy or social cohesion."


My advice -- go long Chinese hookers; they will be busy :D



hookers... he he... he... he he he...

http://i20.photobucket.com/albums/b210/wayxhardcore707/5befe21f.gif

touchring
05-05-12, 12:05 PM
Interesting Data! Peter Drucker was a big believer in demographic trends being very important for forecasting.
China's growth will slow down for multiple reasons:

1) aging population
2) bankruptcy in the nations they are trying to export to
3) internal bubbles


It's not just this 3 factors. Buying a new home is an incredibly expensive affair for a Chinese couple. A small apartment in the outskirts of Shanghai costs well over 2 million Yuan. A couple in their late 20s doing white collar jobs earn a combined income of 10,000 yuan a month. Note: We'll leave blue collar workers on 1500-2500 yuan a month income out because most can't afford to get married in the first place.

The cost of living in Shanghai is not cheap to begin with. ith mortgage rates at 7%, you can roughly work out that it is nearly impossible to buy an apartment on a 120K a year combined income since just the interest alone for a 1.2 million Yuan is 84K yuan a year. 1 million loan, assuming that their parents provide the other 800K down payment as a gift.

The situation in other cities is not much better since although real estate is cheaper, income is also lower. In Beijing, people earn even less than in Shanghai but the cost of real estate is not cheaper.

With real estate prices this high, very few new couples can afford to have children.

And to think that EJ is talking about a reflation of the Chinese property bubble!! Sometimes it is good to know what is happening on the ground. ;_CC

Polish_Silver
05-05-12, 02:11 PM
it is nearly impossible to buy an apartment on a 120K a year combined income since just the interest alone for a 1.2 million Yuan is 84K yuan a year.Touchring

How did the prices get pumped up so high, and who owns that stuff? Aren't they afraid of a massive sell off?

Is there a way I can short it?

Polish_Silver
05-05-12, 02:20 PM
The other point is that individualism in China is very extreme.--touchring.
Very interesting! We need another word, for it though, instead of "individualism". Perhaps "familyism".

Inspite of decades or propoganda, you say there is very little national feeling--fascinating. That calms my nerves that they won't start a shooting war with anybody. One of my Illinois friends grew up in china. He told me that in the fourth grade, they had all the students climb up a tall tower and jump off wearing a parachute! (maybe it was just the boys.) The rip cord was teathered to the tower, to increase the probability of success.

That is what I call being prepared.

aaron
05-06-12, 02:42 AM
Yeah, go long

touchring
05-06-12, 03:06 AM
Touchring

How did the prices get pumped up so high, and who owns that stuff? Aren't they afraid of a massive sell off?

Is there a way I can short it?


One sentence - corruption and corrupted local officials are behind it.

Polish_Silver
05-06-12, 07:25 AM
Touchring,

I really like reading your posts about China.

I have been to Taiwan, but not China. And I cannot speak Mandarin, so I almost feel like China is on another planet.

I wonder if you have been able to visit or live in China, and whether you can speak Mandarin or Cantonese, and whether you read books about China.
My cousin lived in China for many years, and could speak Mandarin. He also mentioned occasionally that the country had profound divisions.

flintlock
05-07-12, 12:31 PM
"That's what she said!"

c1ue
05-07-12, 07:55 PM
I mean, China may indeed be buying stuff everywhere, but why the Caribbean?

Markets. The Caribbean countries are a small but reasonably potent market for Chinese goods. A few of the larger islands also have exploitable resources like Jamaican aluminum.


My conclusion? What I call "China's Great Wall of Money," a FIRE Economy that does not depend on foreign investment flows the way the US FIRE Economy does.

Fair enough. If I understand it correctly, you are basically saying that China has a command economy only via FIRE - as compared to the Soviet Union's 'labor' based command economy - and furthermore that since China started later, that the final reckoning will not happen until well after the US and Europe have struggled through their own reckonings.


My advice -- go long Chinese hookers; they will be busy

I'd say you might reconsider 'investing' until after you've looked at the overseas Chinese population, plus the populations of the nations around China.

Between SE Asia, the Phillippines, and so forth, there are a lot of potential brides out there. It is definitely an issue, but not one without alternatives.

ST
05-20-12, 09:40 AM
China Crash 2011 - Part I: The repetition compulsion of central bankers (http://www.itulip.com/forums/showthread.php/17311-China-Crash-2011-Part-I-The-repetition-compulsion-of-central-bankers-Eric-Janszen) accurately forecast the impact of the Bank of China's effort to pop the property bubble. It crashed right on schedule nine months later, but then the BOC quickly reflated it before the macro-economy followed the property market down the tubes. It was back to the drawing board to figure out why.

Do you have any hard data / charts you can point us to demonstrating the Chinese property crash? Many people seem to think it didn't take place.

Polish_Silver
05-20-12, 02:39 PM
Do you have any hard data / charts you can point us to demonstrating the Chinese property crash? Many people seem to think it didn't take place.

I would also like to see this data !

raja
05-20-12, 03:15 PM
I would also like to see this data !
Real Estate Crash in China Underway: Foreign Funding Down 80%, Land Sales Down 57%, Starts Down 27%; Expect Chinese GDP to Plunge (http://globaleconomicanalysis.blogspot.com/2012/05/real-estate-crash-in-china-underway.html)

Inquiring minds are reading an excellent report China Real Estate Unravels (http://www.economonitor.com/blog/2012/05/china-real-estate-unravels/)by Patrick Chovanec, a professor at Tsinghua University's School of Economics and Management in Beijing, China.

