All red now! Repugs get their wish to fuck shit up. Get out the popcorn, enjoy.
My 86-yr-old ma is flabbergasted by my cynical disinterest in politics. When she tried to appall me with news of this and that happening with the rapist’s new cabinet, I said, “Mom, the worm is in the core. Let it eat!”
Trump’s polices will be very deflationary outside of the US. Tariffs equal less dollars leaving US. So less dollars available to service dollar denominated debt outside the US. It also equals interest rates cuts outside of the US to try to stimulate demand.
Which will kill the purchasing power outside the US. It’s going to be a mess.
Maybe the dollar will become less important and the World will move to the Euro instead. Couls be that the US is soon looked upon as a failed state. Certainly is moving that way.
You still don’t get it Dennis. Any move away from using dollars is followed by a surging dollar and collapsing currencies everywhere else.
Eurodollar system is bank credit on a ledger. There are no green pieces of paper. There are no banks reserves created by the FED that are used in the Eurodollar market.
Credit either expands or contracts. Dollar goes down as credit expands. Dollar goes up as credit contracts.
Are you telling me it’s ok for the rest of the world outside the US to default on their US denominated debt?
Because the world outside the US owes over $100 trillion in US denominated debt.
Only one thing gets in the way of banks in the Eurodollar market extending credit. And that one thing is counterpart risk.
In theory the banks can create as much credit/liquidity as they want.
But when your Germany and your having to de-industrialize due to lack of affordable energy, the counterparty risks goes up.
When your China and you get tariffs slapped on your because you had no choice but to cut your prices because you overproduced and are now dumping your production on the global markets. Counterparty risk goes up.
If China ever makes a move on Taiwan. Counterparty risk will go through the roof and dollars will stop flowing into China.
When energy goes into contraction. Counterparty risk will definitely go up. And loans into the economy will contract.
The days of kicking the problem down the road with government spending and central bank monetary stimulus are coming to an end. I’m not saying they won’t do stimulus. I’m saying that it won’t do anything to pull the economy forward. China is already there. Their stimulus doesn’t work.
70% of Chinese wealth is parked in real estate which is down 30%. They have lost $20 trillion with a T of wealth since their real estate market started going bust. That’s in US dollar terms btw. Counterparty risk has definitely gone up in China.
China is in the middle of collapsing and people are discussing how they will dominate the auto market. Makes no damn sense.
The supply of say bitcoin and gold are let’s say limited and steady. The supply of dollars on the other hand can contract drastically. When 99% of all the money is credit. Money can disappear in huge chunks under the right circumstances.
One other thing Dennis. All these US dollar denominated loans outside the US. They all have an interest rate attached to them. Which means more is owed than the sum of all the debt. Let’s just call it 3% more.
These loans can’t be repaid without an expansion of credit in the Eurodollar market.
HHH,
The US following poor policy will hurt the entire World economy, but if the rest of the World is smarter than Trump and resists the urge to fall into the protectionist trap then the damage might be minimized. China may choose to focus on Europe and the rest of the World or may just have lower growth. If your base case of Worldwide recession ever proves correct, then of course demand for credit falls and interest rates will fall, Tariffs will throw sand in the gears of the global system which will tend to lead to inflation which would lead to tighter monetary policy and higher interest rates, if the recession is severe it will outweigh the inflation effect of tariffs.
I am not confident about how this will play out, but the odds of recession have definitely increased.
HHH,
The Chinese auto market is thriving. They are likely to dominate the emerging market with their inexpensive exports. Asia, Africa, South America and perhaps Australia and New Zealand will be the domain of the Chinese Auto industry and likely solar, and batteries as well.
China’s auto makers are in need of a bailout. They are currently bankrupt. I’m sure they will receive a bailout. But that doesn’t change the reality that they aren’t profitable.
HHH,
There are 300 auto manufacturers in China, some are probably not profitable as the industry is highly competitive. BYD is profitable.
Dennis,
BYD has a little over $70 billion dollars in debt. Their debt to assets ratio is about 77%.
China’s Evergrande debt to assets ratio was 79% when things went to shit.
While the car business is a little different than real estate. I expect the purchasing power of the countries that are and will be importing BYD’s cars to tumble rather significantly.
Russia for example. The exchange rate matters. RUB/USD was at 100.00 today though I’m not sure where it closed the day at.
So 100 rubles equals a $1 Well what does Russia’s purchasing power look like at an exchange rate of 150.00-160.00 or 200.00
There will be more than a handful of currencies that lose anywhere from half or 50% of their value to 100% or more of their value as the Eurodollar market contracts.
How do we know the Eurodollar market is going to contract?
Make transactions using something other than Eurodollars and you will see the Eurodollar market contract. Also understand that the vast majority of Eurodollar loans are made by banks outside the US. So when you default on those loans you aren’t defaulting on US banks for the most part.
HHH,
BYD is growing very rapidly, debt is expected for a company that is expanding rapidly.
Their is a large market in Asia for BYD vehicles.
For Germany, eg. VW and… not that many others still around,,. NS2 was a fatal blow for the automotive industry, and several others. The price for electrons are telling the big picture, you need to scroll down a bit, the horror… https://www.nordpoolgroup.com/
Addendum, some would say closing their nuclear plants was a mistake, but I would say taking a dump in your childrens playground just to save a dime short term would be quite a bad thing in the long run, so a good choice in my view.
DENNIS —
The American industry is already well down the path of Harley-Davidsonization, building ridiculous vehicles that are poorly suited for their task but thanks to massive marketing efforts somehow make buyers feel good.
But new cars everywhere are just too expensive, mostly thanks to the used car business that allows the poor to eat the crumbs that fall from the table of the rich.
So I agree that Chinese cars are probably going to have a devastating impact worldwide.
