Month: August 2015
Despite regular assurances to the contrary, all indications are that Chinese banks are experiencing serious liquidity problems. The PBOC has been pumping in large sums of money almost daily via reverse repos and MLF lending so that the RRR cut seems almost expected. The problem again relates to the RMB/$ peg. While RRR cut is designed to give banks more liquidity, there has been a significant correlation between RRR cuts and capital outflows. I am absolutely not saying it is causative, but given the lack of good investment choices within China, declining interest rates, enormous over capacity, economic worries and a collapsing stock market, it is very likely much of this additional liquidity will make its way out of China. That again places downward pressure on the RMB.
That is from Christopher Balding, most of the post is an excellent discussion of where the contagion effects actually lie. And here is your China fact of the day:
With RMB offshore rates in Hong Kong jumping to 16% due to traders looking to short the RMB, it is possible we could see a rapid and large jump in RMB deposit rates for a variety of reasons. Though shorting the RMB is not allowed in China, I’m sure 16% deposit rates in Hong Kong will provide a small amount of competition.
Christopher’s advice: “Watch the deposit rates.”
Here is further context from FTAlphaville.
1. The forces within the government who want to let stock prices adjust are winning. Intervention is expensive, and so far it hasn’t achieved valuable ends.
2. The Chinese central bank is cutting interest rates for the fifth time since November. Additional liquidity is flowing, but where to? The Prime Minister by the way must sign off on every rate cut.
4. The allowable rates on term deposits one year and longer have been raised. This will help limit capital flight but squeeze the profits of the banks. See #3 and #2.
5. The New Republic is still running articles on whether Stalin might have made it work with advanced computers.
6. A Chinese PLA trooper breaks a world record after not blinking for almost an hour. The previous world record, 41 minutes by Australia’s Fergal ‘Eyesore’ Fleming, now lies shattered in the dust.
7. Singapore goes to the polls September 11. What does a Singaporean version of Donald Trump look like? Bernie Sanders?
8. You can think that China is in for a very bad recession, as I do. But do not forget that countries hold most of their wealth in the form of human capital, China too. That said, the conversation will now switch to the Chinese currency, and soon. Some Chinese agencies are talking about the yuan at seven or eight to the dollar (video at the link, sorry)
File this one under “unglamorous yet underrated philosophical paragraphs”:
There are really two problems that fall under the label of ‘the problem of intertheoretic choice-worthiness comparisons’. The first problem is: “When, if ever, are intertheoretic choice-worthiness comparisons possible, and in virtue of what are intertheoretic comparisons true?”…The second problem is: “Given that choice-worthiness sometimes is incomparable across first-order normative theories, what is it appropriate to do in conditions of normative uncertainty?”
Here is an oversimplified way of putting his point. Let’s say you think utilitarianism is true with some probability, and Kantian deontology is also true with some probability. Can you aggregate the recommendations of these two theories “across the probabilities”? Not easily. The Kantian theory offers an absolute recommendation, but should that carry the day if deontology is true with only 7%? More generally, even less absolute theories do not offer comparable frameworks for cross-theoretical aggregation. How does 6% truth for maximin, 13% truth for prioritarianism, and 27% truth for cosmopolitan utilitarianism all add up? It’s not like calculating true shooting percentage in the NBA, because there is no common and commensurable understanding of “points” across the different frameworks. This aggregation problem is actually tougher than Arrow’s, at least once we recognize there is justifiably uncertainty about the true moral theory.
There is actually some related blog commentary on this issue. Overall MacAskill is on to one of the most important developments in consequentialist ethics over the last few decades.
The Nature article is here. The FT put it differently: “Scientists make breakthrough in search for universal flu vaccine” Here are many other articles on the same.
And how long did it take us, starting more or less from scratch, to make that Ebola vaccine?
Is it possible that our vaccine development capacity is seriously better than say ten years ago?
Are the biggest potential winners China, India, Indonesia, and Nigeria?
For a relevant pointer I thank J.
