CHINA PMI EXPANDS IN DECEMBER, BUT MOMENTUM SLOWS
China’s PMI continued to expand in December, but showed some signs of slowing momentum. Total output and new orders slowed to their lowest levels in three months while the headline figure showed continuing expansion at 54.4 – down from 55.3 in November. Despite the slow-down this is still strong historical data. Input prices continued to rise in December, but also slid to a 3 month low. Firms in China have had an easier time passing along costs than those in the USA. The key points from the report:
- Slower rises in output, new business and backlogs of work.
- Strongest increase in purchasing for eleven months.
- Input cost inflation eased, but remained substantial.
Hongbin Qu of HSBC elaborated on the most recent report:
“Inflation rather than growth still remains as the top policy concern, despite the moderation in December’s manufacturing PMI reading. We expect Beijing to continue to relying on quantitative tightening measures to curb inflation and counter the impact of QE2, while modest interest rate hikes are also needed to anchor inflation expectations in the coming months.”
Overall, this is another strong report and no cause for immediate concern, however, given the rising inflation and government attempts to slow price increases the decline in momentum does raise the risk of a more pronounced slow-down in 2011. As previously mentioned, a Chinese slow-down is likely the greatest risk to the global economy heading into 2011 and 2012.
Source: HSBC
Ahem, did I say to buy copper??? I am also bullish Uranium as well.
**off topic**
working through MMT:
http://mq.academia.edu/FrankAshe/Papers/168923/A_Kindergarten_Guide_to_Modern_Monetary_Theory_Days_1-3_
http://modernmoney.wordpress.com/2010/08/30/deficit-spending-101-%E2%80%93-part%C2%A02/
http://econviz.com/balance-sheet-visualizer.html#
http://bilbo.economicoutlook.net/blog/?p=12022#more-12022
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i dont understand it fully yet, but i just have this nagging doubt that somehow, its a little different for the US because the USD is the reserve currency…
By reserve currency it was originally meant that under
Bretton Woods, most other developed market currencies were pegged to the dollar which was in turn pegged to gold. With the break-up of that monetary regime, it’s not clear to me what the term “reserve currency” really even means these days. We float against everybody else (save China, but that’s their choice).
One effect of inertia is that foreign CBs still hold ca. 70% of their reserves in USD, so that the US can have bigger structural C/A deficits and less restrictive monetary policy without the USD dropping that quickly, as it would if it were not a reserve currency.
the question of reserves is interesting;
one old tenet that only solidified for post-gold-std currency is that loans create reserves, not the reverse; some logical consequences would seem to follow
1) there’s no clear point in holding currency reserves
(only selective pressure to USE them productively)
2) what would happen if countries holding $US reserves tried to use them as fast as they accumulated?
(lots of details, but all fall under increased selective pressure for PRODUCTIVE USE! There would be indirect pressure to increase aggregate demand in all countries currently content with export indentured servitude.)
3) Few countries are equipped to
a) increase aggregate demand; (all exporters, for example)
b) productively tune applications of rising aggregate demand
(e.g., the USA; there are things we could do other than sitting in front of big screen tvs)
4) Worldwide, all populations face the same selective pressure, to FIND NEW THINGS TO DIRECT PUBLIC PRODUCTIVITY TO, other than exporting, war, unproductive consumption. Finding outlets that are insanely productive as well as insanely stimulating equates to the same thing, finding outlets that produce insanely great increases in national capabilities.
The race is always on, and it will never be limited by currency reserve volumes … since fiat currency reserves are limited only by public initiative, and there are no involuntary limits on public initiative.
Adaptive rate always boils down to the cost-of-coordination (finding catalysts that lower it), and leveraging the return-on-coordination. In short, we’re back to a very old lesson: the best position is to be a member of a winning aggregate, whether a family, firm, tribe, or nation. Building capability trumps hoarding any asset.
“…the best position is to be a member of a winning aggregate, whether a family, firm, tribe, or nation. Building capability trumps hoarding any asset.”
Good advice, Roger.
Not often you see it articulated, but it’s seemingly built into our DNA.
I’ve enjoyed your comments, thanks!
Use of the $US as a reserve currency only means that the USA has more people outside it’s borders using it’s currency than most countries do. That’s just extra responsibility to add to the importance of monetary operations, not anything fundamentally different. No other country can get $US except by selling us things, by private currency trades, or by the dubious practices of our CB to circumvent private markets and “swap” currency with other CBs.
Perhaps CB currency swaps by the US FED should be illegal. That alone would force other nations, and ourselves, to practice more sane monetary operations. CB currency swaps are extremely disruptive to market forces, and make a mockery of fiscal policy. Any currency swap to another nation should be done only as a loan from the Treasury, subject to political ratification looking out for the general welfare of the US electorate.
so is it true that in order for the rest of the world to run functional monetary systems based on the USD as a reserve currency, the US govt is strangely obligated to run deficits?
and especially so when the world economy goes down the drain?
or is it necessary to do so whenever a country gets into trouble (sounds like the reasoning behind Greenspan’s actions for Mexico, Russia and South Korea).
when currency swaps are announced, what changes hands between who? is it treasuries, demand deposits or cash? what is the effect on the swapper and the “swappee”?
ahh… so many questions.. i’ve just borrowed “Understanding Modern Money: The Key to Full Employment and Price Stability” from my local library, hopefully it answers my questions in easy language! (one more question: is it hard to understand?)
Okl, ideally all countries that produce their own money and that money is not pegged to something else should run deficits until the only unemployment that exists is what is called frictional unemployment. Frictional unemployment is basically the level of employment that exists when people are currently in the process of changing jobs. In the US it was about 3-4% if I remember correctly.
Wont all this employment drive up inflation is the next obvious question? The answer is only if the employees are unproductive.
That’s pretty much the crux of it. Most but not all the posts on Modern Money are from Bill Mitchell. Modern Money breaks them down a bit more since Bill is so prolific. You can either read Bill’s Debriefing and Teaching Model categories or you can just follow along here: http://modernmoney.wordpress.com/index/
I would also recommend Warren Mosler’s Seven Deadly Innocent Economic Frauds of Economic Policy.
This is not the place to say it, but I can’t start my own thread here, so I’ll put it in a few places, hoping Cullen picks it up. Thank you, Cullen, for another year’s worth of outstanding reporting and analysis. I am so deeply appreciative of all that you do for us.
Walden,
I am so appreciative of all the great readers here. You have no idea how much I have learned and enjoyed running this site. It’s been a pleasure. Best of luck in 2011. I hope to be of some minor assistance if possible.
-Cullen