It won’t be long before the US, Japan, Korea, and Europe lose their export markets for autos outside of this group of nations. Even Tesla is falling behind the Chinese producers, the ICE producers have fallen so far behind they are a little like Kodak or Fuji within 5 maybe 10 years at most they will be either bankrupt or shadows of their former selves.
What’s a business to do when the US market has no growth left in it? Most vehicles purchased are used so profit will be made on those people where cost is less of an issue and tax incentives still benefit buyers and builders of light truck vehicles.
In my neck of the woods the vast majority of new heavy duty trucks we are seeing on the roads are “made in China” (Sinotruck, Foton, Shacman). When it comes to cars, there are a number of brands represented here. Great Wall Motors, Geely, BAIC, Changan, Jetour, BYD and just last week MG was launched by a new dealership. For now all the dealers except the dealer for BYD and MG are focusing on selling vehicles with ICEs. Our proximity to the US media market means that we get most of the FUD spread from the US with the result that public does not appear to be interested in EVs. The way things are going in China I expect the availability of models with an ICE to decline as the manufacturing cost of EV continues to fall to the point that they will be easier and less expensive to manufacture than vehicles with ICEs.
Unfortunately when it comes to the municipal bus fleet for the capital city, the government appears to be looking out for the interests of a US LNG supplier (New Fortress Energy) over and above the interests of the electorate. Earlier this year the government purchased 100 CNG buses from a Chinese manufacturer despite the existence of a technical study which concluded that battery electric buses would provide the lowest total cost of ownership, by a long shot! The “Battery Electric Bus Feasibility Study” was published in July 2022 after the idea of acquiring electric buses was floated in 2020. Last year (2023) the minister of finance anounced that the government would be acquiring 200 electric buses for the municipal bus fleet. The first shipment to arrive after the announcement consisted of 45 diesel units and 5 electric from a Chinese manufacturer. The charging of the five electric buses has been so badly managed that when the LNG supplier offered to fund the set up of the CNG fueling infrastructure, they jumped at it and went ahead to purchase 100 CNG buses. It is what it is!
“China has been planning the transition to electric power in transportation for decades…The primary motivation for China to push for EVs was energy security,” says Russo. “Second was industrial competitiveness, and a far distant third was sustainability.”
Gradually all countries will come to understand that energy security, industrial competitiveness and sustainability of energy supplies are all facets of the same exact issue.
Will the new administration dismantle/defund the domestic energy wave that has taken root in the last several years with the Biden programs just out of petty partisanship?
If the Chinese find it interesting to extensively build out offshore wind resources in the Taiwan strait, because of world class wind resources; I guess the answer is not so straight forward. The pragmatic straight forward pathway is to assess how much renewables you could get away with to include in the the grid, without unreasonable investments. That would mean starting the renewables discussion at scratch without extra support. All clearly positive EROEI investments would probably be pursued anyway.
You guys have figured out that all dollar denominated debt can, and will, be monetized, haven’t you?
I mean, come on, we were all discussing this ad nauseum back in 2008 and nothing fundamental has changed since then.
No ifs, ands, or buts…monetization and inflation will be pursued, until we are all dead. No deflation will be allowed. Dollar debts will not be allowed to contract, resulting in defaults and a stronger dollar (relative to real goods and services, that is). Currency exhanges rates are meaningless and fluctuate all the time. What matters is what currencies can buy.
Who exactly is going to “monetize “ the debts that reside outside the US. Get your head around it. The FED is powerless. Global economy ran just fine prior to 2008.
The balance sheet of the FED doesn’t matter. The commercial banks don’t need bank reserves to create new loans, new money.
All banks need to create loans is collateral and low counterparty risk.
Bank reserves created at the FED never, I repeat never leave the FEDs balance sheet. FED doesn’t have the power to create liquidity. No matter how many times it’s repeated it simply isn’t true.
Gold back currencies or sound money doesn’t really work either. Go back to the late 1800’s and you’ll see commercial banks that extend credit into the economy were not limited by gold in any way to the amount of credit they could extend.
Gold nor bank reserves have ever limited the amount of credit. Or balance expansion of commercial banks.
What will limit expansion of credit is a contraction of energy supply. And because all loans have an interest rate attached to them growth is required to service and payback all debts.
Collapse will be quick. Not drawn out over decades. Unless you believe money will be lent into existence for free and not have to be paid back.
It’s funny that so many people around here have bought into Marxism so heavily. The idea that the value of goods and services is determined by the inputs required is pure Marxism. The theory does not work. The market determines the value of goods and services that are traded.
You can spend as much as you want building an airplane out of reinforced concrete, but it has no value because nobody wants it. On the other hand, the ideas behind optimizing an assembly line cost nothing except brain power and can save companies millions.
The idea that you need energy to pay off debt is dead wrong because it adheres to the mistaken Marxist theory of value. You pay off debts with goods and services (including overprice real estate for example) whose value is determined by the price the market sets, NOT by the value of the inputs.
Don’t you acquire goods and services by using energy? Whether you settle in dollars or donuts doesn’t really matter.
It just so happens to be that debts are settled in dollars. Not donuts, not gold, not oil or natural gas. Try paying taxes with any of the above. You can’t. You have to sell any of the above in order to obtain dollars. And it takes energy to obtain all of the above.
When you borrow in dollars you must repay in dollars. Even if you have to sell your peso’s to obtain dollars.
The world outside the US has borrowed over $100 trillion USD. Because it’s the medium of exchange. So demand for dollars is extremely high.
What happens when the supply of dollars contracts? Due to risk premium going up? You should also know every month as the principal portion of debts are repaid, money is destroyed right? So growth in the money supply is a must to repay debts.
DXY is sitting at $106.66 This index is primarily the Euro against the dollar. When the DXY hits 200.00 let me know how well things are going over in Europe because that is where we are going because of structurally how the monetary system is set up with the Eurodollar being the global medium of exchange.
