Thursday, March 12, 2009

China's Industrial Output Rises 11%



Stimulus plan working. Much bigger than U.S. plan (as a percentage of GDP). No ridiculous debate about "taxpayer on the hook," or, "who will finance the debt?" or, "generational theft."

“There is no doubt that industrial output will continue to recover, boosted by the strong growth in investment and bank loans,” said Lu Zhengwei, a Shanghai-based economist at Industrial Bank Co.

Notice the sharp rebound in loan growth because the government is boosting aggregate demand and not putting onerous conditions on banks to "pay back" a profit to the gov't.

“The export engine has died: China is in a ‘help themselves’ mode, pump-priming like crazy to increase fixed- asset investment and keep retail spending going,” said Joseph Tan, chief Asian economist at Credit Suisse Private Bank in Singapore. “I think they’re going to pull it off.”

Their exports have died because the U.S. has allowed aggregate demand to die as a result of policy here that is opposed to gov't support of aggregate demand. However, China doesn't need us; they are stimulating domestically.

Here's another thing you don't hear from China: statements like, "The whole world has to work together in order to get out of this mess." China is helping itself and not relying on anyone else.

Will we learn from this?

Not likely.

By the way, lower exports to the U.S. will mean significantly less accumulation of U.S. Treasuries. Does this means U.S. interest rates will shoot up as per everyone's fears? Absolutely not!!

Investment advice: Buy China stocks!

5 comments:

googleheim said...

Vis-a-vis Volcker's 80's shock therapy with high interest rates :

If interest rates were to rise rapidly, is there a pre-requisite that the treasuries must be gobbled up first ?

What if there is another surge in the dollar and everyone puts their money into the T bills, treasuries and mattresses ?

googleheim said...

It looks like Wall Street does like Obama's work given today's performance despite some typical bad news ...

All that GOP banter from BizRadio has the radio turned oFF !!!

Mike Norman said...

Interest rates are a parameter set by the central bank, period.

It does this by manipulating bank reserves either higher or, lower, depending on where it wants the rate. The Fed has the prerogative of setting rates all along the term structure, but simply adjusting the short-term rate influences long-term rates as well.

googleheim said...

supposedly the treasury was printing money at a rate of 15% during the 2002 - 2008 period,
is that relevant ?

Mike Norman said...

Goog,

This is a total fallacy that continues to get a lot of airtime. Please see my post above this for the facts.

-Mike