One estimate is that China has been spending about $400 billion to prop up stock and currency prices, but with no success. Might market-determined, flexible prices have some value today?
Cheng-chung Lai and Joshua Jr-Shiang Gau reiterate a well-known point about the 1930s:
It is often argued that the silver standard insulated the Chinese economy from the Great Depression that prevailed in the gold standard countries during the period 1929–1935. Using econometric testing and counterfactual simulations, this article shows that if China had been on the gold standard (or on the gold-exchange standard), the balance of trade of this semiclosed economy would have been ameliorated, but the general price level would have declined significantly. Due to limited statistics, two important variables (GDP and industrial production) are not included in the analysis, but the general argument that the silver standard was a lifeboat to the Chinese economy remains defensible.
China during the Great Depression remains very much an underexplored research topic. Here is Loren Brandt and Thomas Sargent on China later going off the silver standard. Here is Milton Friedman on the same (jstor). The Chinese were not able to sustain that peg either. So what should the smart money bet on today?
When things are good I look at The Washington Post and The New York Times first every morning. All those reports and ideas! And what if there is a new movie coming out, not to mention new road construction? When things are less good I look at The Financial Times first every morning; the headline is sure to cover the carnage. When things are worse yet I go to Bloomberg to start the day, because the ugly numbers will be fully current. But today…we all need another media rung into the bowels of asset price hell.
Currently I see the Dow futures down 1000 points, FTSE down six percent, and various measures of USD off two to four percent. And tweets are popping up faster than I can follow them.
Wolfgang Munchnau made a relevant observation:
The EZ recovery strategy is critically dependent on the idea that what’s happening in China cannot be happening
Don’t even ask about Canada, the largest single national market for American goods.
Economists are familiar with the use of monetary and fiscal policy to stimulate or restore nominal gdp, or other measures of aggregate demand if you prefer. But China faces a bigger dilemma. Part of its earlier pro-growth program overstimulated particular sectors of the economy, for instance construction and a variety of heavy duty state-owned enterprises. Not coincidentally, those are the same parts of the economy which have experienced excess capacity and decreasing returns.
The more specific dilemma is this: China’s main paths for boosting its nominal gdp path also tend to stimulate or re-stimulate these overextended sectors. Think for instance of pushing more credit through state-owned banks to favored state-owned firms. Or consider fiscal policy. At the margin that could mean municipal governments spending more on what they know best how to do, namely building more physical infrastructure.
Chinese stimulus, in the broad sense of that word, thus worsens previous Chinese malinvestments. China would like to stay on a smooth ngdp growth path, but they don’t know how to do this without overextending themselves in particular sectors all the more.
It is fine to call for “reform,” but there are two extra problems. First, most of the best reforms will lower ngdp in the short run and maybe even the medium run. Second, the ngdp crunch may be coming more quickly than reforms can be instantiated.
Over the next months, you will read many blog posts, from other economists, about China in an aggregate demand framework. Be wary of them if they do not appreciate this point.
Here are my earlier remarks from 2012.
Can you guess my answer to that question? But it does seem to be coming:
After decades of unregulated existence in all 50 states, the booming field of personal trainers is braced for a wave of scrutiny that is expected to transform the industry and could make or break some of the biggest fitness companies in the country.
The new regulations, being written by and for the nation’s capital city, will create a registry of all personal trainers in the District only. But they are expected to become a model that winners and losers in the fight believe will be replicated elsewhere.
The credit or blame, as you may care to describe it, goes to the Affordable Care Act:
A variety of workplace wellness programs and preventive health-care initiatives called for in the law could soon translate into rivers of billable hours for those with credentials to keep American waistlines in check.
And that means the race is on to be eligible for those credentials…
I believe the excess bureaucratization of the ACA is just beginning to show all of its implications…
The story is by Aaron C. Davis. And the article is sad throughout:
“We all have heard anecdotal reports of injuries, sexual misconduct and misrepresentation of titles by persons claiming to be competent in that area,” Simpson testified before a D.C. Council committee. She called the lack of any registration or licensure of personal trainers “a nationwide failure.”