If you’d rather use Chinese yuan or something else as a medium of exchange. I’m cool with that. It means you have to print the shit out of whatever medium of exchange you choose.
Man, it’s wild listening to someone get Marxism and material reality this wrong. What’s it like on Bizarro World these days where wishes and vibes get things done?
Haha KLEIBER claiming other people don’t know what they are talking about doesn’t make you look smart. You have to actually have to find counterarguments.
Nice try though.
Learn about use-value and exchange value first. It’s in Capital, then we can talk. What you wrote about a concrete aeroplane? Meaningless. Why would someone make an aeroplane out of concrete? Do people in your economic reality make shit sandwiches and haggle price too? How about triangle wheels for cars? What the hell am I reading here?!
Traditionally the object that has no use for its creator or anyone else in economics is the mud pie. You’re, for whatever reason, retreading arguments already made and addressed literally two centuries ago.
If you genuinely want to discuss Marxism, I’m all ears, but I have a feeling your comprehension of it is muddled to say the least.
HHH
‘ and not have to be paid back’ . Does anyone really believe the massive and growing government debts worldwide will be paid back?
Money was originally an artificial construct to improve the efficiency of barter of real goods and services, and as society evolved and started developing surplus, money also became a temporary store of value. Nothing says that artificial construct has to have a constant value. In some ways inflation numbers are simply a measure of the rate of decrease in the value of a currency relative to the value of a basket of all the goods, services and tangible assets in an economy.
My own experience with high inflation was in Turkiye, where I lived and worked from 1981 to 1985, during which time official inflation ran at about 35%, and many argued it was closer to 50%.
In 1981 the Lira traded at 70 to the US dollar
In 1985 the Lira traded at 5,000 to the US dollar
In 1995 I went back on vacation and the exchange rate was 1,000,000 to the US dollar.
In 1995, the locals were visibly better off. In the plant where I was working, Engineers who were making the equivalent of 100 USD in 1985, were now making the equivalent of 1,000 USD per month, public services and infrastructure were improved and it was all BAU.
How did the locals cope?
By treating the currency strictly as a medium of exchange, and not a store of value.
– You would often see an empty building lot with a pile of bricks in it – mortgages were not an option, so when the prospective homeowner had a little spare cash, he would by more bricks until he had enough to build his house.
– When a farmer sold his crop at the end of the growing season, he immediately went to the gold shop and bought 22K plain gold bracelets for his wife, and those slowly disappeared as the year went on and they needed to buy food , clothing ,etc.
– When expatriates bought a tangible item ( carpet, for example) they haggled on price, but the locals haggled on payment terms.
The company had a team working in Argentina at the same time, where the inflation rate was about 100%. The local workers were paid at noon every Friday, and then had two hours off to purchase everything they would need for the next week. Any surplus was immediately converted into foreign currency ( mainly USD) by the money changer hanging out at the street corner.
The US aims for the very slow path on currency decay…glacial,
with the goal of paying back the debt in depreciated dollars later while still being credit worthy in the meantime.
So far its been working. One day it won’t. Thats the price you pay to be in the game.
Currently it looks like we are primed for a bigger dose of inflation.
Hes got his immunity from his Supreme Court and has learned that his troop must be about loyalty above all else. Hes got the House, the Senate, the Supreme Court, and all the media money can buy. He can grant pardon for any deed performed on his whim.
No one else has had such free reign in this country.
Is he one to trust all this with? Is anyone?
It would be a miracle of miracles if he and his crowd doesn’t trash this thing.
Severely disappointed in the behavior of the country, from Musk to Alex Jones… and all their voters.
Yeah I know you feel, but to be honest I’ve been dealing with this ever since Bush 2004. Before then I was too young, and everyone sort of rallied around Bush after 9/11 so I couldn’t say or think much differently.
So here we are 20 years later and it’s the same old BS! But how? How could this be possible? Becuase, places don’t change as much as we think. They have characteristics that are passed through the generations.
Reagan, Bush 1 and II, Trump…they all come fundamentally from the same group of people. Yes, yes, I know, there are differences, but fundamentally, they all promote and believe in the same thing.
“Keep you doped with religion and sex and TV,
And you think you’re so clever and classless and free,
But you’re still fucking peasants as far as I can see.”
I’ve started to think along the same lines. Trump will say anything to gain supporters, spend however much federal money, hire anybody, fire anybody, ruin anything, build anything in his own interest.
He doesn’t lie because that would mean that he recognized the difference between reality and falsehood. To Trump there is only his personal gratification and lack thereof.
What kind of self-delusion it takes to imagine that this grifter would make any effort in anyone else’s interest is beyond understanding.
METHANE FROM TROPICAL WETLANDS IS SURGING, THREATENING CLIMATE PLANS
Four studies published in recent months say that tropical wetlands are the likeliest culprit for the spike, with tropical regions contributing more than 7 million tonnes to the methane surge over the last few years. “Methane concentrations are not just rising, but rising faster in the last five years than any time in the instrument record,” said Stanford University environmental scientist Rob Jackson, who chairs the group that publishes the five-year Global Methane Budget, opens new tab, last released in September.
Lonely Hearts Club band plays on-
““As society becomes more atomised, users on the social platform Xiaohongshu have begun using the hashtag “companion chat” to find others willing to buy or sell a few minutes of human conversation.”
China borrowed some dollars from the Saudi’s via a debt sell. There is so much wrong in that article in the link . I’m not even sure where to start picking it apart.
I will say this though. If China is having to get dollars through a debt sell to the Saudi’s. It means the banks aren’t providing the dollars that China needs.
It no different from China selling US treasuries. They do it because they need dollars that the banks just aren’t providing.
All it really means is shit is hitting fan blades in China and they are desperate for dollars.
Whoever wrote that article doesn’t understand the monetary system. At all!
