Exporting Inflation from China

Actually, I think you’re misreading the chart. It’s actually much worse than that. It says “The same month last year=100”. So food inflation is actually 18.2%, led by a whopping 49% inflation is meat and poultry. Total inflation was 6.5%.

The right column is the confusing part, but this is the average for the period Jan-Jul and is also set to 100 for the same Jan-Jul period last year.

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BR: Yeah, i caught that just as I clicked publish.

I used the same spreadsheet I used for BLS data, and inadvertantly compared the left and right columns.

I’ll fix it up top . . .

You ask a good question Why is it that Communist propagandists at the National Bureau of Statistics of China are at least as truthful about price increases, if not more so, than we are here in America

It goes with that lack of trust post.

As long as Joe 6 Pack has his cable he seems to be pretty happy, and unconcerned about much.

Wow. No wonder they are so tight on birth control. They can barely feed 1.3 billion people as it is!

How do you export inflation from somewhere?

China, doesn’t have as many special interest groups, or at least none that can say a whole lot. Now I am no intellectual, but I did happen to browse a report once in the college library at Tulane, that suggested that perhaps a simi-command economy could actually out perform a capitalist one. Ever since that day I have wondered if the Chinese Government happen to get their hands on it…

The Chinese middle class is still relatively small when compared to the entire population but, unlike the US, it has grown by leaps and bounds to the point that much of the food inflation can be attributed to the ability of more Chinese to afford higher quality protein

That protein is already more expensive than rice and other grains as a ‘simple’ ecological reality: remember your trophic pyramid from 10th grade biology? It takes approx 100 lbs of grain to raise 7 lbs of chicken or egg (that amount of feed will only raise about 4 lbs of cow or milk btw).

China has become a net importer of grain as a partial result of this trend but the increasing use of potable water for industry and the concomitant loss of that water for agricultural purposes is another part of the story.

The US has been an important ‘heat sink’ for the Chinese economic engine but that state of affairs is unique, coupled as it is to the rise of major new economic powers (of which China is only one), and therefore it can not continue; either the stress will cause the system to break or the main actors will no longer need the system as it exists now and will change it. JMO

As for medical being low, I expect that this is hidden inflation. If China corresponds to the pattern of the rest of the “ex”-communist world, official medical prices are low, but if you want to get anesthetic with your operation, or to actually have that operation, you pay extra. Many drugs, etc., are officially free, but for the hospital to ‘find’ them costs money. These payments would likely not show up in the official inflation figures. On the bright side, US figures may actually be more accurate about inflation for medical services).

Since the Yuan is pegged to the dollar, aren’t the same commodities (grain/meat/fuel) inflating over here at the same rate as they are in Chinese urban areas?

Barry can offer an idea? Why not, because the list of replys gets long, have a system whereby the readers vote after each reply, according to some algorithm derived system that puts value on each reply that we read. Like: have a series of radio buttons that deal with content, context, and perhaps “quality idea/thought “here-in” (there in). In this way each one of us would be contributing…which makes readership even more desirable.

You don’t need ‘official’ inflation numbers. Just keep a couple of receipts from your day to day shopping at regular intervals and then compare them to one another every now and then. The truth becomes that much easier to see: Eggs, Milk, Pork, Bread, Gasoline, etc all flying higher. Medical costs, tax bills and tuition. All of it. We all see the ‘real’ numbers because they’re unavoidable…

Chinese politicians will eventually realize (when angry rural mobs start making a real mess) that massaging the inflation numbers can only work for limited duration…

TheFinancialNinja

As one with firsthand experience in both China and the Chinese medical system (2001-2006 in Hangzhou, Harbin, and Shanghai) I can tell you that the inflation number for medical costs does NOT reflect true costs.

Firstly, the prices are set by the government so that the price of medical care is often below its true cost to the state. I paid well under $100 for an MRI in 2005.

Secondly, one must pay “hong bao” (literally red envelope) to have quality care. It is monies given directly to the Doctor before service to insure quality treatment. Having a C-section? It will cost an additional 10 to 20 K rmb to make sure that your scar is minimal.

