Log In
Register
Topic RSS
Facebook
Twitter
Email this6:56 am
September 30, 2017
Offline
The-system-is-vulnerable-today (Governor Tiff Macklem, Bank of Canada)
Global imbalances narrowed after the 2008–09 crisis but are now growing again.
The United States attracts a lot of foreign capital, because Americans tend to spend more than they save. So higher savings from China and Europe flow toward the United States.
But when the flows are too unbalanced, it can make trade imbalances bigger and fuel protectionism. It can also distort asset prices. The longer the imbalances persist, the greater the potential for pressures and risks to build.
The US dollar’s dominant role in global finance may be prolonging imbalances today because it encourages the flow of capital into the United States.
...
It is a vicious spiral, but I find it hard to resist, noting the rate gap in general between USD and CAD. For example, USD ISA is 3.15% but CAD ISA is merely 1.80%.
7:19 am
October 27, 2013
Offline
The Canadian brokerage ISA rates depend on which brokerage. Per https://www.highinterestsaving.....s/page-48/
Some are at 1.90% and BMO and Scotia are 1.95%. But point is taken. USD rates depend on brokerage too.
9:54 pm
October 21, 2013
Offline
"The United States attracts a lot of foreign capital, because Americans tend to spend more than they save."
In my view, simply not sustainable. US economy is being propped up by people who can't afford for it to fail but it's unclear how long that can last without more solid foundations. See, for example, the desperate-sounding advice from David Aston in Toronto Star a few days ago.
The outflow of money from China has been going on for quite some time to various corners of the world. Good on Macklem for bringing this up. People should be far more concerned than they seem to be.
11:08 pm
April 6, 2013
Offline
That's a misinterpretation of what Governor Macklem is saying.
The United States attracts a lot of foreign capital, because Americans tend to spend more than they save, creating a gap that foreign capital can fill, like capital from higher savers in China.
Investment capital is not like water that has no say in where it flows. A lot of foreign investors chose to invest their capital in the US rather than elsewhere because of superior opportunities. ChatGPT describes that:
Foreign capital flows to the U.S. not merely because Americans save too little, but because investors want to hold U.S. assets. Reasons include:
- Deep and liquid financial markets.
- Strong property rights and legal institutions.
- The U.S. dollar's role as the world's reserve currency.
- Large, profitable companies.
- A strong innovation ecosystem.
- A huge supply of safe government bonds.
- Political and economic stability relative to many alternatives.
For example, if a German pension fund wants to invest hundreds of billions of dollars, there are only a few markets large enough to absorb that scale. U.S. Treasury securities and U.S. equity markets are natural destinations.
Many economists describe this as the "global savings glut" argument associated with Ben Bernanke. The idea is that excess savings from countries like China, Germany, and Japan sought safe investments, and U.S. financial markets became the primary destination.
The imbalance is sustainable just like the imbalance in money flowing between the Loblaw stores and I.
6:10 am
September 11, 2013
Offline
As long as USA is seen as the world's dominant military power, and as long as most of the rest of the world outside the West continues to basically be a sheet hole to live in for the 99%, compared, then money's going to continue to go into USA currency. Based on my understanding of human history it seems to me there's no safer haven than the world's dominant "empire" at the moment. When it goes down then things obviously change big time.
Just my own personal view, that super-macro approach is how I've seen it all my adult life and nothing bad's happened to my wealth (such as it is) so far.
7:01 am
March 30, 2017
Offline
Bill said
As long as USA is seen as the world's dominant military power, and as long as most of the rest of the world outside the West continues to basically be a sheet hole to live in for the 99%, compared, then money's going to continue to go into USA currency. Based on my understanding of human history it seems to me there's no safer haven than the world's dominant "empire" at the moment. When it goes down then things obviously change big time.Just my own personal view, that super-macro approach is how I've seen it all my adult life and nothing bad's happened to my wealth (such as it is) so far.
I agree with your view point. The no. of aircraft carrier a country has is the ultimate backing power of that country's currency. However this latest war shows in the high tech warfare of drones, even carriers can/may be vulnerable.
China is also a super power but rest of world still wont trust its currency, not a safe haven status anyway. But its ability to reduce its oil import materially to kind of "save the world" is quite remarkable !
9:32 am
November 3, 2022
Offline
savemoresaveoften said
I agree with your view point. The no. of aircraft carrier a country has is the ultimate backing power of that country's currency. However this latest war shows in the high tech warfare of drones, even carriers can/may be vulnerable.
China is also a super power but rest of world still wont trust its currency, not a safe haven status anyway. But its ability to reduce its oil import materially to kind of "save the world" is quite remarkable !
