The global economy - mid-2011 onwards...

McQueen’s post ties in nicely with something I’ve been wondering about and I think it deserves a thread of its own (it was in the house price drop best in the world thread):

Some other factors - commodity and particularly oil prices have the potential to derail recovery further. The high prices will act as a positive feedback, as they did in the 'seventies - higher prices, lower real growth. Combined with low labour bargaining power, they indicate a lower standard of living for many.

For me, the key to understanding the Great Depression in the US has always been what was said at the time - too much money was made by the financial sector, too little money was made by productive enterprise. Globalisation and unfettered capital flows have moved us into the same dangerous territory.

For China, this is a real problem:

While it might account for the resilience of London prices, even a country as large as China cannot afford that sort of haemorrhage.

I thought we’d see more happening within China, we probably don’t have the full picture. The fact that a riot can be set off by a rumour says that tension is already high and just needs a spark.
I was warned several years ago by Chinese that the world had more to fear from China imploding.
If the Chinese Gov wants a handy war for national unity then no better place than Shan state in Burma.

Another event in the middle east. If oil demand continues to drop then suppler countries start fighting for market for their oil. It could get nasty where wars are started to basically knock out the competition.

can’t find the Bloomberg article at the minute,
but some economist was saying that commodity prices are being driven by the BRIC countries solely because of Quantitative Easing in the developed world.

From memory, his theory was that the US money supply was NOT growing,
because all the treasuries were been bought by the BRIC countries (and OPEC etc),
and to buy these treasuries in US dollars,
the BRIC countries had to buy US dollars from the US.

In buying the US dollars from the US,
they just reduced the amount of US dollars in circulation in the US economy,
and gave those US dollars straight to the US Treasury in exchange for the US Treasuries.

However, in order to buy US dollars, the BRIC countries had to increase the suuply of their local currency,
and sell their local currency into the market in exchange for US dollars.
An increase in the local currency in these countries - well its like an expansionary monetary policy,
it causes their economies to overheat pushing up commodity prices as a result.
All the while, the US economy still staggers along because the amount of US dollars in circulation has not changed.

Its an interesting theory - not saying that i believe it, but good to see someone thinking differently about the whole thing.

Yeah, it sort of ties in with the crowding out theory of government spending, but on a global scale. The bit that’s missing is the US trade balance. Dollars are flowing into the BRICs as any attempt to stimulate in the US is leaking out in imports. Mr. Krugman and others would no doubt point to a savings ‘glut’ in BRIC countries (echoed by calls in Ireland that savers are ‘hoarders’). I don’t really see this, rather there is what is seen by importing countries as cynical mercantilism, but what is seen in some BRICs as prudent attempts to prevent hot money flows (see the capital controls in Brazil, for example, and the restrictions on yuan convertibility).

It is unfortunate that free trade agreements have essentially made domestic stimulus impossible. Co-ordinated stimulus appears to be impossible for domestic political and ideological reasons, so the local stimulus packages (QE in the US and UK, many variations in Japan, the construction boom in China) are failing to meet sustainable ends.

Global oil demand it at an all time high, if it was not so the price would have collapsed by now. It’s the lack of oil to export that’s most likely to trigger an event in another middle eastern country.

Egypt for example, changed from being an oil exporter to an oil importer at the start of this year!

For every barrel less the OECD consumes, the East uses instead and more.

anyone got a price comparison between running a horse and cart V the average family saloon :smiley:

You’re absolutely right, I was projecting too far ahead. Where I was coming from is how that increased price is fed back into oil economies, people become used to a certain level of comfort and while demand may dictate higher prices, any sudden drop for a sustained period would have an impact on regimes trying to keep the masses happy.

may we live in interesting times…



Doesn’t that mean that they are getting very little growth for their buck?

Biggest day of the Calender today!..

We should get a clearer indication of QE Policy and direction of commods etc after today IMHO…

I’m surprised that China hasn’t considered national service, idle yound unemployment gone at a stroke!

If the Chinese bubble pops, can you imagine what that will do to commodity prices?

I cannot see him giving away too much today, he needs a bigger excuse to endorse another round of QE imo. I think the current Dead cat will fizzle and when we reach much lower asset prices he’ll step up. Will keep an eye on TZA, FAZ and VXX etc.

no need to worry about the Chinese property market :angry: