Is Inflation About to Burst the Chinese Bubble? Yves Smith – We’ve commented before on the near-impossibilty of teasing decent inflation estimates out of China. Despite that, we were early to comment that inflation was getting out of control. From a joint post with Marshall Auerback in February: The government has engineered an enormous increase in money and credit in the past year. In fact, it seems to be as great as 5 years’ growth in credit in the previous Chinese bubble. The increase in money and credit is so great and so abrupt that you tend to get a high inflation quite quickly even if there are under utilised resources. Add to this the fact that China simultaneously is providing massive fiscal stimulus.  Peter Tasker, in a Financial Times comment, argues that rising wages pose a fundamental challenge to China’s strategy: The tendency of businesses and economies is to push successful models to their breaking point. We’ve over-relied on consumer debt and a cancerous growth of the financial sector; China has become unduly dependent on exports and investment. And each nation is fighting tooth and nail to stick with its old habits, precisely because the elites who’ve benefited from these strategies still wield considerable clout. So change is likely to come about only via disruption.

Virginia Creates Subcommittee To Study Monetary Alternatives In Case Of Terminal Fed "Breakdown", Considers Gold As Option – In what may one day be heralded as the formal proposal that proverbially started it all, the Commonwealth of Virginia introduced House Resolution No. 557 to establish a joint subcommittee to "to study whether the Commonwealth should adopt a currency to serve as an alternative to the currency distributed by the Federal Reserve System in the event of a major  breakdown of the Federal Reserve System." In other words, Virginia will study the fallback plan of a "timely adoption of an alternative sound currency that the Commonwealth’s government and citizens may employ without delay in the event of the destruction of the Federal Reserve System’s currency" and avoid or "at least mitigate many of the economic, social, and political shocks to be expected to arise from hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System." Most importantly as pertain to the currency in question, "Americans may employ whatever currency they choose to stipulate as the medium for payment of their private debts, including gold or silver, or both, to the exclusion of a currency not redeemable in gold or silver that Congress may have designated ‘legal tender’." Whether this resolution will ever get off the ground, and actually find that the world is at great risk should gold not be instituted as a backstop currency, is irrelevant. The mere fact that it is out there, should provide sufficient impetus to other states to consider the ultimate Plan B.

Brazil FinMin: From Currency War to Trade War – If nothing else, you gotta love this guy for his military-industrial complex of sorts where economic misunderstandings forever threaten to take us to the brink of all-out conflict. A few months ago, Brazilian Finance Minister Guido Mantega had the international press corps by the ear after his statement that the world was engaged in "international currency war." Perhaps tired of that phrase and desiring attention once again, he’s now moved on from that shtick in proclaiming that we are on the brink of outright "trade war." Being more of an equal opportunity complainer this time around, Mantega now identifies not just the US but also China as being currency manipulators. I’m somewhat surprised that he would so vocally single out another important emerging economy, but hey, maybe things are really becoming dire in Brazil when it now runs a current account deficit with the United States, of all countries:
PIGS? With Belgian Breakup, Perhaps PIGS-FW – Here’s something that may have been overlooked in all the current brouhaha over troubled eurozone peripheral economies Portugal, Ireland, Greece, and Spain. With two bailed out (Greece and Ireland) and one allegedly being forced to feed at the trough (Portugal), there may be another in dire straits. You see, longstanding differences between the Fleming (Dutch) and Walloon (French) sides of Belgium’s–how should I describe it–conurbation have been pronounced as of late, with neither side able to establish a majority in an impasse which threatens to surpass the crusader paradise of Iraq for the longest period on record after general elections without a government of 234 days. Such political strife is causing yields on Belgian sovereign debt to begin mirroring the fate of its unfortunate neighbours. The telltale signs are there, including pricier credit default swaps. From Bloomberg:
It’s Almost Official — 1 In 6 Americans Live In Poverty — Back in September, based on the data available to me, I estimated that 1 in 6 Americans live in poverty. The "official" estimate at the time, which was based on an antiquated methodology defined in the 1950s, put the rate at 14.3%, or approximately 1 in 7 Americans.  Now the Census Bureau has published the results of an alternative, more accurate way of measuring who is poor and who is not. The quotes below are from AOL News.The number of poor people in the U.S. is millions higher than previously known, with 1 in 6 Americans — many of them 65 and older — struggling in poverty due to rising medical care and other costs, according to preliminary census figures released Wednesday. At the same time, government aid programs such as tax credits and food stamps kept many people out of poverty, helping to ensure the poverty rate did not balloon even higher during the recession in 2009, President Barack Obama’s first year in office. Under a new revised census formula, overall poverty in 2009 stood at 15.7 percent, or 47.8 million people. That’s compared to the official 2009 rate of 14.3 percent, or 43.6 million, that was reported by the Census Bureau last September.