I don’t know anything about the maturity of these bonds. But the longer the maturity the greater the chance that China defaults on these bonds. If we get 60% or 100% tariffs on Chinese made goods. Not only will money be fleeing China as manufacturing moves elsewhere. But the flow of new dollars into China will stop.
Foreign direct investment into China already printed its first negative number. EVER!!!
Interest rate swaps in Germany turned negative for the first time ever. Didn’t happen in 2008 or 2020 wasn’t really even close either of those two years. While Germany and Europe as a whole have their own troubles. German manufacturing of machinery is highly exposed to the mess that China has become.
One other thing. China borrowing dollars from the Saudi’s isn’t the creation of new money. It’s redistribution of dollars that already exists from the Saudi’s to the Chinese.
Not triple H but here we go: The first issue that is not adequately addressed is that dollar deposits are created through lending. A bank accepts collateral and issues a deposit it return at some percentage of the collateral value. As the loan is repaid the dollar deposits disappear out of the monetary system.
So all the dollars that SA has were created in the US banking system. The reason why SA would rather hold US treasuries ( UST) than dollar deposits is a) security – a bank deposit is an unsecured loan to a highly levered institution whereas a UST is an obligation from the government, which always has the ability to repay ( but not necessarily the willingness) principal and interest. Keeping dollar deposits in their native form rather than converting them into native currency ( not an issue with SA because they are tied to the USD) also prevents inflation.
So let’s assume that SA now lends the dollar deposits to another country. All that does is effectively dollarize that country’s monetary system ( if done in large numbers). There is no real benefit for – say China – to start issuing dollar deposits ( by having local banks accept collateral and created dollar deposits) – all it would do is tie he Chinese economy to the US capital markets and in effect adopt the monetary policy of a country that it doesn’t particularly get along with. How would that make sense? Also, by having dollars circulate in the Chinese economy ( which uses a very tightly managed currency) it would most likely drive out its own currency – what good would that do?
So – nice graphs and all but it’s just not a likely scenario for any country that wants to remain monetarily independent.
Rgds
Vince
Thanks WP and HHH . I have another point of view from another blog . Any thoughts ?
”China has a huge surplus with the USA. Therefore, it has an excess of dollars that it has recycled for years, buying US bonds. In recent years, it has stopped buying American debt and has sold part of what it already had. This implies that it still has more dollars to spare, to buy resources from the third world or energy from Russia.
The third leg of the graph does not need to rely on the issuance of dollar bonds by China, with no purpose of re-dollarizing.
What do I think is happening with this new issue of dollar bonds?
China is preparing to get dollars in the bond market, if the USA executes Trump’s plans and imposes 60% tariffs. It is evident that in that case, the trade surplus would be greatly reduced and in that case it is possible that it would need financing in dollars to buy energy, for example. To do this, it intends to create a dollar bond market, in case the tariffs are carried out and always looking to the long term.
I don’t see the point of re-dollarization, but rather of protecting itself from the shortage of dollars. If China were to be able to buy everything it needs in yuan, as it intends, it would not need to issue dollar bonds. China has long sought to have the same privilege as the dollar… and for that reason, it does not want a new BRICS currency backed by gold. Only in the event of the collapse of the dollar fiduciary system would it start the new payment system with a BRICS currency, I insist only in that case.
The first thing China needs is to balance its internal consumption with exports. It is now too dependent on exports and with Western tariffs, it urgently needs to boost internal demand, to get out of the crisis. I don’t think it is thinking of overthrowing the dollar…
Not as simple as just selling bonds. China will take huge losses on bonds they bought when interest rates were low.
So while they can sell bonds to get dollars. They will take a big haircut. Better to hold to maturity if possible.
Countries outside the US issue dollar bonds isn’t anything new. But it’s exactly how countries get into trouble by borrowing in a currency they can’t print.
Japan has been borrowing heavily in the FX market using Japanese yen as the collateral. Which is why their currency has been making such big moves. It’s an expensive way to get dollars but when you have to have dollars and you can’t get them or it becomes very expensive to get them you can get creative.
I’m assuming the Saudi’s were the only ones that were offered. Would love to see the details of that deal.
https://www.youtube.com/watch?v=EifYMcYDQXM
Trump picks the host of Fox & Friends as the Secretary of Defense.
That doesn’t trump Gaetz as AJ.
I’m expecting Steve Bannon to be his first Supreme Court nominee. Maybe he’ll make it a recess appointment.
Hegseth served his country on the battlefield, but is completely unqualified for an administrative position.
Hegseth uses the OLD Testament to guide his decisions.
He completely ignores Jesus’s teachings in the NEW Testament. ( Give away all your money, Turn the other cheek…etc )
He is an absolute nut case WAR HAWK who justifies his views with biblical cherry picking.
He was appointed, like the others, because he will do whatever Donald Trump says, and talk about how great Donald is all the time
Ex-Pence aide: “We are headed for the most corrupt presidency of our lifetime”
lets not limit it to just our lifetime
https://www.youtube.com/watch?v=cGi56c_AoK0
5 minutes
“Massive” lithium deposit found in Arkansas
All red now! Repugs get their wish to fuck shit up. Get out the popcorn, enjoy.
My 86-yr-old ma is flabbergasted by my cynical disinterest in politics. When she tried to appall me with news of this and that happening with the rapist’s new cabinet, I said, “Mom, the worm is in the core. Let it eat!”
Perhaps she is concerned about the rights of her son. I am certainly concerned for my children.
Here’s one to enjoy:
Infowars has been purchased by an entity that will put the assets to good use, perhaps redeeming the associated nastiness:
https://www.msn.com/en-us/news/other/news-notification/ar-AA1u5mpg
Interesting article about China and EVs
https://www.wired.com/story/how-chinas-ev-boom-caught-western-car-companies-asleep-at-the-wheel/
Alimbiquated,
The Chinese EVs will dominate the world market, legacy ICE auto makers are toast.
