Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

China’s Economy Is Being Pulled in All Directions

Economics / China Economy Jan 03, 2011 - 01:09 AM GMT

By: Barry_Elias

Economics

I recently suggested it was possible to have high unemployment and inflation at the same time. Zimbabwe experienced unemployment above 90 percent while hyperinflation took over.

The basis for this is rather simple: demand for basic necessities, such as water and food, remain relatively constant irrespective of income.


The extraordinary unemployment was a reflection of lower production and reduced supplies of necessities. Demand exceeded supply, which placed upward pressure on prices. The low level of income was used primarily to purchase these items and virtually nothing else.

During the 1920s, Germany experienced hyperinflation where food expenditures represented more than 90 percent of income, while housing expenditures were close to 1 percent.

How does this relate to China?

China seems to be experiencing diverging forces in different sectors as well.

Residential housing in Beijing costs nearly 27 times average income, an unsustainable condition. The current income levels cannot easily support these prices.

In addition to decreased demand, a huge supply of available space exists (14 year supply of commercial space at the current absorption rate). Both factors suggest a large decrease in real-estate prices (deflationary, if you will).

Moreover, there is an excess supply of educated labor coming to market without commensurate demand for these services (e.g., finance, accounting, computer programming). This year, nearly 6 million students will graduate university looking for work (10 years ago this figure was less than 1 million). This suggests a decrease in wages for the more educated (deflationary).

The opposite is true for lower-skilled labor. The rural, peasant class has been migrating into industrialized areas to produced export commodities demanded by the United States and others around the world (e.g., rare-earth elements for renewable-energy technologies, such as wind turbines).

Their wage rate has increased 80 percent during the past six years (inflationary).

Currently, the Chinese spend nearly 50 percent of their income on food (compared with 13 percent in the United States). Agriculture products (such as eggs, grain, and cooking oil) have increased substantially. A supply shortage is occurring, partially due to hoarding, which reflects uncertain domestic policy and economic conditions.

Inflationary pressures for food products have been exacerbated by the 55 percent increase in money supply during the past two years. An increase in currency fuels demand for these essential commodities (inflationary).

The money supply has grown with the influx of foreign-currency reserves from exports. Government policy to limit appreciation of the Yuan (China’s currency) has enabled foreign countries, like the United States, to more easily afford their exports (if the yuan appreciates, the same dollar buys less of it).

China is experiencing economic disequilibrium in different sectors. Inflationary pressures exist for essential agriculture commodities and low-skilled, export-driven labor. Deflationary pressures exist for real-estate assets and high-skilled labor. These severe resource dislocations may require many years to equilibrate.

The United States may have more strategic negotiating potential than it currently recognizes, both economically and geopolitically.

By Barry Elias

Website: http://www.moneynews.com/blogs/Elias/id-114

eliasbarry@aol.com

Barry Elias provides economic analysis to Dick Morris, a former political adviser to President Clinton.

He was cited and acknowledged in two recent best-sellers co-authored by Mr. Morris: “Catastrophe” and “2010: Take Back America - a Battle Plan.” Mr. Elias graduated Phi Beta Kappa from Binghamton University with a degree in economics.

He has consulted with various high-profile financial institutions in New York City.

© 2010 Copyright Barry Elias - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules