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HANG SENG     China Inlfation (Luck i m your father)

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Luck i m your father     posted : 27/12/10   06:56 pm


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China raised interest rates for the second time since mid-October to counter the fastest inflation in more than two years and more moves may follow.

The benchmark one-year lending rate will rise by 25 basis points to 5.81 percent and the one-year deposit rate will climb by the same amount to 2.75 percent, effective today, the People’s Bank of China said in a one-sentence statement on its website late yesterday.

Premier Wen Jiabao is seeking to slow gains in property values and consumer prices that are making it harder for families to buy homes and pay for food. Bank lending and a wider-than-forecast November trade surplus have pumped more cash into an economy already awash with money.

China is tightening after a record expansion of credit to counter the effects of the world financial crisis. The broadest measure of money supply, M2, has surged by 55 percent over the past two years and outstanding yuan-denominated loans have climbed 60 percent to 47.4 trillion.

Residence-related costs, including charges for water, electricity and rent, jumped 5.8 percent last month from a year earlier, the most in more than two years, and consumer goods prices rose 5.9 percent, the biggest gain since August 2008, according to statistics bureau data.

Policy makers are concerned that raising interest rates could “encourage hot money inflows,” Paul Cavey, a Hong Kong- based economist at Macquarie Securities Ltd. said. “Raising interest rates has far more implications” than ordering lenders to set aside more of their deposits as reserves, as it may affect the ability of local governments and companies to pay their debts.

State Council researcher Ba Shusong told state television yesterday that the government will step up regulation of capital inflows, without specifying measures that will be taken.

The Ministry of Commerce is stepping up supervision of foreign investment in real estate to crack down on speculation after a 48 percent jump in overseas fund inflows to the industry in the first 11 months of the year, spokesman Yao Jian said on Dec. 15. Policy makers may also allow faster gains in the yuan to help curb inflation from higher prices of imported commodities, according to analysts’ forecasts

n 1998, when Jiang Zemin, then the president, announced plans to bolster higher education, Chinese universities and colleges produced 830,000 graduates a year. Last May, that number was more than six million and rising.

It is a remarkable achievement, yet for a government fixated on stability such figures are also a cause for concern. The economy, despite its robust growth, does not generate enough good professional jobs to absorb the influx of highly educated young adults. And many of them bear the inflated expectations of their parents, who emptied their bank accounts to buy them the good life that a higher education is presumed to guarantee.

“College essentially provided them with nothing,” said Zhang Ming, a political scientist and vocal critic of China’s education system. “For many young graduates, it’s all about survival. If there was ever an economic crisis, they could be a source of instability.”

In a kind of cruel reversal, China’s old migrant class — uneducated villagers who flocked to factory towns to make goods for export — are now in high demand, with spot labor shortages and tighter government oversight driving up blue-collar wages.

But the supply of those trained in accounting, finance and computer programming now seems limitless, and their value has plunged. Between 2003 and 2009, the average starting salary for migrant laborers grew by nearly 80 percent; during the same period, starting pay for college graduates stayed the same, although their wages actually decreased if inflation is taken into account.

Chinese sociologists have come up with a new term for educated young people who move in search of work like Ms. Liu: the ant tribe. It is a reference to their immense numbers — at least 100,000 in Beijing alone — and to the fact that they often settle into crowded neighborhoods, toiling for wages that would give even low-paid factory workers pause.

“Like ants, they gather in colonies, sometimes underground in basements, and work long and hard,” said Zhou Xiaozheng, a sociology professor at Renmin University in Beijing.


Eight Problems Facing China

* Hot money inflows
* Huge property bubble
* Massive increases in money supply, much of it property speculation and building of unneeded capacity
* Currency manipulation charges from the US and potential trade wars
* Unsterilized trade imbalances fuel inflation
* Slowing Europe
* Dearth of Jobs for new graduates
* Potential social unrest

Case For Hard Landing

Risks are enormously skewed to the downside, so much so that the odds China avoids a hard landing are not good. China is far more exposed to a slowdown in Europe than the US and the popping of China's property bubble will extract a huge toll.
Christina     posted : 28/12/10   02:14 pm


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Beijing – An Auto Gold Mine

In 2009, Chinese government introduced tax incentives for cars with engine sizes of 1.6 liters or smaller. The move propelled China to the world’s biggest auto market that year, surpassing the United States. The trend has continued in the first 11 months of 2010--automakers in China shipped a total of 16.4 million vehicles, up 34% year-over-year.