US auto industry will go down first due to Trump looking backward instead of forward.
Trump’s polices will be very deflationary outside of the US. Tariffs equal less dollars leaving US. So less dollars available to service dollar denominated debt outside the US. It also equals interest rates cuts outside of the US to try to stimulate demand.
Which will kill the purchasing power outside the US. It’s going to be a mess.
HHH,
Maybe the dollar will become less important and the World will move to the Euro instead. Couls be that the US is soon looked upon as a failed state. Certainly is moving that way.
You still don’t get it Dennis. Any move away from using dollars is followed by a surging dollar and collapsing currencies everywhere else.
Eurodollar system is bank credit on a ledger. There are no green pieces of paper. There are no banks reserves created by the FED that are used in the Eurodollar market.
Credit either expands or contracts. Dollar goes down as credit expands. Dollar goes up as credit contracts.
Are you telling me it’s ok for the rest of the world outside the US to default on their US denominated debt?
Because the world outside the US owes over $100 trillion in US denominated debt.
Only one thing gets in the way of banks in the Eurodollar market extending credit. And that one thing is counterpart risk.
In theory the banks can create as much credit/liquidity as they want.
But when your Germany and your having to de-industrialize due to lack of affordable energy, the counterparty risks goes up.
When your China and you get tariffs slapped on your because you had no choice but to cut your prices because you overproduced and are now dumping your production on the global markets. Counterparty risk goes up.
If China ever makes a move on Taiwan. Counterparty risk will go through the roof and dollars will stop flowing into China.
When energy goes into contraction. Counterparty risk will definitely go up. And loans into the economy will contract.
The days of kicking the problem down the road with government spending and central bank monetary stimulus are coming to an end. I’m not saying they won’t do stimulus. I’m saying that it won’t do anything to pull the economy forward. China is already there. Their stimulus doesn’t work.
70% of Chinese wealth is parked in real estate which is down 30%. They have lost $20 trillion with a T of wealth since their real estate market started going bust. That’s in US dollar terms btw. Counterparty risk has definitely gone up in China.
China is in the middle of collapsing and people are discussing how they will dominate the auto market. Makes no damn sense.
The supply of say bitcoin and gold are let’s say limited and steady. The supply of dollars on the other hand can contract drastically. When 99% of all the money is credit. Money can disappear in huge chunks under the right circumstances.
One other thing Dennis. All these US dollar denominated loans outside the US. They all have an interest rate attached to them. Which means more is owed than the sum of all the debt. Let’s just call it 3% more.
These loans can’t be repaid without an expansion of credit in the Eurodollar market.
HHH,
The US following poor policy will hurt the entire World economy, but if the rest of the World is smarter than Trump and resists the urge to fall into the protectionist trap then the damage might be minimized. China may choose to focus on Europe and the rest of the World or may just have lower growth. If your base case of Worldwide recession ever proves correct, then of course demand for credit falls and interest rates will fall, Tariffs will throw sand in the gears of the global system which will tend to lead to inflation which would lead to tighter monetary policy and higher interest rates, if the recession is severe it will outweigh the inflation effect of tariffs.
I am not confident about how this will play out, but the odds of recession have definitely increased.
HHH,
The Chinese auto market is thriving. They are likely to dominate the emerging market with their inexpensive exports. Asia, Africa, South America and perhaps Australia and New Zealand will be the domain of the Chinese Auto industry and likely solar, and batteries as well.
Interesting piece on China’s real estate market
https://thediplomat.com/2024/09/chinas-property-market-explaining-the-boom-and-bust/
Dennis,
China’s auto makers are in need of a bailout. They are currently bankrupt. I’m sure they will receive a bailout. But that doesn’t change the reality that they aren’t profitable.
HHH,
There are 300 auto manufacturers in China, some are probably not profitable as the industry is highly competitive. BYD is profitable.
Dennis,
BYD has a little over $70 billion dollars in debt. Their debt to assets ratio is about 77%.
China’s Evergrande debt to assets ratio was 79% when things went to shit.
While the car business is a little different than real estate. I expect the purchasing power of the countries that are and will be importing BYD’s cars to tumble rather significantly.
Russia for example. The exchange rate matters. RUB/USD was at 100.00 today though I’m not sure where it closed the day at.
So 100 rubles equals a $1 Well what does Russia’s purchasing power look like at an exchange rate of 150.00-160.00 or 200.00
There will be more than a handful of currencies that lose anywhere from half or 50% of their value to 100% or more of their value as the Eurodollar market contracts.
How do we know the Eurodollar market is going to contract?
Make transactions using something other than Eurodollars and you will see the Eurodollar market contract. Also understand that the vast majority of Eurodollar loans are made by banks outside the US. So when you default on those loans you aren’t defaulting on US banks for the most part.
HHH,
BYD is growing very rapidly, debt is expected for a company that is expanding rapidly.
Their is a large market in Asia for BYD vehicles.
For Germany, eg. VW and… not that many others still around,,. NS2 was a fatal blow for the automotive industry, and several others. The price for electrons are telling the big picture, you need to scroll down a bit, the horror…
https://www.nordpoolgroup.com/
Addendum, some would say closing their nuclear plants was a mistake, but I would say taking a dump in your childrens playground just to save a dime short term would be quite a bad thing in the long run, so a good choice in my view.
DENNIS —
The American industry is already well down the path of Harley-Davidsonization, building ridiculous vehicles that are poorly suited for their task but thanks to massive marketing efforts somehow make buyers feel good.
But new cars everywhere are just too expensive, mostly thanks to the used car business that allows the poor to eat the crumbs that fall from the table of the rich.
So I agree that Chinese cars are probably going to have a devastating impact worldwide.
