由 WeiPeng 发表评论于 2005-02-03 18:58:56 What reasons in your opinion China has to do the things that to some are evidently not so smart? Like buying the US bonds to keep dollar afloat relative to RMB? If China doesn't buy all the foreign papers, in the converse, would the consequences be disastrous? A key to understanding this paradox is lack of real demand in China. That means China has to rely on American consumers. Lack of real demand speaks volume against the economic miracles in China. An economy that has grown 8% for two decades hasn't generated sustainable real demand. Isn't this itself a miracle? • 由 不忘中囯 发表评论于 2005-02-03 19:07:40 Well, Yes or no. Actually, the demand of US consumer is the only real driver of the global economy, which has supported the growth of China and Europe. But it is the cheaper labor cost and lower exchange rate that help US consumer maintain their unlimited consumption appetite with historically high level of debt on their shoulders. Thanks for discussion • 由 不忘中囯 发表评论于 2005-02-03 19:14:14 Sorry for missing one point. The cheaper Chinese labor cost and lower Yuan make the imported good relatively cheap, given the same income level of US family. On the other hand, China's booming is largely export-driven. That is why our government strongly defends our FORX regime, because of the inner demand is still weak. Thanks for sharing your opinions • 由 WeiPeng 发表评论于 2005-02-05 14:27:03 The way it goes, Asian economies are becoming a dollar bloc. With Fed pumping money trying to reflate the US economy, China's continued buying may become suicidal. We've seen inflation heating up in nearly all Asian economies while real economic activities are winding down. At 10X Chinese economy, US virtually can via a small cough cause China to have a flu. But will US stop "coughing"? I'm a bit pessimistic in that over the last 2 decades China has failed to build a strong "immune" system, i.e., an economy strong in the sense that it can survive external shocks. Old Mao's Self-reliance has totally been neglected. This makes China highly vulnerable -- I wouldn't be surprised to see another Asian crisis stemming from China's flu. My frequent trips to China put me in close perspective, all confirming what I've been afraid of.. • 由 不忘中囯 发表评论于 2005-02-05 14:46:53 Great points. As you pointed out, another Asian Crisis may result from China's flu. That is one of the reasons that some academics recommends we should adopt the floating Yuan regime because it allows the central bank more flexibility to manage the Money-driven inflation. However, a quasi-open system may be more suitable for current China’s developing status. I haven’t backed to China in the past three years. But I think China is experiencing the same process through which China, as a country, should finish the first step of capital accumulation. Only when the country level gets rich, it can reimburse its wealth to each resident. This is what we have seen in the Canada and many European Countries. When every resident becomes rich, inner r real domestic demand will rise, as you wished. Since the global economy becomes more integrated, if any major countries in the chain gets some cold, then everyone feel the impact. Thus, whatever US or China coughs, the worlds will get allergy. Thanks again 由 WeiPeng 发表评论于 2005-02-08 17:20:57 it is a main-theme to believe that the world economy has recovered. I don't know how much of it is spinning but the data details are not suggesting a recovery that has been. Greenspan adopted the old prescription (supply-side economics or reaganomics) for America's new problems. While controversial, there are views that the GDP growth is not real, raised only by miscalculating inflation. Remember that real gdp growth is nominal minus inflation. So long as you pump money without generating statsitical inflation, gdp is positive. Money supply has for the last 4 years increased near 8% but GDP grew subpar 4%. Like what Buffet says, give me a trillion dollars and I'll show you how to be rich. The world economies are heavily relying on Americans (already deeply in debt) to consume. But can one keep on spending to become rich? • 由 不忘中囯 发表评论于 2005-02-09 06:44:26 Happy New Year, Wei: You raise an interesting point but you may not closely pay attention to the details of data in the US economy. Yes, if the M3 growth (6.2%) is the yardstick of future inflation, then the CPI around 2.5% is seemed to be underestimated. However, there are other deflation factors playing their roles. One of them is the wages growth in the US manufacturing sector, which has been at its lowest level during the past 4-5 years because of the continuous layoff due to the competition from countries like China and India. On the other hand, how can one keep on spending to become rich? Aha, if you look at the level of real interest rate, which is still not back to the neural level as Fed targeted. So when people can borrow in a low rate while invest in the high growth rate of wealth, why don’t they keep borrowing and spending? The same thing happened in the so-called, “Japan Carry Trade”, where investors borrow from Japan and invest the money in US market to gain from the relative growth differentials. But there is foreign currency exposure in this cross-country investment, but there is no such problem regarding the domestic US consumers. Have a good day! • 由 WeiPeng 发表评论于 2005-02-09 15:31:18 Happy Rooster year to you too. The very definition of inflation is monetary not price. Too much money chases too little goods. But it doesn't have to force the prices up (eventually it will, tho). Money supply far over the growth rate of the gdp is inflationary. While prices continue to slack, many are actually rising beyond control. Houses, bonds, etc are pure reflection of economy these days. Velocity of money is low so prices are so far in check. Plus, Fed does many funky adjustment -- hedonic adjustment for example, where they count the money of CPU as many-times its actual cost because of technology invention (today's CPUs are much faster than before for the same buck) when it is for GDP, but count the same as pleasure when it comes to CPI. If you look at the adjustments, you are shocked to death. We're an asset-based economy now. Houses are beyond control but Fed counts house only in rent-equivalent terms. Make sense? Yes, but superficially. If you count assets, CPI would have been much different and then that kills the supply economics at whole sale level. Pleasure to discuss these with you... 由 不忘中囯 发表评论于 2005-02-10 08:03:25 Fair Points. As the mission of Fed is to keep the price stability, Fed tends to lean on the general price measurement indices, such as the CPI or PCE, instead of the Money Supply data. And I think Chairman Alan Greespan is a master of practitioner, rather than a macro economic professor. In fact, The Fed never expected the markets to stay calm as policy moved back to neutral level. Some pain in the assets market is seen to be inevitable. The fact that bond yields have fallen has been a pleasant surprise because it has kept housing and equities firm. The Fed probably partly rationalizes low bond yields as the benefit of its hard-won credibility. However, this argument will be hard to sustain if yields keep falling. Twenty-year Treasury yields below 4% would signal that the economy needs low rates to sustain growth, forcing the Fed to rethink its strategy. It is my honour to get to know you and have such discussions with you. You do teach and share me a lot of great points regarding the economic theory and your views. Hope we can extend our learning curve forward. Yours truly,
