Meanwhile in China....

mwpt

ging84 wrote: »

I'm not sure that is really true
they automatically suspend stocks if there is a 10% change, up or down, we saw some stocks literally going up 10% instantly then stopping, every day for weeks

I'm not talking about stock suspensions. I'm talking about efforts to intervene in the market to prevent stocks falling further.

http://www.theguardian.com/business/2015/jul/08/china-stock-markets-continue-nosedive-as-regulator-warns-of-panic

Why do this when the market isn't even lower than it was 12 months ago? Markets should only ever go up?!

antrobus

michaels wrote: »

IN China they have the same problem that caused the financial crisis, high income inequality lending to too little consumption from income and excess saving, the savings glut leading to a misallocation of resources/mispricing of risk.....

That's not correct. If anything, as far as the US and the UK were concerned, the problem would have been excess consumption and too little saving.

michaels wrote: »

..In the west it was then unsustainability of borrowing to consume that burst the bubble (see Greece)....

Now you're contradicting yourself; how can "too little consumption" be consistent with " borrowing to consume"?

michaels wrote: »

....In China it looks like excessive investment in infrastructure/production with negative real returns will be what brings the cards tumbling down.

Both problems mirror the 30s although China even more so.

Still hoping that capitalism will self-destruct sometime soon?

cells

Generali wrote: »

Watch what happens to Chinese steel production over the next few years. Huge amounts of Government money have been pushed towards steel production over the last few years as an attempt to keep the credit crunch and GFC from China's door. As a result, IMHO, China has over invested in steel production.

Let's see what happens in that sector over the next couple of years. The decline will be quite precipitous without further Government intervention I think.

This is another example of misdirection of investment, this time caused by Government intervention in the market rather than by a bubble.

possibly but steel like say electricity or roads is an economic enabler, better to have a lot of it to not limit the economy elsewhere than to have too little, hurting by magnitudes the downstream economy.


PS: I used to work in the steel industry and even in 2007 people were saying china steel industry looks like a bubble. meanwhile china ignored all of them and has since doubled production

PS2: China would need to expand its steel capacity by 30-40% to reach the levels of japan per capita and is only ~10% above germany per capita today. So only about now is it entering a phase of saturation the build out to date has probably been needed.

cells

anyway china stock exchange is still 75% above what it was exactly a year ago doesn't seem that bad at all.

you've only lost if you bought over the last 3 months and only lost a decent percentage if you bought over the last 2 months

Generali

cells wrote: »

PS2: China would need to expand its steel capacity by 30-40% to reach the levels of japan per capita and is only ~10% above germany per capita today. So only about now is it entering a phase of saturation the build out to date has probably been needed.

Great.

So the first question then is how much steel is required at the marginal cost of production in the short term to maintain prices?

Once we have answered that question, the next is which producers are selling at below their marginal cost of production as without state aid or protectionism they will go bust first?

EY (formerly Ernst and Young) have this to say about Chinese steel production:

http://www.cnbc.com/id/102656611

Production per capita doesn't matter. Productivity at the margin does.

michaels

antrobus wrote: »

That's not correct. If anything, as far as the US and the UK were concerned, the problem would have been excess consumption and too little saving.



Now you're contradicting yourself; how can "too little consumption" be consistent with " borrowing to consume"?



Still hoping that capitalism will self-destruct sometime soon?

Sorry - clearly I was not clear.

Income inequality results in the few having more money than they can spend and the many looking on with envy.

The few save the excess they can't consume and boviosuly want a return on their savings.

The many find they can borrow cheaply for consumption - lending for consumption is generally risky (because in the long term income can not support the inerest payments) but because of the glut of savings the risk premia were bid down below realistic levels.

Thus in the short term the poor majority are able to carry on consuming above their incomes and the rich few carry on making excess profits (there are plenty of fluch consumers) and shovellign the money into savings where it is recycled to the many.

Just as in Greece this is not sustainable, as debt to income ratios rise for the many their riskiness goes up and eventually they reach the Greece positon where they can borrow no more and find that even rolling over existing loans becoes prohibitvely expensive.

So we have too much saving by the few who have more income than they can consume.

Too much consumption by the many who are consuming from debt not income which is unsustainable.

A credit crunch as creditworthiness falls to the extent that risk premia make existing borrowings unstainable.