Alimbiquated,
It won’t be long before the US, Japan, Korea, and Europe lose their export markets for autos outside of this group of nations. Even Tesla is falling behind the Chinese producers, the ICE producers have fallen so far behind they are a little like Kodak or Fuji within 5 maybe 10 years at most they will be either bankrupt or shadows of their former selves.
Dennis —
Meanwhile, American car companies have given up on the middle class.
https://edition.cnn.com/2024/11/16/business/50k-car-prices/index.html
What’s a business to do when the US market has no growth left in it? Most vehicles purchased are used so profit will be made on those people where cost is less of an issue and tax incentives still benefit buyers and builders of light truck vehicles.
In my neck of the woods the vast majority of new heavy duty trucks we are seeing on the roads are “made in China” (Sinotruck, Foton, Shacman). When it comes to cars, there are a number of brands represented here. Great Wall Motors, Geely, BAIC, Changan, Jetour, BYD and just last week MG was launched by a new dealership. For now all the dealers except the dealer for BYD and MG are focusing on selling vehicles with ICEs. Our proximity to the US media market means that we get most of the FUD spread from the US with the result that public does not appear to be interested in EVs. The way things are going in China I expect the availability of models with an ICE to decline as the manufacturing cost of EV continues to fall to the point that they will be easier and less expensive to manufacture than vehicles with ICEs.
Unfortunately when it comes to the municipal bus fleet for the capital city, the government appears to be looking out for the interests of a US LNG supplier (New Fortress Energy) over and above the interests of the electorate. Earlier this year the government purchased 100 CNG buses from a Chinese manufacturer despite the existence of a technical study which concluded that battery electric buses would provide the lowest total cost of ownership, by a long shot! The “Battery Electric Bus Feasibility Study” was published in July 2022 after the idea of acquiring electric buses was floated in 2020. Last year (2023) the minister of finance anounced that the government would be acquiring 200 electric buses for the municipal bus fleet. The first shipment to arrive after the announcement consisted of 45 diesel units and 5 electric from a Chinese manufacturer. The charging of the five electric buses has been so badly managed that when the LNG supplier offered to fund the set up of the CNG fueling infrastructure, they jumped at it and went ahead to purchase 100 CNG buses. It is what it is!
“China has been planning the transition to electric power in transportation for decades…The primary motivation for China to push for EVs was energy security,” says Russo. “Second was industrial competitiveness, and a far distant third was sustainability.”
Gradually all countries will come to understand that energy security, industrial competitiveness and sustainability of energy supplies are all facets of the same exact issue.
Will the new administration dismantle/defund the domestic energy wave that has taken root in the last several years with the Biden programs just out of petty partisanship?
Interesting question.
If the Chinese find it interesting to extensively build out offshore wind resources in the Taiwan strait, because of world class wind resources; I guess the answer is not so straight forward. The pragmatic straight forward pathway is to assess how much renewables you could get away with to include in the the grid, without unreasonable investments. That would mean starting the renewables discussion at scratch without extra support. All clearly positive EROEI investments would probably be pursued anyway.
So the tech bros get Elon, anti-vax freaks get RFK Jr, dog killers get Noem, white nationalists get Hegseth, pedophiles get Gaetz…
Something for everyone—–
A literal basket of deplorables.
You guys have figured out that all dollar denominated debt can, and will, be monetized, haven’t you?
I mean, come on, we were all discussing this ad nauseum back in 2008 and nothing fundamental has changed since then.
No ifs, ands, or buts…monetization and inflation will be pursued, until we are all dead. No deflation will be allowed. Dollar debts will not be allowed to contract, resulting in defaults and a stronger dollar (relative to real goods and services, that is). Currency exhanges rates are meaningless and fluctuate all the time. What matters is what currencies can buy.
Who exactly is going to “monetize “ the debts that reside outside the US. Get your head around it. The FED is powerless. Global economy ran just fine prior to 2008.
The balance sheet of the FED doesn’t matter. The commercial banks don’t need bank reserves to create new loans, new money.
All banks need to create loans is collateral and low counterparty risk.
Bank reserves created at the FED never, I repeat never leave the FEDs balance sheet. FED doesn’t have the power to create liquidity. No matter how many times it’s repeated it simply isn’t true.
Gold back currencies or sound money doesn’t really work either. Go back to the late 1800’s and you’ll see commercial banks that extend credit into the economy were not limited by gold in any way to the amount of credit they could extend.
Gold nor bank reserves have ever limited the amount of credit. Or balance expansion of commercial banks.
What will limit expansion of credit is a contraction of energy supply. And because all loans have an interest rate attached to them growth is required to service and payback all debts.
Collapse will be quick. Not drawn out over decades. Unless you believe money will be lent into existence for free and not have to be paid back.
It’s funny that so many people around here have bought into Marxism so heavily. The idea that the value of goods and services is determined by the inputs required is pure Marxism. The theory does not work. The market determines the value of goods and services that are traded.
You can spend as much as you want building an airplane out of reinforced concrete, but it has no value because nobody wants it. On the other hand, the ideas behind optimizing an assembly line cost nothing except brain power and can save companies millions.
The idea that you need energy to pay off debt is dead wrong because it adheres to the mistaken Marxist theory of value. You pay off debts with goods and services (including overprice real estate for example) whose value is determined by the price the market sets, NOT by the value of the inputs.
Don’t you acquire goods and services by using energy? Whether you settle in dollars or donuts doesn’t really matter.
It just so happens to be that debts are settled in dollars. Not donuts, not gold, not oil or natural gas. Try paying taxes with any of the above. You can’t. You have to sell any of the above in order to obtain dollars. And it takes energy to obtain all of the above.
When you borrow in dollars you must repay in dollars. Even if you have to sell your peso’s to obtain dollars.
The world outside the US has borrowed over $100 trillion USD. Because it’s the medium of exchange. So demand for dollars is extremely high.