Beijing is China's largest auto market and regarded by auto manufacturers as a gold mine. Statistics from the Beijing Municipal Commission of Transport show that the city's total number of automobiles stood at around 4.8 million, up almost 85% from 2005.

Great Auto Growth Sans Roads & Parking?

Bloomberg reported that world’s largest automakers-GM, Volkswagen, Toyota, and Nissan all expect sales in China to grow anywhere from 10% to 17% in 2011. While most auto companies commented that it is too soon to talk about the effect this measure will have on car sales, there’s no getting around the fact that without sufficient roads and parking spaces, any great growth potential (See Predicted Sales Chart) in China is basically meaningless.

Infrastructure Gap For The Next Decade

As discussed in my previous analysis, China has inadequate logistic infrastructure to meet the needs of its mass population and heavy industrial business, partly reflecting poor planning by the local and central officials. As much as the country has been racing to build and upgrade its transportation system, this new restriction speaks volume that the deficiency most likely will persist in the next decade or so.
I\'m happy to receive any constructive criticism about my trades. I\'m always ready to learn more.
Christina     posted : 28/12/10   02:15 pm


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THE DILEMMA FOR CHINA AND GEITHNER

The Chinese decision-makers face a dilemma: they must buy the IOUs of Western governments that will inevitably default. The PIIGS will go bust. This includes the U.S. government, whose debts dwarf those of the PIIGS. When the default comes, the People's Bank of China will be sitting on top of a mountain of bad debt – the worst kind of bad debt: the kind that is openly in default, not merely incapable of repaying, as is the case of Treasury debt today.

The American decision-makers also face a dilemma: the dependence of the U.S. government on Chinese decision-makers. The U.S. Treasury needs China's central bank to buy Treasury debt. If that bank ever refuses, the U.S. central bank will have to buy the debt in order to keep interest rates from rising on Treasury debt. But the continuing purchase of Treasury debt by the Chinese central bank means that the United States will continue to import more from China than it exports to China. This is bad news for mercantilists. It's the dreaded negative balance of trade.

This is great for American consumers, of course. The goods that the Chinese citizens cannot buy, because we buy them, benefit American consumers. When you walk into Best Buy or Wal-Mart, and you see a wall of wide-screen TVs, you know this: they were not made in the USA. They were made in China, labeled by a Korean or Japanese company, and exported to the USA.

China's central bank can create fiat money, and it does. It can buy foreign currencies with this newly created money, and it does. It can buy IOUs from foreign governments, and it does.

Why does it do this? Because its staffers are Keynesians. They were trained in the best foreign universities. The professors of economics in China's best universities are also Keynesians.

Keynesian economics rests on two premises: (1) economic growth comes from deficit spending by the central government; (2) central banks can create sufficient money to buy government IOUs at low, economically stimulative interest rates. To this is added traditional mercantilism: national wealth is attained by exporting more goods than are imported.

Bureaucrats and politicians on both sides of a border cannot achieve this goal. Both nations, meaning producers on both sides of an invisible line, cannot export more goods and services than it imports from the other side. One side or the other will export more goods. To do this, it must buy more investment assets on the other side.

If China's exporters are to export more than the Chinese people import, then someone must lend foreigners the money to buy those "excess" goods. The payments always balance, unless one side is giving away goods. If China exports $500 billion more in goods than it imports, someone in China must lend $500 billion to the foreigners who import all those goods. China's central bank is the lender. It creates the computerized money to make those loans.

If China's decision-makers were all committed to Austrian School economics, they would tell the central bankers to cease buying or selling assets. The best central bank policy is to close up shop, meaning shut down. The second-best policy is to do nothing. But central bankers ask: "What's in it for us?" They conclude that it would be unwise, career-wise, to shut down or do nothing. They sell the decision-makers on the need for more loans to the West, thereby funding more exports to the West. They preach mercantilism.
I\'m happy to receive any constructive criticism about my trades. I\'m always ready to learn more.
mart.j     posted : 09/02/11   09:19 pm


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China created paper money and paper money then created Inflation

By: Darryl_R_Schoon

Ralph T. Foster in his invaluable book, Fiat Paper Money, The History and Evolution of Our Currency, writes that paper money made its first appearance in Szechwan, a remote province of China early in the 11th century.

Because of a shortage of copper coins, provincial officials had begun circulating iron coins; but the difference in value and weight between the two metals caused unexpected problems.

As Foster writes: [housewives needed] one and one-half pounds of iron [coins] to buy one pound of salt…Paper was the answer. People began to deposit their iron money in money shops and exchanged deposit receipts to transact business.