Well, that is one “failure” we seem to be on the verge of remedying…
On the evidence of recent market developments, if tightening is a mistake, it’s a mistake the Fed already has made.
That is from Binyamin Appelbaum.
3. What will TV look like in five years’ time? Or should that be “what the web will look like in five years’ time?”
4. Top ten conservative novels? A strange list, even as such lists go. And again an excessively English selection from The Guardian.
Quebec produces more than 70 percent of the world’s maple syrup and the Federation of Quebec Maple Syrup Producers is a cartel every bit as rapacious as OPEC or De Beers. The Federation is government backed and all producers must sell to them. From an excellent piece in the NYTimes:
After the spring harvest, farmers from around the province send their syrup to the federation.
…To keep prices high, the federation enforces strict quotas for the province’s 7,400 producers. Instead of flooding the market during years with bumper crops, all syrup produced beyond that amount is stored in the federation’s warehouse, which helps prop up prices by limiting supply. When seasons are lean, it releases the syrup, to maintain stable supply and pricing.
…When the federation suspects farmers are producing and selling outside the system, it posts guards on their properties. It seeks fines from producers and buyers who do not follow the rule. In the most extreme situations, it seizes production.
Addendum: The NYTimes video about rebel maple syrup producers is excellent.
While Anastasia Garvey, an actress and model, doesn’t have office pressure, she says she is constantly on edge wondering if she’ll get a certain job. She has developed a regimen of ways to disconnect: meditation, acupuncture, cupping therapy, monthly trips to a reservation-only spa and most recently cryotherapy — as in spending some time being blasted by air cooled to minus 260 degrees.
It only lasts three minutes, plus time to warm up again on a stationary bike, but it costs $90 a session, she said. She goes three times a week.
“The first time I did it I couldn’t remember my name,” she said. “You’re in a freezer. You’re so cold you can’t think of anything.”
There are many interesting ideas and bits in this NYT Paul Sullivan piece: “As for the seeming contradiction of the Buddhist boxer…”
Food has replaced music at the heart of the cultural conversation for so many, and I wonder if it’s because food and dining still offer true scarcity whereas music is so freely available everywhere that it’s become a poor signaling mechanism for status and taste. If you’ve eaten at Noma, you’ve had an experience a very tiny fraction of the world will be lucky enough to experience, whereas if you name any musical artist, I can likely find their music and be listening to it within a few mouse clicks. Legally, too, which removes even more of the caché that came with illicit downloading, the thrill of being a digital bootlegger.
Once, it felt like watching music videos on MTV was a form of rebellion in plain sight. Nowadays, the channel doesn’t play any music videos. Instead, we have dozens of food and cooking shows, even entire channels like The Food Network dedicated to the topic. Chefs have become elevated to the status of master craftsmen, with names that have risen above the status of their restaurants, and diners revere someone like Jiro of Jiro Dreams of Sushi fame the way a previous generation worshipped the guitar sound of a rock god like Jimi Hendrix.
The food scene today offers a seemingly never-ending supply of scarce experiences, ingredients, and dishes. Cronuts you have to wait in line for a few hours to get your hands on. Pop-up restaurants that serve only on a few nights a week for a few weeks, then disappear forever. Restaurants that you have to sacrifice a goat to just to get a reservation, and then they’ll actually take that goat you killed and prepare your entire dinner from it, nose to tail. A white truffle add-on that tacks $80 on to a single piece of cured hamachi, and oh, the truffle is only available for four weeks a year and came over on a gondola from Alba, Italy, and the hamachi is one of the last of three members of its species so you know, you should probably try it before…oops, sorry, the chef says someone just ordered the last of it. Yep, it’s that couple at the corner table, and that’s the last plate that she’s Instagramming right now.
That is from Eugene Wei, with more of interest at the link, via Graham Rowe.