What happens when the supply of dollars contracts? Due to risk premium going up? You should also know every month as the principal portion of debts are repaid, money is destroyed right? So growth in the money supply is a must to repay debts.
DXY is sitting at $106.66 This index is primarily the Euro against the dollar. When the DXY hits 200.00 let me know how well things are going over in Europe because that is where we are going because of structurally how the monetary system is set up with the Eurodollar being the global medium of exchange.
If you’d rather use Chinese yuan or something else as a medium of exchange. I’m cool with that. It means you have to print the shit out of whatever medium of exchange you choose.
Which pushes up the value of the dollars i hold.
Man, it’s wild listening to someone get Marxism and material reality this wrong. What’s it like on Bizarro World these days where wishes and vibes get things done?
Haha KLEIBER claiming other people don’t know what they are talking about doesn’t make you look smart. You have to actually have to find counterarguments.
Nice try though.
Learn about use-value and exchange value first. It’s in Capital, then we can talk. What you wrote about a concrete aeroplane? Meaningless. Why would someone make an aeroplane out of concrete? Do people in your economic reality make shit sandwiches and haggle price too? How about triangle wheels for cars? What the hell am I reading here?!
Traditionally the object that has no use for its creator or anyone else in economics is the mud pie. You’re, for whatever reason, retreading arguments already made and addressed literally two centuries ago.
If you genuinely want to discuss Marxism, I’m all ears, but I have a feeling your comprehension of it is muddled to say the least.
HHH
‘ and not have to be paid back’ . Does anyone really believe the massive and growing government debts worldwide will be paid back?
Money was originally an artificial construct to improve the efficiency of barter of real goods and services, and as society evolved and started developing surplus, money also became a temporary store of value. Nothing says that artificial construct has to have a constant value. In some ways inflation numbers are simply a measure of the rate of decrease in the value of a currency relative to the value of a basket of all the goods, services and tangible assets in an economy.
My own experience with high inflation was in Turkiye, where I lived and worked from 1981 to 1985, during which time official inflation ran at about 35%, and many argued it was closer to 50%.
In 1981 the Lira traded at 70 to the US dollar
In 1985 the Lira traded at 5,000 to the US dollar
In 1995 I went back on vacation and the exchange rate was 1,000,000 to the US dollar.
In 1995, the locals were visibly better off. In the plant where I was working, Engineers who were making the equivalent of 100 USD in 1985, were now making the equivalent of 1,000 USD per month, public services and infrastructure were improved and it was all BAU.
How did the locals cope?
By treating the currency strictly as a medium of exchange, and not a store of value.
– You would often see an empty building lot with a pile of bricks in it – mortgages were not an option, so when the prospective homeowner had a little spare cash, he would by more bricks until he had enough to build his house.
– When a farmer sold his crop at the end of the growing season, he immediately went to the gold shop and bought 22K plain gold bracelets for his wife, and those slowly disappeared as the year went on and they needed to buy food , clothing ,etc.
– When expatriates bought a tangible item ( carpet, for example) they haggled on price, but the locals haggled on payment terms.
The company had a team working in Argentina at the same time, where the inflation rate was about 100%. The local workers were paid at noon every Friday, and then had two hours off to purchase everything they would need for the next week. Any surplus was immediately converted into foreign currency ( mainly USD) by the money changer hanging out at the street corner.
Currency collapse can be quick or slow.
The US aims for the very slow path on currency decay…glacial,
with the goal of paying back the debt in depreciated dollars later while still being credit worthy in the meantime.
So far its been working. One day it won’t. Thats the price you pay to be in the game.
Currently it looks like we are primed for a bigger dose of inflation.
Name a Republican President who left office in the past 50 years with a strong US economy.
Maybe Reagan?
Ford 1976 No
Bush 1992 No
Bush 2 2008 Hell No
Trump 2020 No
This is coming from a guy who actually owns oil wells. Don’t work out in the field, true. But have to keep track of our guys that do.
Usually things don’t work out quite like we predict.
Hes got his immunity from his Supreme Court and has learned that his troop must be about loyalty above all else. Hes got the House, the Senate, the Supreme Court, and all the media money can buy. He can grant pardon for any deed performed on his whim.
No one else has had such free reign in this country.
Is he one to trust all this with? Is anyone?
It would be a miracle of miracles if he and his crowd doesn’t trash this thing.
Severely disappointed in the behavior of the country, from Musk to Alex Jones… and all their voters.
Yeah I know you feel, but to be honest I’ve been dealing with this ever since Bush 2004. Before then I was too young, and everyone sort of rallied around Bush after 9/11 so I couldn’t say or think much differently.
So here we are 20 years later and it’s the same old BS! But how? How could this be possible? Becuase, places don’t change as much as we think. They have characteristics that are passed through the generations.
Reagan, Bush 1 and II, Trump…they all come fundamentally from the same group of people. Yes, yes, I know, there are differences, but fundamentally, they all promote and believe in the same thing.
“Keep you doped with religion and sex and TV,
And you think you’re so clever and classless and free,
But you’re still fucking peasants as far as I can see.”
Now with a king!
Trump seems to be repeating his mistakes, appointing a clueless oil man — Chris Wright — to the Department of Energy, like stupid Rick Perry.
The Department of Energy is only really interested in nukes, not oil.
Trump uses appointments like a bullfighter uses a red cape. Trump’s goal is to line his pockets with cash; very few mistakes are being made.
I’ve started to think along the same lines. Trump will say anything to gain supporters, spend however much federal money, hire anybody, fire anybody, ruin anything, build anything in his own interest.
He doesn’t lie because that would mean that he recognized the difference between reality and falsehood. To Trump there is only his personal gratification and lack thereof.
What kind of self-delusion it takes to imagine that this grifter would make any effort in anyone else’s interest is beyond understanding.