The money shops’ deposit receipts then began circulating as money. But the money shops soon issued more deposit receipts than their supply of coins and by 1022, confidence had eroded in both the notes and the supporting iron money [and] government authorities closed the private note shops.

When the Chinese government intervened, the government quickly discovered the advantages paper money—at least to the issuers. The Sung dynasty immediately banned the issuance of paper notes by private money shops and on January 12, 1024, the Sung court directed the imperial treasury to issue national paper money for general use.

In the beginning, the imperial treasury backed its paper notes with cash coins equal to 29% of the paper money issued. Eventually, however, the Sung, like each succeeding dynasty, would print far more money than it actually possessed in backing.

The consequent loss of confidence in paper money caused Chinese scholars to question the nature of money...Ye Shi (1150-1223) spoke out against excessive amounts of what he called “empty money” when he observed how paper inflation hurt the economy; and scholar Hu Zhiyu (1127-1295) concluded that only backing gave paper value and blamed the retreat from convertibility for the loss of public confidence.. paper money, the child, is dependent on precious metals, the mother. Inconvertible notes are therefore “orphans who lost their mother in childbirth”. (page 19)

For the next 600 years, succeeding dynasties would each attempt to utilize the advantages of paper money and avoid its disadvantages. Not one dynasty was able to do so. All attempts to use paper money ended in runaway inflation and dynastic collapse.

By 1661, China finally learned its lesson and the new Qing dynasty officially outlawed paper money. Regarding China’s 600 year experiment, Foster writes:

Over the course of 600 years, five dynasties had implemented paper money and all five made frequent use of the printing press to solve problems. Economic catastrophe and political chaos inevitably followed. Time and again, officials looked to paper money for instant liquidity and the immediate transfer of wealth. But its ostensible virtues could not withstand its tragic legacy: those who held it as a store of value found that in time all they held were worthless pieces of paper. (page 29)

Today, almost 1,000 years after paper money first appeared and 350 years after China banned its use, China’s is again issuing excessive amounts of paper money; and, once again, paper money’s initial prosperity is about to give way to inflation and economic chaos in the celestial kingdom.

Southern Weekly, a Chinese language publication, recently noted: China has not only been the country that prints money at the fastest rate but also been the country with the largest money supply in the world in the past decade. China’s M2, a broad measure of money supply, was up 19.46% at the end of November from a year earlier...This compares with 3.3% and 2.5% of annual M2 growth in the US and Japan respectively over the same period…




click to enlarge




China's money supply, M2-to-GDP ratio over the past decade is the highest in the world. The nation with the longest history of excessive money printing and consequent inflation has clearly forgotten its past. The past, however, has not forgotten China.

2011: CHINA, INFLATION & THE PRICE OF GOLD

Asian nations, China and India in particular, have a long history with gold. Precious metals as a hedge against chaos is deeply embedded in Asian cultures and when chaos takes the form of inflation, gold is the default hedge; and, today, inflation is on the rise.

China raised interest rates for the third time since mid-October ahead of a report forecast to show inflation accelerated to the fastest pace in 30 months.

February 8, 2011, Bloomberg News

This has profound implications for the price of gold. As inflation continues to increase, the buying of physical gold by the Chinese will send the price of gold skyrocketing. In fact, it has already begun.

On February 2nd, the Financial Times reported: Fears of inflation have also driven demand for gold as a retail investment… Precious metals traders in London and Hong Kong said on Wednesday they were stunned by the strength of Chinese buying in the past month. “The demand is unbelievable. The size of the orders is enormous,” said one senior banker, who estimated that China had imported about 200 tonnes in three months.

On February 8th, Karen Maley in Australia’s Business Spectator discussed this growing phenomenon in her article, China’s gold tsunami: It’s not hard to understand the growing Chinese enthusiasm for gold. Officially, China’s inflation rate was 4.6 per cent in December, but many believe the actual inflation rate is considerably higher. But Chinese savers earn a paltry interest rate of 2.75 per cent on one-year deposits, which means that they face negative real interest rates.

Faced with these dismal returns, Chinese households and businesses have been pouring money into physical assets, such as food, real estate, and commodities as a hedge against inflation. Chinese authorities are now trying to quell property market speculation by making it more difficult for buyers to get bank finance for their second and third investment properties, and have begun experimenting with property taxes in some cities.

This has caused Chinese investors to turn to gold. According to the Sprott newsletter, China, which is already the world’s largest gold producer, imported more than 209 metric tons of gold in the first ten months of 2010 alone. This compares with the estimated 45 metric tons it imported in all of 2009.

