China Shifting Orientation

Pun intended, and this is important. If you've been watching, the overall impression you get is of a ship listing over because it's turning as fast as it can. There's a frenzy of activity observable above deck, you can see the proverbial fire drill, and hopefully it will hold together for a few more months. China's ship of state is clearly preparing for a heavy impact and is out of fiscal policy maneuver room. Their huge dam of saved foreign exchange dollars is flooding even more quickly into world equities and commodities. I expect its government to announce a currency liberalization soon, now that it's inflating anyway.

China's money supply increased 53% over last 2 years.

"The latest numbers show inflation is soaring out of control in China. The CPI is up 4.9% year-over-year, up from 4.6% in December. The PPI clocked in at 6.6% compared with 5.9% last month."

Producer price inflation index crests 6% in China.

China's inflation statistics clouded by data reporting changes.

China a net seller of US Treasury holdings for second straight month.

Must be a coincidence, Mr. Treasury Secretary.

The world's largest gold producer, China, imports as much gold in January 2011 as the first six months of 2010.

China crude oil imports up 27% in January.

The appetite for gold and diesel, physical delivery thereof, has hit the insatiable button. The entrepreneurial elites have either direct or familial memories of the Cultural Revolution, and fear something like it may happen again.

Cotton prices up by 44% so far in January and February of 2011; Chinese textile makers cornering supply, amid 95% cotton price increase since September 2010.

China hoarding grain in response to drought and global supply squeeze, imports running 9x higher than 2010.

Yes, that wheat import number is really 9 times higher. The current drought may have wiped out a third or so of their winter wheat crop, as well as Russia's. Cotton prices have so far averaged up by 1% per day this year.

China hoarding food staples, world food prices continue to rise

They're hoarding corn, wheat and rice supplies. Adverse weather across the globe has already hit grain production, and futures contracts are now on steroids. They like not starving, and they vote (with dollars).

Chinese passenger car sales plunge 10.3% in January.

Automakers who dreamed of selling tens of millions of cars there probably never traveled much in the lesser cities where they play Whack-a-Scooter. General Motors did sell more cars there in 2010 than in the US, but the government has rolled back its previous tax incentives on passenger vehicles.

China-based hackers knock Canadian government agencies offline.

This Digital Journal article does not sensationalize the attack, and explains why it may not be government a.k.a. signals intelligence hackers as the Canadian Broadcasting Corporation accused. However, I've been seeing a definite increase in the number and target values of similar attacks, which have recently included successful server hacks on the Pentagon, utilities, and oil exploration companies. Militarily, even simple Denial of Service is an ideal asymmetric weapons, being cheap and effective if well-timed.

China's power output growth slowed dramatically in the latter half of 2010.

The chart from this article is above the title, comparing claimed yearly quarter-on-quarter GDP growth against power demand. In the 4th quarter of 2010, power consumption was only 5.5% higher compared with 2009, a time of relative contraction, while claimed GDP growth remained at a 9.8% growth rate. In other words, the low Q4 demand for power and the overall downward trend makes the growth claim implausible. The power side of this chart looks very much like a double-dip recession. The relaxed power consumption figures would seem to indicate a global structural recession, if not depression or systemic failure. If these power figures are valid it means foreign marketing and design companies cut back on orders to their lowest-cost manufacturer of widgets on the planet.

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The Financial Mess & Solution Explained In 3 Minutes

The presentation above is the quickest and best primer you'll ever see on what led to this. A shorter version: greed and deception. But if you flip through those slides you'll be able to explain it to others. Thanks to Bruce at The River Blog for retrieving it.

What it doesn't explain is deleveraging. That's what's so unpredictable, unknowable, since the closest known financial event was when all the railroads were used to back bonds back in the 1860s and they were way over-leveraged and it all went bad in 1871 and things like international commerce and eating food shut down for awhile. Multiply that by a factor of 7.5, add it to the dollar going off the gold standard in 1974, subtract a little Great Depression, and divide by a regression analysis accounting for the compression of time and space. You've got at least two, two-plus years of fairly intense trouble ahead which could also develop into a prolonged Dark Ages. Sound like a strong statement? The S&P Case-Shiller National Home Price Index reported that prices sank a record 18.2% during the last three months of 2008, compared with the same period in 2007. More of the same if some people don't get their heads out of their own I'm sure very sweet-smelling asses immediately.