Not good.
METHANE FROM TROPICAL WETLANDS IS SURGING, THREATENING CLIMATE PLANS
Four studies published in recent months say that tropical wetlands are the likeliest culprit for the spike, with tropical regions contributing more than 7 million tonnes to the methane surge over the last few years. “Methane concentrations are not just rising, but rising faster in the last five years than any time in the instrument record,” said Stanford University environmental scientist Rob Jackson, who chairs the group that publishes the five-year Global Methane Budget, opens new tab, last released in September.
https://www.reuters.com/business/environment/tropical-wetlands-are-releasing-methane-bomb-threatening-climate-plans-2024-11-17/
Lonely Hearts Club band plays on-
““As society becomes more atomised, users on the social platform Xiaohongshu have begun using the hashtag “companion chat” to find others willing to buy or sell a few minutes of human conversation.”
“Sexual predator Trump picks accused sexual predator for Attorney General”
at least they know the actions
Calling HHH , your comment on this please .
https://indi.ca/how-china-starts-printing-usd/
China borrowed some dollars from the Saudi’s via a debt sell. There is so much wrong in that article in the link . I’m not even sure where to start picking it apart.
I will say this though. If China is having to get dollars through a debt sell to the Saudi’s. It means the banks aren’t providing the dollars that China needs.
It no different from China selling US treasuries. They do it because they need dollars that the banks just aren’t providing.
All it really means is shit is hitting fan blades in China and they are desperate for dollars.
Whoever wrote that article doesn’t understand the monetary system. At all!
I don’t know anything about the maturity of these bonds. But the longer the maturity the greater the chance that China defaults on these bonds. If we get 60% or 100% tariffs on Chinese made goods. Not only will money be fleeing China as manufacturing moves elsewhere. But the flow of new dollars into China will stop.
Foreign direct investment into China already printed its first negative number. EVER!!!
Interest rate swaps in Germany turned negative for the first time ever. Didn’t happen in 2008 or 2020 wasn’t really even close either of those two years. While Germany and Europe as a whole have their own troubles. German manufacturing of machinery is highly exposed to the mess that China has become.
One other thing. China borrowing dollars from the Saudi’s isn’t the creation of new money. It’s redistribution of dollars that already exists from the Saudi’s to the Chinese.
Not triple H but here we go: The first issue that is not adequately addressed is that dollar deposits are created through lending. A bank accepts collateral and issues a deposit it return at some percentage of the collateral value. As the loan is repaid the dollar deposits disappear out of the monetary system.
So all the dollars that SA has were created in the US banking system. The reason why SA would rather hold US treasuries ( UST) than dollar deposits is a) security – a bank deposit is an unsecured loan to a highly levered institution whereas a UST is an obligation from the government, which always has the ability to repay ( but not necessarily the willingness) principal and interest. Keeping dollar deposits in their native form rather than converting them into native currency ( not an issue with SA because they are tied to the USD) also prevents inflation.
So let’s assume that SA now lends the dollar deposits to another country. All that does is effectively dollarize that country’s monetary system ( if done in large numbers). There is no real benefit for – say China – to start issuing dollar deposits ( by having local banks accept collateral and created dollar deposits) – all it would do is tie he Chinese economy to the US capital markets and in effect adopt the monetary policy of a country that it doesn’t particularly get along with. How would that make sense? Also, by having dollars circulate in the Chinese economy ( which uses a very tightly managed currency) it would most likely drive out its own currency – what good would that do?
So – nice graphs and all but it’s just not a likely scenario for any country that wants to remain monetarily independent.
Rgds
Vince
Thanks WP and HHH . I have another point of view from another blog . Any thoughts ?
”China has a huge surplus with the USA. Therefore, it has an excess of dollars that it has recycled for years, buying US bonds. In recent years, it has stopped buying American debt and has sold part of what it already had. This implies that it still has more dollars to spare, to buy resources from the third world or energy from Russia.
The third leg of the graph does not need to rely on the issuance of dollar bonds by China, with no purpose of re-dollarizing.
What do I think is happening with this new issue of dollar bonds?
China is preparing to get dollars in the bond market, if the USA executes Trump’s plans and imposes 60% tariffs. It is evident that in that case, the trade surplus would be greatly reduced and in that case it is possible that it would need financing in dollars to buy energy, for example. To do this, it intends to create a dollar bond market, in case the tariffs are carried out and always looking to the long term.
I don’t see the point of re-dollarization, but rather of protecting itself from the shortage of dollars. If China were to be able to buy everything it needs in yuan, as it intends, it would not need to issue dollar bonds. China has long sought to have the same privilege as the dollar… and for that reason, it does not want a new BRICS currency backed by gold. Only in the event of the collapse of the dollar fiduciary system would it start the new payment system with a BRICS currency, I insist only in that case.
The first thing China needs is to balance its internal consumption with exports. It is now too dependent on exports and with Western tariffs, it urgently needs to boost internal demand, to get out of the crisis. I don’t think it is thinking of overthrowing the dollar…
Just my opinion.
Not as simple as just selling bonds. China will take huge losses on bonds they bought when interest rates were low.
So while they can sell bonds to get dollars. They will take a big haircut. Better to hold to maturity if possible.
Countries outside the US issue dollar bonds isn’t anything new. But it’s exactly how countries get into trouble by borrowing in a currency they can’t print.
Japan has been borrowing heavily in the FX market using Japanese yen as the collateral. Which is why their currency has been making such big moves. It’s an expensive way to get dollars but when you have to have dollars and you can’t get them or it becomes very expensive to get them you can get creative.
I’m assuming the Saudi’s were the only ones that were offered. Would love to see the details of that deal.
New posts are up
https://peakoilbarrel.com/short-term-energy-outlook-november-2024/
and
https://peakoilbarrel.com/open-thread-non-petroleum-november-20-2024/