The report confirms many of the things I said would happen in regards to the Chinese real estate bubble and GDP.

Here are a few items of note.

Developers, burdened by 70% leverage ratios and loans threatening to come due, rushed to complete projects already in their pipeline, to put those units onto the market and raise cash.

That rush to complete inflated real estate investments, allegedly up 23.5% in the first quarter. Other statistics from the report tell the real story.




Year-on-year sales in Q1, for all real estate, was down 14.6%.
Residential property sales were down 17.5%
Office sales were down -10.2%
Sales in January-February were a disaster, falling 20.9% overall, compared to the first two months of 2011, -24.7% for residential.
Total amount of floor space “for sale” was up 35.5%, compared to the same date last year
Floor space of residential units “for sale” grew 47.4%.
At the end of 2011, total floor space “under construction” was roughly 4.6 times the floor space sold
A year and a half worth of excess inventory is hidden somewhere in the pipeline
New starts in April fell 14.6% year-on-year and 27.0% month-on-month, for property as a whole
Housing starts fell -14.4% year-on-year and -23.4% month-on-month
Office starts fell -21.0% year-on-year in April, and -45.1% compared to March
Retail property starts fell -18.7% year-on-year, and -36.8% compared to March
Land sale revenues in April (RMB 27 billion) were down -54.7% compared to April last year
Foreign funding for property development was down -91.4% in March and -80.8% in April, compared to the same months last year.


Clearly a crash is underway. The above stats also show the soft-landing thesis is written on toilet paper.

GDP Analysis

I like the analysis by Chovanec on GDP implications and the highly-overrated "soft landing" theory.

The “resilient” growth in real estate investment that seemed to promise a “soft landing” is not very resilient at all. It’s more like the last gasp of a market that’s running out of steam. Once the surge in completions plays out, the declining number of new starts will become the pipeline, and growth in property investment will flatten or go negative.

Property investment accounts for roughly a quarter of gross Fixed Asset Investment (FAI), and net FAI accounts for over half of China’s GDP growth. As I noted in January (http://chovanec.wordpress.com/2012/01/17/bbc-chinas-2011-gdp-numbers/), in a back-of-the-envelope thought exercise, if property investment plateaus (growth falls to zero), it could shave as much as 2.6 percentage points off of real GDP growth. If it fell 10% (http://chovanec.wordpress.com/2012/01/20/further-thoughts-on-real-estates-impact-on-gdp/)(in real, not nominal terms) it could bring GDP growth down to 5.3%.

At the time I first saw this dynamic in the data, when the Q1 numbers came out, I figured it would take several months to begin playing out. But the April numbers suggest it is already happening. Chovanec notes if real estate investment drops by 10%, GDP will come in at 5.3%. What if real estate investment falls by 20% or 25%? Moreover, why shouldn't it?

Nails in the Hard Landing Coffin?

One of the sillier stories making the rounds earlier last month was China currency move nails hard landing risk coffin (http://news.yahoo.com/analysis-china-currency-move-nails-hard-landing-risk-023928876.html)

I responded at the time with ...

The longer China puts off rebalancing its economy, the bigger the crash later on. Moreover, widening the band on its currency is a needed part of that rebalancing, and does not preclude in any way a huge slowdown in growth.

The structural imbalances in China are large and for now, still growing. However, huge cracks have appeared in real estate, and changes are coming up with a regime change. Finally, peak oil alone makes many of the growth estimates we have seen for China outright impossible. The real estate crash has arrived. The GDP crash will follow. For details, please see 12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin? (http://globaleconomicanalysis.blogspot.com/2012/04/12-predictions-by-michael-pettis-on.html)

Mike "Mish" Shedlock

Polish_Silver
05-29-12, 07:51 AM
That interest rate decline was due to markets responding to falling interest rates. --EJ

Shouldn't it say "markets responding to falling inflation rates." ??

bart
05-29-12, 10:15 AM
Real Estate Crash in China Underway: Foreign Funding Down 80%, Land Sales Down 57%, Starts Down 27%; Expect Chinese GDP to Plunge (http://globaleconomicanalysis.blogspot.com/2012/05/real-estate-crash-in-china-underway.html)



Inquiring minds are reading an excellent report China Real Estate Unravels (http://www.economonitor.com/blog/2012/05/china-real-estate-unravels/)by Patrick Chovanec, a professor at Tsinghua University's School of Economics and Management in Beijing, China.

The report confirms many of the things I said would happen in regards to the Chinese real estate bubble and GDP.
...



Mish gives zero attention or credence to this, out of that Chanovec report:


Getting an accurate view of the property sector is complicated by the fact that neither the official price index, nor the Soufun price index, nor the average price/square meter that can be calculated from the investment numbers seem to track very well with each other or with point-of-sale impressions of steep developer discounts over the past eight months. Developers and local governments also enjoy a great deal of discretion in deciding what to count as a “start” or a “completion.” Monthly data releases are never revised, which often gives rise to huge corrections that are simply lumped into the end-year December data release, giving a distorted impression of how trends are unfolding (so, for instance, the 19% drop in property starts in December 2011 probably wasn’t as sudden as it appears, and more likely reflected an unreported decline spread over several preceding months).

(emphasis mine)