In just a few years following the Lehman crisis, credit in the Chinese economy has gone from $9.0 trillion to $23.0 trillion. Comparing it to the gross domestic product (GDP) of the country, credit has ballooned to 200% of GDP—it was only 40% before the U.S. subprime bubble burst.
Fitch Ratings’ senior director in Beijing, Charlene Sue, said this week, “…this is beyond anything we have ever seen before in a large economy. We don’t know how this will play out. The next six months will be crucial.” (Source: Evans-Pritchard, A., “Fitch says China credit bubble unprecedented in modern world history,” The Telegraph, June 16, 2013.)
Adding to the credit worries in China, just like the U.S. economy, consumers in the Chinese economy are shying away from spending. According to the China Association of Automobile Manufacturers, car sales in the Chinese economy in May grew at a slower pace than the previous month’s. The car sales growth rate registered at nine percent in May, compared to 13% in April. (Source: Financial Times, June 9, 2013.)
Furthermore, manufacturing in the Chinese economy has been witnessing a slowdown. Exports from the country have fallen victim to anemic demand in the global economy. Sadly, this year, as per government estimates, the Chinese economy is expected to grow at the pace of only 7.75%—much slower than China’s past double-digit growth rates.
The troubles in the Chinese economy continue to mount, but with the optimism seen in the key stock indices, investors are ignoring their implications. I can’t stress this enough: growing problems in the Chinese economy will not only hurt the … Read More
While government data continue to show a lack of inflation in the U.S. economy, the bond market screams the opposite.
The Consumer Price Index (CPI), the most commonly quoted measure of inflation, increased only 0.1% in May after declining 0.4% in April. Since the beginning of the year, from January to May, inflation in the U.S. has edged higher by only 0.2%. (Source: Bureau of Labor Statistics, June 18, 2013.)
But the bond market says this isn’t true.
Since May, we have seen yields on U.S. bonds skyrocket. Take a look at the chart below; it shows the change in yields on 30-year U.S. bonds (indicated by the red line) and 10-year U.S. notes (marked by the blue line). Note the circled area.
Chart courtesy of www.StockCharts.com
In a matter of a few weeks, yields on 30-year U.S. bonds have jumped about 19% and 10-year note yields have skyrocketed almost 35%.
This is dangerous for bond investors. As the yields on bonds climb higher, their prices slide lower, bond investors face losses…and they’re fleeing the bond market.
For the week ended June 5, long-term bond mutual funds witnessed an outflow of $10.9 billion. Looking at it on a monthly basis, the long-term bond mutual funds haven’t seen an outflow since December of 2008. This month may just be the first since then. (Source: Investment Company Institute, June 12, 2013.)
Even the foreigners, who have been providing credit to the U.S. economy, seem to be running toward the exit. According to Treasury International Capital Data, in April, foreign residents were net sellers of long-term U.S. bonds. Private foreign investors accounted for … Read More
China’s economy is slowing, but the rich in that country continue to get richer and are growing in number. I was reading the other day that Chinese investors are now some of the biggest purchasers of high-end real estate in the United States—Manhattan, in particular. It would not be a surprise to see a buyer from China lay down $10.0 million cash for a Manhattan loft after their first visit. Trust me: the money out of China is staggering and will only grow bigger.
Yet the super-rich may surprise you. Out of the approximately 200 billionaires in China, about 83 are politicians, so you know who really runs the country and is getting rich. (Source: Anderlini, J., “Chinese parliament holds 83 billionaires,” Financial Times, March 7, 2013, last accessed June 17, 2013.) That’s unbelievable, and you know that these wealthy politicians probably can do whatever they desire, worrying very little about any conflict of interest.
China also has about 1.3 million millionaires—which trails the United States at 5.9 million and Japan at 1.5 million, according to the Boston Consulting Group. (Source: Barris, M. and Jing, S., “China to Top Japan in millionaire stakes,” China Daily, June 1, 2013.)
For Father’s Day, you can satisfy your appetite with a three-course dinner at Morton’s at The Regent Hotel in Beijing for US$135.00, or how about champagne, wine, and beer for $80.00 each at the Senses Signature restaurant at The Westin Beijing.
But while the country is seeing a renaissance in wealth creation at a pace never seen in the history of the world, the fact is that 70% of … Read More
Finally, some good economic news is coming to the U.S. economy…
The U.S. Census Bureau has reported that retail and food services sales for the month of May, adjusted for seasonal effects, increased 0.6% from April and 4.3% from the same period a year ago.(Source: U.S. Census Bureau, June 13, 2013.) This is the first report I’ve seen in a long time that shows increasing consumer spending in the U.S. economy.
And the Thomson Reuters/University of Michigan Consumer Confidence Index for May showed consumer spending increasing as well. The index registered at 84.5 in May, improving from 76.4 in April. (Source: Bloomberg, May 31, 2013.) This was the highest level the index has been at since July of 2007.
While this is all good news, my concerns about the U.S. economy remain…
Since the financial crisis in the U.S. economy, the Federal Reserve has been increasing the size of its balance sheet (printing trillions of dollars in new money) and the U.S. government has been spending rigorously, all for the sake of spurring economic growth. Consumer spending in the U.S. economy makes up 70% of our gross domestic product (GDP); hence, it’s vitally important that consumer spending rises if we are to have a sustainable economic recovery.
As it stands, the Federal Reserve is still creating $85.0 billion a month in new money to purchase government bonds and mortgage-backed securities. This may be the biggest reason why economic numbers like May’s retail sales are looking better.
But the unemployment rate in the U.S. economy is still staggeringly high. According to the most recent jobs market report, there … Read More
Not so long ago, the Congressional Budget Office (CBO) said it expected the U.S. government to register a budget deficit in the current fiscal year of $642 billion.
But hold on a minute…
The budget deficit so far (as of May 31, 2013) has already hit $626.3 billion, and we still have four more months to go in the government’s current fiscal year!
Since the beginning of the U.S. government’s current fiscal year 2013, which began in October of last year, the government has posted a budget deficit in six out of the past eight months.
The Department of the Treasury just reported the U.S. government registered a budget deficit of $139 billion for the month of May. The federal government took in $197 billion and paid out $336 billion for the month. (Source: Department of the Treasury Financial Management Service, June 12, 2013.)
Comparing it to last year, May 2013’s budget deficit was 11% higher than that of May 2012.
The government has been raking in a budget deficit of over one trillion dollars in each of the last four years; and with four months still left in this fiscal year, it wouldn’t surprise me to see us register a fifth consecutive year of trillion-dollar-plus deficits, despite being repeatedly told by politicians that our budget deficit this year would come in under $800 billion.
This is troubling news; the more budget deficits the U.S. government registers, the more the national debt will increase, and the more the government will need to borrow to pay for expenses. It’s that simple.
Currently, our national debt stands at … Read More
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