Thirdly, the state may set prices, but it often makes up some of the difference by over prescribing drugs. Got a cold? Get an IV. Need a pill? You will be prescribed three boxes…

In short, the official inflation rate in no way reflects the costs the “man on the street” is paying for healthcare.

http://finance.yahoo.com/q/bc?s=%5EIRX&t=6m&l=on&z=m&q=l&c=

Ooooooooo!!!!… Sooooo frightening!… I won’t have to get a Halloween mask this year. I’ll just print and cut this out and tape it to my forehead.

duke,

You can still only export to and import from. The minute you export from you are simultaneously in your nation and the other nation at the same time.

The only other way to do that, I suppose, is to make the velocity of your money so fast that your ROI arrives in your bank account before you even hit the send button. If the fed ever figures out how to do that(and I’m sure they’re working on it) we are all toast.

Don’t worry though because that will probably drive up labor costs and thus be disallowed as a practice

AFAIK, gas price is set periodically by the Chinese govt. They do follow the market price, but often with a lag and don’t rise / fall as much.

I think the “hong bao” practice is not as common as someone has suggest earlier; but yes, that phenomenon is a consequence of the government “price-control”.

BTW, hospitals may over-prescribe to earn extra kickback from the drug company. Various state insurance agencies actually crack down on that practice.

Eclectic,

Uh…

you may want to take a second look at those bond yields…

US Treasury’s Paulson commends Senate on debt ceiling increase

http://www.forbes.com/markets/feeds/afx/2007/09/28/afx4167180.html

Didn’t make headlines as of 3pm today…vote must have happened late last night.

“‘The Senate’s swift action on the debt limit today helps to protect the full faith and credit of the United States and avoids creating unnecessary uncertainty in the US Treasuries market,’ Paulson said”

So now we can be absolutely certain there’s no limit on the amount of treasuries the US will sell. Have to make sure there’s no unnecessary uncertainty on that. Hmmm.

I’m out-ah-here after this; I know I’ve been a big bloviator today. But Estragon are we not being too U.S. centric? The economies all over the world have been pumping the systems, (according to an article I read in the economist). Why is it that our “central bank,” is the only one that counts? But on what you say, Swizerland, Denmark, and Britain actually have bigger mortage book relative to its GDP…for whatever that’s worth?

Justin,

It’s true they can tighten the screws and thereby c-a-u-s-e a recession serious enough to lapse into deflation, but it’s also true they can’t prevent deflation just by refraining from being too tight or by actively injecting liquidity.

It’s partially a myth that the Fed was too tight during the Great Depression. Many banks were knee-deep in liquidity, but wouldn’t loan it, even with reduced reserve requirements.

The Fed has been asked to assume much of the responsibility for the tightening of liquidity that resulted from a tax increase during the Hoover administration.

Keynesianism had its most profound uses in fiscal policy, not in monetary policy. It’s what FDR realized and what Monetarists and fiscal conservatives fought tooth and claw. In fact, we learned in the 1970s that rampant Keynesian monetary policy can be reckless and destructive, witness the Carter administration’s baiting of inflation, by acceding to the demands of powerful unions that caused ‘cost push inflation.’ This is BTW uniquely related to our later Big Pic topic regarding the UAW union.

You mentioned Weimar. Keynes was profoundly opposed to the policies imposed on Germany by the Treaty of Versailes that he contended caused the hyperinflation of Weimar. It wasn’t a monetary tightening that caused it. It was a collapse of Monetary Obedience (see my work referenced below), because Versailes put the fiscal screws on Germany.

Psychology can trump liquidity. Read all my work on “The Perceived Liquidity Substitution Hypothesis” on this blog.

Eclectic, unfortunately, I often “give up” reading your longer theoretical posts, expecting I’ll return to them and invest the effort to understand them later. But, I never do. It *would* be nice if you posted your refined thoughts somewhere.

True, I can google for:

site:bigpicture.typepad.com eclectic “perceived liquidity”

But, if you had the means to edit/refine your previous posts, I’m sure you could make your reasoning more cogent. That’s where having your own site (or just a free Yahoo group) would help.

Thanks, Eclectic.

I tried to think of examples of the first two and debate the third. Please let me know what you think.