Whether the borrowers are US and UK consumers, the Greek govt or Chinese speculators the outcome is the same, a credit crunch.

the hisroty of 'capitalism' is littered with such events, in general lenders have lost a lot of money, there has been a deep recession and things have carried on. At least in the West the current crunch has been a bit different as tax payers rater than lenders have born the majority of the losses leading to less unemployment and destitution than might have been expected. Greece offers one vision of where this may lead, Eire an alternative.

antrobus

michaels wrote: »

Sorry - clearly I was not clear.

Income inequality results in the few having more money than they can spend and the many looking on with envy.

The few save the excess they can't consume and boviosuly want a return on their savings.

The many find they can borrow cheaply for consumption - lending for consumption is generally risky (because in the long term income can not support the inerest payments) but because of the glut of savings the risk premia were bid down below realistic levels.

Thus in the short term the poor majority are able to carry on consuming above their incomes and the rich few carry on making excess profits (there are plenty of fluch consumers) and shovellign the money into savings where it is recycled to the many.

Just as in Greece this is not sustainable, as debt to income ratios rise for the many their riskiness goes up and eventually they reach the Greece positon where they can borrow no more and find that even rolling over existing loans becoes prohibitvely expensive.

So we have too much saving by the few who have more income than they can consume.

Too much consumption by the many who are consuming from debt not income which is unsustainable.

A credit crunch as creditworthiness falls to the extent that risk premia make existing borrowings unstainable.

Whether the borrowers are US and UK consumers, the Greek govt or Chinese speculators the outcome is the same, a credit crunch.

the hisroty of 'capitalism' is littered with such events, in general lenders have lost a lot of money, there has been a deep recession and things have carried on. At least in the West the current crunch has been a bit different as tax payers rater than lenders have born the majority of the losses leading to less unemployment and destitution than might have been expected. Greece offers one vision of where this may lead, Eire an alternative.

You're still not very clear.

But I think what you are saying is that income inequality results in the poor borrowing money to finance consumption to keep up with the joneses.

Interesting, but wrong. Countries like Sweden, Norway, Denmark and the Netherlands have less income inequality than the UK, but a lot more consumer debt.

michaels

antrobus wrote: »

You're still not very clear.

But I think what you are saying is that income inequality results in the poor borrowing money to finance consumption to keep up with the joneses.

Interesting, but wrong. Countries like Sweden, Norway, Denmark and the Netherlands have less income inequality than the UK, but a lot more consumer debt.

Because of course the market for debt is purely national, for example none of the European banks got stung having mispriced US mortgage risk....

If there was no glut of savings looking for returns why did credit risk get so underpriced? Why is Greece in such a bad positon now, surely the market would have allocated lending at an appropriate price that would have discouraged the Greeks from going on a credit binge and Germany would have run a much smaller trade surplus as without borrowing by its customers there would have been much less demand for its output....

Generali

antrobus wrote: »

You're still not very clear.

But I think what you are saying is that income inequality results in the poor borrowing money to finance consumption to keep up with the joneses.

Interesting, but wrong. Countries like Sweden, Norway, Denmark and the Netherlands have less income inequality than the UK, but a lot more consumer debt.

Not sure about the other countries but Dutch numbers are skewed by tax laws which encourage IO mortgages rather than repayment ones.

cells

Generali wrote: »

Great.

So the first question then is how much steel is required at the marginal cost of production in the short term to maintain prices?

Once we have answered that question, the next is which producers are selling at below their marginal cost of production as without state aid or protectionism they will go bust first?

EY (formerly Ernst and Young) have this to say about Chinese steel production:

http://www.cnbc.com/id/102656611

Production per capita doesn't matter. Productivity at the margin does.

The steel industry has always had booms and busts its difficult or close to impossible to move supply and demand fast enough to react to market prices however the industry is getting better at it.

The price today may not reflect the need going forward a year or two. You could well have too low a price today but need to be building plants to meet demand in 3 years time.

one of the problems with steel is that there is no market or futures market for it unlike say oil or copper etc so you can't really gauge anything but near term demand. Part of the reason is that steel comes in hundreds of different grades


the Chinese steel industry may have a small overcapacity but thats a lot better than a shortage of steel. Also when the time comes they can close their oldest least efficient plants