The Fed’s Imaginary Jobs – The Federal Reserve has a so-called "dual mandate" to promote maximum employment and stable prices. In far as they have failed miserably in both areas, various FOMC board members must vigorously defend both the Fed’s current policies and ultimately, their very existence. Fed vice chairman Janet Yellen presented the latest defence in Yellen Says Asset-Buying Adds 3 Million Private Jobs  How did the Fed conclude that all these imaginary jobs will be created? It turns out that we’ve already got 1.8 million of them. Additional Fed purchases of Treasuries will create 1.2 million more jobs by the end of 2012—In her assessment of the economic impact of the purchases, Yellen cited a paper by four Fed economists that relied on the central bank’s main economic forecast model, known as FRB/US.
Flunk Barry Eichengreen on World’s Top Exporter – As a stickler for accuracy, I must bring up one of my favourite recurring threads about the United States’ continuing status as the world’s largest exporter. It’s a bit startling to see renowned academic Barry Eichengreen making a schoolboy howler. I’m just beginning to read what appears to be a most interesting take on the US dollar’s enduring position as the world’s preeminent currency in his new book Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (hackneyed title and misstatement of simple fact that’s the subject of this brief post aside). Anyway, on p.3 he writes: But what made sense then [postwar United States having its currency dominate the international monetary system] makes less sense now, when both China and Germany export more than the United States. Again, this is perfectly true if we’re only talking about merchandise exports, AKA stuff. However, in today’s increasingly service-based world economy wherein advanced countries like the US have well over half of their output accounted for by services, isn’t it likely that such countries would export services as well? So, for the umpteenth time, the US remains the world’s top exporter when both goods and services (alike accountancy and consultancy) are included.

Employment for Young American Men – The graph above shows the employment-population ratio for men since then, broken out by age.  You can see that for all the groups below age 55, employment opportunities fell sharply between 2000 and about 2003, then recovered slightly until 2007 — but not to the 2000 level.  Then they fall sharply in the great recession and have pretty much barely improved at all since then. The one exception is the age group 55-64 who increased their participation through 2007, but we probably should see this is a sign of societal stress also – less ability for men to retire early. However, the thing I wanted to highlight is the plight of younger men relative to those of us established in the workforce.  In 2000, employment was over 90% for both the 25-34 group and the 35-44 group – peak working years.  However, between then and now it’s fallen by about seven percentage points for the 35-44s, but by eleven percentage points for the 25-34s.

Food Price Break-out – This is interesting.  The FAO index we talked about yesterday has a set of subindexes for different types of food (graphed above – note that 2002-2004 = 100 on the y-axis).  If you study the 2007-2008 food price spike, it was driven most strongly by cereal and oil prices (consistent with the idea that it was, at least in part, biofuel driven).  The cereal/oil complex is high again now, but not nearly as high as in 2008.  What is much higher is meat, and especially sugar, the price of which has gone nuts lately (so to speak). Apparently, the causes are fears over the Australian sugar harvest due to the flooding there, combined with losses in the Florida sugar harvest due to unusually cold weather there in December.  So that part is weather related.

ScientificAmerican: Advancing Alaskan Glacier Holds Clues to Global Sea Level Rise Scientists aim to find out why an Alaska glacier is ignoring all climate signals as it advances to the sea–and what that means for sea levels around the world. Earlier this summer the Jakobshavn shed a 2.7-square-mile chunk of ice – about twice the size of New York’s Central Park – after a mild winter that saw no ice form in the surrounding bay.  "What we learned [in Alaska] with tidewater glaciers to some degree we can apply to Greenland and vice versa," said Motyka. Increasingly, it appears rising ocean temperatures are driving tidewater glacier retreats in Greenland and Antarctica. "I would call that the smoking gun," Motyka said. "This could indeed be the oceanic process by which [Jakobshavn] became unstable."





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