Thursday, August 05, 2010

Inflation delayed – or eliminated?

The Economist is pointing out interesting China facts in last week’s  leader.

Snippets:

1.on salary levels: “little more than one-twentieth of the average monthly wage in America. But it is 17% more than the year before.”

2. on how the rich world has come to rely on cheap Chinese labour: “by one estimate, trade with China has  added $1,000 a year to the pockets of every American household, thanks to cheaper goods in the country’s stores, cheaper inputs for its businesses and stiffer competition in its markets.”

3. on inflation in the past: “..expanding the global workforce by a quarter through the addition of cheap Chinese workers helped keeping the prices down in the west..” My comment: how this has held down inflation and this again contributed to competitiveness should earn more attention

4. on the future: “..higher Chinese wages might start to export inflation.” My comment: productivity increases will probably eliminate that effect  and part of the work will go to the next cheap labour market (Joan Robinson“ the misery of being exploited by capitalists is nothing compared to not being exploited at all”)

13 comments:

Timo Nikinmaa said...

2. The flipside is, of course, growing trade deficit and fewer manufacturing jobs especially in America.

3. One should also note how it allowed the FED to maintain a loose monetary stance that contributed to extended asset inflation which finally resulted in a global financial crisis.

4. Assuming one is able to find a cheap labour market comparable in size to that of China.

BoHarald said...

2. Agree on flipside - the US borrows extensively (much from China) to finance extensive imports.

3. As to asset inflation I would add Basel 2 classification of mortgage lending as "riskfree" - demanding less capital - driving down margins and then driving up less first class volumes to compensate.

4. No similar size or similarly singleminded country in sight - but decent-sized pockets here and there.

Timo Nikinmaa said...

3. Agree in principle on Basel 2, but did it matter much in practice? Mortgages were mostly securitized and risk was ceded to investment banks, special investment vehicles and hedge funds, which are not subject to Basel 2 regulation. As I understand banks acted more or less as custodians and did not need to worry much about capital requirements.

周志v豪 said...

每日都有新日光,每日都有新希望。.................................................

BoHarald said...

I think Basel 2 gave a strong signal to the entire banking market - mortgage margins will go down as capital requirements go down.
The best way to earn money is to just pass on the stuff instead of carry it on the books - and then by back shares. Others just compensated the lower margins by increasing volumes - driving both margins and asset quality lower.
Stuffees included very much pension funds and even municipalities - looking for better returns when interest levels were driven down by oversupply of credit - driven both by higher gearing in banks and growing accumulation of pension money into their own laps - again leading to oversupply of placing power - leading to oversupply in sovereign debt sector, lower credit quality and lower risk margins all over the place..
Vicious circle to say the least..

BoHarald said...

More discussion in my Finextra.com blog

Marie said...

Regarding Tradeshift. This has nothing to do with the latest post, but I am curious to hear your thoughts about Tradeshift, the Danish startup. They have citet you in a presentation, why I started reading your blog. "Skype for invoicing" - what do you think - will this result in a industry shift towards cloud computing? How will the banks and large ERP-players respond? Would appreicate your thoughts on this, as mentioned.

敬周喜 said...

一個人的際遇在第一次總是最深刻的,有時候甚至會讓人的心變成永遠的絕緣。......................................................................

BoHarald said...

Not very convinced as to Tradeshift - how are they going ton earn money?

旺劭旺劭旺劭旺劭 said...

不論做什麼事,相信自己,別讓別人的一句話,把你擊倒。..................................................

琬群學葉安高 said...

你文章很棒的~繼續分享給大家~~~~..................................................

靜蔡蔡蔡蔡怡 said...

一個人的際遇在第一次總是最深刻的,有時候甚至會讓人的心變成永遠的絕緣。......................................................................

黃怡君 said...

不錯的資訊~我會好好記下來!..................................................................

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