A credible and consistent economic plan is called for, i.e., The One We Don't Got. This would need to include monetary policies widely viewed in the US as unorthodox. Easy money, zero-rate policy, hard stimulus that builds infrastructure and making the debt-failed sectors of the housing market solvent, philosophy be damned. Plus foreclosure forbearance. Under everything is The Land, and on it people live. This is pretty simple stuff. Fuck the banks, they're fucking fucked anyway. Nationalize them and re-privatize later.

The more people we keep in their homes and working, the faster we get out of this. And along the way we better get rid of the All Growth Is Good economic assumption. Because that does not begin to describe the world we're heading into.

The Ass-Kickings Begin: Joe Stiglitz Goes Seven Samurai

The feeling of living in America under the Bush Administration was very much like being jammed into the back-seat of an SUV on a rainy night with a bunch of screaming-drunk teenagers driving way too fast. An all-too common experience in my taxi-free teenage terrain. If you had the misfortune to be sober (or god help you, female) in that situation, it went like this: you'd keep begging them to slow down and asking to get out, and they'd keep roaring, "Shut up, ya f***in' pussy! Yeeee-hahahahahaaa! Hey, Matt, you gonna pass the goddamn bong back here, or f*** it with your pencil-dick?"

As broken glass spits through the passenger cabin and we hunch for the next climacteric crunch on our way down the economic cliffside, wondering if we're going to die or just fracture a skull, some state trooper types have appeared on the scene. Such as Joseph E. Stiglitz, the Nobel Prize-winning economist whom Republican De-Regulators have derided as dumber than owl shit. He has the unique distinction amongst economists of having been fired by the World Bank (see interview with Greg Palast, "The Globalizer Who Came in from the Cold") in the wake of the 1999 WTO protests in Seattle. He had the temerity to suggest mild land reform and regulation as solutions to free market failures.

In a Vanity Fair article, Stiglitz assesses the damage, and then goes effortlessly chop-socky on the irresponsible Icarian jobbernowls who have ruined so many lives. He describes a 20-year arc of systemic failure with the efficiency and clarity of a master, sketching five major phases of financial Walpurgisnacht. He understands finance like Picasso understood paint, dispenses an education in 2 pages, and ends his rap so:

The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, “I have found a flaw.” Congressman Henry Waxman pushed him, responding, “In other words, you found that your view of the world, your ideology, was not right; it was not working.” “Absolutely, precisely,” Greenspan said. The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.

For us citizens, it all started when we went to a party and voted to get into that car with those people. Opinions may differ on intent and consequence of the bad decisions made there, but it is critical to accurately assign blame so we can move forward towards the MacGuffin embedded in Stiglitz's remarks. He's just getting warmed up, and will be joined by a gathering chorus to drown out the discredited grobian chanticleers who hang about with "who, me?" expressions. What remains to be seen is if the nation-states themselves, in the wake of relentless corporate organization, remain strong enough to enforce regulation on global entities without becoming one themselves.

WSJ, NYT, & Institutionalized Stupidity

Wall Street Journal, writing about Robert Rubin:

Under fire for his role in the near-collapse of Citigroup Inc., Robert Rubin said its problems were due to the buckling financial system, not its own mistakes, and that his role was peripheral to the bank's main operations even though he was one of its highest-paid officials.

"Nobody was prepared for this," Mr. Rubin said in an interview. He cited former Federal Reserve Chairman Alan Greenspan as another example of someone whose reputation has been unfairly damaged by the crisis.

New York Times interview with Jamie Galbraith (son of John K Galbraith):

Do you find it odd that so few economists foresaw the current credit disaster?
Some did. The person with the most serious claim for seeing it coming is Dean Baker, the Washington economist. I saw it coming in general terms.

But there are at least 15,000 professional economists in this country, and you’re saying only two or three of them foresaw the mortgage crisis?
Ten or 12 would be closer than two or three.

What does that say about the field of economics, which claims to be a science?
It’s an enormous blot on the reputation of the profession. There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless.

Mark Twain:

Sometimes I wonder whether the world is being run by smart people who are putting us on or by imbeciles who really mean it.

(Note: This post, artlessly cadged from A Tiny Revolution, further indulges my loathing for the financial priesthood, imbeciles who really mean it. Brooklynese trader maxim: nobody knows nuttin.')