DON’T WORRY ABOUT 2012

2011 IS HERE

The response to the 2008 global collapse set in motion an even greater danger—runaway inflation. In 2009 world governments attempted to offset the global collapse in demand with historic levels of liquidity. The excessive printing of money has now led to higher prices.

Prices, especially food prices are rapidly rising. Tyler Durden, www.zerohedge.com, makes this point with stunning clarity: One of the benefits of America finally seeing what Zimbabwe went through as it entered hyperinflation, ignoring for a second that the Zimbabwe stock market was the best performing market, putting Bernanke's liquidity pump to shame, is that very soon everyone will be naked, once companies finally realize they have no choice but to pass through surging input costs. And while some may be ecstatic by the S&P's modest rise YTD, it is nothing compared to what virtually every single agricultural product has done in the first month of 2011. To wit: Corn spot up 7.76%, wheat up 5.63%, Rice up 10.08%, Hogs up 10.16%, Sugar up 5.64%, Orange Juice up 3.33%, and cotton.... up 17.08%. That's in one month!

Rapidly rising food prices have already contributed to governments falling in Tunisia and Egypt. Other governments, well aware of the risk that inflationary food prices pose to their continued rule, are now stockpiling food to prevent further protests.

This buying will only drive the cost of food even higher: Jim Gerlach, of commodity brokerage A/C Trading, said: "Sovereign nations are beginning to stockpile food to prevent unrest." "You artificially stimulate much higher demand when nations start to increase stockpiles."



"This is only the start of the panic buying," said Ker Chung Yang, commodities analyst at Singapore-based Phillip Futures. "I expect we'll have more countries coming in and buying grain.

http://www.telegraph.co.uk/...

INFLATION & THE FUTURE PRICE OF GOLD

Even the hardened paper boys on Wall Street are aware of inflation’s impact on the price of gold. The meteoric rise of gold in the late 1970s was caused by rapidly rising prices. In the last decade, however, gold began moving steadily higher as did all commodities in a disinflationary atmosphere. That, however, is about to change.

With gold already moving higher, the increasing inflationary impetus will send the price of gold far beyond its present price. Gold’s spectacular ascent in the 1970s is now about to be dwarfed.

Last night, I, Ralph T. Foster, our wives and another couple had dinner together and the topic turned to the future price of gold. There was agreement that while its ascent was certain, gold’s ultimate price was a matter of pure conjecture since the reference points used to value that price would be virtually worthless pieces of paper money.

History is the context within which our present circumstances present themselves. Of late, change has been so rapid that many believe the past is merely that which preceded the present. They are wrong.

History is about to repeat itself, albeit in a new iteration. Paper money’s journey to the west and back again is about to reach its fatal climax. Paper money’s ten-century drama is almost over; and while a new and better era will replace it, the collapse of the present era will be unprecedented in magnitude.

Ralph T. Foster’s Fiat Paper Money, The History and Evolution of Our Currency, can be ordered at http://home.pacbell.net/tfdf/ . My latest local TV show, Dollars & Sense, can be viewed at http://www.youtube.com/user/SchoonWorks#p/a/u/0/0JB4_lFwi4c

Buy gold, buy silver, have faith.

By Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
blog www.posdev.net

About Darryl Robert Schoon
In college, I majored in political science with a focus on East Asia (B.A. University of California at Davis, 1966). My in-depth study of economics did not occur until much later.

In the 1990s, I became curious about the Great Depression and in the course of my study, I realized that most of my preconceptions about money and the economy were just that - preconceptions. I, like most others, did not really understand the nature of money and the economy. Now, I have some insights and answers about these critical matters.

In October 2005, Marshall Thurber, a close friend from law school convened The Positive Deviant Network (the PDN), a group of individuals whom Marshall believed to be "out-of-the-box" thinkers and I was asked to join. The PDN became a major catalyst in my writings on economic issues.

When I discovered others in the PDN shared my concerns about the US economy, I began writing down my thoughts. In March 2007 I presented my findings to the Positive Deviant Network in the form of an in-depth 148- page analysis, " How to Survive the Crisis and Prosper In The Process. "

The reception to my presentation, though controversial, generated a significant amount of interest; and in May 2007, "How To Survive The Crisis And Prosper In The Process" was made available at www.survivethecrisis.com and I began writing articles on economic issues.

The interest in the book and my writings has been gratifying. During its first two months, www.survivethecrisis.com was accessed by over 10,000 viewers from 93 countries. Clearly, we had struck a chord and www.drschoon.com , has been created to address this interest.
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Christina     posted : 07/04/11   08:51 pm


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I\'m happy to receive any constructive criticism about my trades. I\'m always ready to learn more.
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