So are the China trade surplus ones. Dave at MacroBlog has the details on China. I’m waiting for Brad Setser to post, but he must be either doing his sums, or having a late breakfast :). Before we get some blog analysis (even Brad Delong is quiet today) you can get the basics here. In fact the rise in the April CA deficit to $57bn, from $53.6bn in March, is supposed to be good news, since the increase wasn’t as big as expected.
Essentially I am outside the Atlantic blog consensus here, since I think the US dollar will hold, and that it is the euro which is in trouble. I have a little post on this here. Logically if the other major alternative as a reserve currency is in trouble under Bretton Woods Mark I, everyone goes home to Daddy. I think that is how it will be.
Update: Well Brad still isn’t there but Stephen Roach is. I think his view is the dominant one on the US blogging scene, and shared by non-blogging economists like Paul Krugman. I’m sorry, I think it’s wrong, and by a long way.
Update 2 I’m getting a little tired of waiting (incidentally General Glut has just passed by in comments, and he *does* have a post on the topic). Now the politically sensitive US trade gap with China widened $14.0 percent in April to $14.7 billion. This means it was $12 billion in March, or that it rose $2.7 billion. Now China’s surplus widened to $8.99 billion from $4.59 billion. Doing the arithmetic the surplus rose $4.4 billion. $4.4 billion minus $2.7 billion gives $1.7 billion, a hell of a big chunk of which was probably with Europe. I wish someone who really knew about this would write something, but my educated guess is that Chinese import penetration in Europe is now big and getting bigger by the month. Hence the row about globalisation in the French referendum. Basically what I am saying is that having this kind of issue in the Free Trade US of A is one thing, having it in the more anti-globalisation European core is going to be quite another. China the global imbalance to end all (im)balances.
Now if you want to understand something about China:
this article is well worth the trouble.
Basically steel production is a pretty dreary matter. But if you are increasing capacity at rate of 22% a year, then sometime or other your capacity outstrips potential demand, and there is a crisis. This is where the banks come in, since they lend the money to the steel mills to subsidise the prices necessary to sell. This is where the problem of non-performing loans comes in, and this is why the Chinese banking system is normally in trouble, and will continue so to be for some time to come IMHO.
I think what people need to get their minds round is the immensity of all this. We are talking about an economy which could be five times the size of the US one when it is all up and running, which is of course years away, but I’m sure you get the point. And as we run up to these levels of economic activity, then fluctuations in capacity, and output, and prices will be large, and the financial consequences of these fluctuations will be too. And note from the FT article the extent to which China is still a state planned economy in the non-export sector.
The Chinese surplus is increasing rapidly. Since the US deficit didn’t rise so fast, this leaves me wondering what is happening to Europe.
We know about shoes, and T-shirts, and bicycles, but what else is there? The French trade deficit rose last month too.
The Euro is falling fast, it is now at $1.2138, down over a cent today.
In comments Antoni Jaume asked me this:
“Edward, I follow the ?/$ rate of exchange for fun, trying to understand which news causes which changes. Sometime it is only that Greenspan has insinuated, or not, the rates could go up, and suddenly exchange rates jump. Then after a few days things return to where they were before.”
“Then after a few days things return to where they were before.”
Yea, well at the moment the euro’s been dropping for about a month. (Actually looking at the chart in Antoni’s link – below – make that three).
(Incidentally, those of you who want to join the game of ‘watching’, this is the best page I’ve found:
the number in the bottom left of the top left box is the one you want, and wow… it just dropped to 1.2155. Just refresh from time to time and you can see for yourself. )
Ok on antoni’s point, it is a fair one. If the currency is balanced then it will keep reverting to its old value.
But this is not where we are, the euro at the moment is assymetrically balanced, what I mean by this is that good news doesn’t help too much, and bad news sends it down, while… bad news from the US maintains the value, and good news sends it down.
On good pages to follow the value fluctuations, Antoni replied with this:
usually I prefer:
if only because they have graphics that help gauging the changes.
Incidentally to get an idea of relative currency values, New Economist has a post on the Big Mac Index.
Sorry if all this is very bitty, but it has been written on the fly during a hot hectic afternoon :).