Monday, February 22, 2010
A Couple Of Things
But a brief read of the world steel report raises many troubling questions. Last year China accounted for 47% of world steel production. In December, a month when world steel production was recovering dramatically, China accounted for 45% of the total. This is why Chinese news about tightening causes such market angst.
There are other extremely worrisome aspects of China's 2009 economy. China is now the world's largest auto market - yet oil consumption barely increased in 2009. Chinese bus travel figures showed a decrease in acceleration in 2009. One hardly knows what to make of this. The discrepancy is causing analysts everywhere to scratch their heads. China has spent a massive amount to stimulate their economy, including a huge building program of new refineries, power plants, etc. It is also building up its navy.
There are two possible interpretations. One is that Hjalmar Schacht has been reincarnated and is running China's economy. That cannot be discounted, because China's economy is dependent on some far-flung supply lines that extend to Africa and the Middle East. The Chinese oilfields in the Sudan are one of the root causes of the conflict there, and China's operations in the Gulf have been causing stress in India for years. Here's an article from December that sums up the basic position.
The other possible interpretation is that China is in a bubble and doesn't know how to get out, and that the decline in world demand appears to be long term, so its normal strategy of infrastructure to tide it over is doomed to fail.
Neither interpretation contradicts the other.
Another reality is that Krugman aside, the western countries are confronting a joint crisis involving welfare spending. In the aggregate, government spending for welfare programs per capita is going to be constrained. This raises issues about demand and economies. See Samuelson here and here.
I wonder how much of the government budget crisis is really a result of welfare payments, and how much is a result of civil service payroll and retirement?
It is not really welfare as most people think of welfare that is the problem. It is welfare given to families that have median and over incomes. That's what these societies can't afford.