1 – For instance, MEW can be represented by tangible units (e.g., “pulled out $50k” via home equity loan). But, “how much can be extracted” depends on the appraisal (and other factors). In turn, the appraisal depends on “how much would a potential buyer sacrifice to gain possession of the house?” The potential buyer’s willingness to sacrifice his/her future earnings — stemming (in the case of a prole) from his/her future labors over the course of decades — is the “intangible power” driving this whole transaction. (Is that correct?)

2 – For example, we think “more exchange is good” by moving all production to China. It’s an attempt to “reduce of costs of goods and services marginally toward philosophical zero”. But, the extra pollution is treated as an externality; it’s not included in transaction costs. So, there is a divergence between the philosophical and the real.

(Can you categorize all divergences between:

(a) the “drive to philosophical zero” and

(b) “the false but consciously expressed substitute objective of obtaining riches via profiting from economic exchange”

as externalities? If so, I understand point #2.)

3 – Calling “profit” a “waste byproduct” seems like a subjective assessment. Accumulated “profit” gives me the right to tell others what to do. (E.g., “you!, feed me grapes and fan me with those branches”, “you!, build me a Honda Accord”.) If I’m more productive (create more wealth), should I not profit by it? I.e., should I not obtain some power over others to make them feed me wine and build me a Honda Accord?

wunsacon,

First of all, you haven’t read all my work. If you had, the nature of your questions would be different. You copied somebody’s homework… or read the Cliff Notes… that’s a no-no. But, I’ll answer you anyway.
—

-No, your number 1. is about values. I was speaking about what money actually is in the philosophical sense. It’s like you were referring to a preference for the taste of one thing over another (value judgment, valuing MEW, appraisals), but what I’m referring to is about what the sense of taste actually i-s.

-Yes, all externalities that inhibit the natural progression of human productivity marginally toward philosophical infinity represent the misallocation of resources. It’s not that profit in the conventional sense is impossible, but only that it is merely a wasteful byproduct of humanity’s attempt to achieve its real economic objective – zero costs for goods and services. You’re likely to have extreme difficulty with this concept, but it might be helpful to at least try for a moment to imagine a world in which a market participant eschewed profit and instead invested the fruits of his own productivity into reducing the costs of the goods and services he provides others. Here you’ll laugh, wunsacon, but don’t laugh long. What I’ve just described IS the phenomenon that has rolled its way through all the economic endeavors of mankind, for all its cognitive existence. Even the profits we all recognize to have been accumulated by others of extreme wealth are simply obviated by the progression of human productivity over time.

-Of course my classification of profit as being erroneous and wasteful seems subjective to you. It’s because you can’t accept the philosophical truth of the relationship between productivity and wealth, and that’s because it’s difficult to break away from a mindset reinforced by all our human experiences. I’ve explained elsewhere on another topic that a convenient way of thinking about this is when pondering the engine of an automobile. The objective of the improvement of its motive force is tantamount to its productivity. The observation of the heat wasted in the enterprise is a byproduct tantamount to our observations of profit.

Eclectic, thanks. Yes, I read the Cliff Notes (i.e., your earlier post). Also, I didn’t laugh on #2. I agree with you.

I recall you and Winston discussed your ideas once in a long thread. …searching…ok, just 10 hits via google…not too bad…I’ll go back and read these.

wunsacon,

I don’t know which dialog with Winston you were referring to. He and I have played freeze-tag many times on this blog.

However, this one with Instonway is probably the most illustrative of some of my concise theoretical work:

http://bigpicture.typepad.com/comments/2007/07/hulberts-4-big-.html

China’s inflation was partially imported from the U.S. The rest comes from making too many RMB.

However, one country’s inflation does not affect anothers unless their currencies are linked, because in the end it’s all about money supply. Therefore, China can’t export inflation. The U.S. can export to China, and China could send back what the U.S. created, but they cannot create more inflation. U.S. money supply is growing about 2% now, Chinese money supply was recently growing over 20%. Do the math.

Also, remember that China’s biggest worry is political: making enough jobs to keep the CCP in power. Yes the Phillips curve is dead, but as long as their economy is growing, inflation is preferable to unemployment.