China built an electric mobility infrastructure for surface transport that allowed them to turn down the tap on oil consumption rapidly during the Middle East war, without derailing their economy. That's a great strategic advantage that will only grow as the West dithers on moving beyond petroleum for its main transport fuel. I'd say it's worth more than a dozen aircraft carriers in supporting their march to full superpower status.
10:25 am
October 27, 2013
Offline
Just to set the record straight, China chose to disproportionately draw from their strategic reserve when Hormuz was closed, thereby reducing imports significantly. They have the largest strategic petroleum reserve. https://www.eia.gov/todayinene.....p?id=67504 They also decided to reduce petrochemical production.
10:51 am
November 3, 2022
Offline
China took multiple actions to manage the oil shock of the Middle East war, arguably better than other nations which had fewer tools at their disposal. While strategic petroleum reserves and petrochemical output reductions were part of their strategy, they also hit record sales for electric vehicles and a record low point in the sales of petroleum powered vehicles. Their electric railway network also hit full capacity during Spring travel peaks, as Chinese travellers shifted away from international aviation destinations and toward domestic tourism.
In sum, they used the additional options available to them to better navigate energy supply disruption than, for example, Canada which offered tax holidays on motor fuel, and subsidies to airlines, since we currently have little alternative in the way of mobility adjustment. That could change in the coming 25 years, depending on how the post-USCMA trading regime evolves.
11:15 pm
October 21, 2013
Offline
FWIW, I did anticipate that some would disagree with my opinion above. However I can't buy Norman's opinion.
When a country is dependent on investment from another country, let alone China, and especially if this arises because the recipient country doesn't have enough savers (good grief!), it becomes vulnerable in innumerable ways. Further, I don't think we have a very clear or reliable sense of how big this problem is. Anecdotally, however, it appears to be quite large, from what I've picked up from people in various countries and sectors.
Be that as it may...
yes, the US has its military. The problems there are at least threefold: Increasingly, it seems like that's all they have, weak on diplomacy and helpfulness and strong on threats and bullying; people in other countries with fewer resources still outwit them; and I have read that they are using up their weaponry faster than they can replace it.
I don't want to get into an interminable discussion and don't have the capacity for that any more, but these are my observations.
8:34 am
September 11, 2013
Offline
I agree, if your own economic viability is dependent on money supplied by others then you are obviously vulnerable if that flow is disrupted, diverted elsewhere. etc. And especially so if a major supplier is an enemy that is dedicated to the eventual destruction of your society.
All I care about is who is the dominant military power because that determines who the top dog is at any moment, we live in a world where (ultimately) might has always, and always will be (in my opinion), right. As of today that still appears to be USA over anyone else and I've no doubt USA can ramp up military production dramatically and very quickly if it's an emergency.
9:28 am
April 6, 2013
Offline
Loonie said
FWIW, I did anticipate that some would disagree with my opinion above. However I can't buy Norman's opinion.When a country is dependent on investment from another country, let alone China, and especially if this arises because the recipient country doesn't have enough savers (good grief!), it becomes vulnerable in innumerable ways.…
That's false. The US allows foreign capital to invest. It is not dependent on that capital. That's just a misintepretation of the situation.
Profitable businesses, including the ones in the US, can reinvest their profits in themselves or invest in other businesses. There are plenty of such businesses in the US.
Berkshire Hathaway is one. It has $400 billion in cash and short-term cash equivalents waiting to be invested somewhere, including in the US.
Another is Microsoft. Net profits about $125 billion. Pays out about $25 billion of that to shareholders. Are we to believe that $25 billion a year is just spent on consumption?
Ditto with those incredible statements of China's oil consumption and EV's. Nonsene. China cut it oil consumption by cutting its oil refining for its petroleum product exports. ChatGPT's explanation actually agrees with the facts:
You are completely right, and that is an excellent catch. The math reveals a massive 3.5 million barrel per day (bpd) gap that cannot be explained by stockpile draws or drop in consumption alone.
The missing link is a dramatic drop in refinery processing runs (the amount of oil actually turned into fuel). Chinese refiners simply stopped buying crude and stopped making products they couldn't sell or export. [1]
## Breaking Down the 5 Million BPD Import Drop
When China slashed its imports by roughly 5 million bpd (falling from 11.4 million down to ~6.5 million bpd), that missing oil was accounted for by three very different mechanisms: [2]Total Import Cut (~5.0M bpd)
├── Consumption Drop: 0.2M to 0.6M bpd (Actual demand destruction)
├── ️ Stockpile Drawdown: 1.0M bpd (Using up existing crude reserves)
└── Refinery Run Cuts: ~3.5M bpd (The missing piece: Idled capacity)## Why Refinery Run Cuts Dominated the Drop
The bulk of the import collapse happened because Chinese refineries aggressively shut down or slowed down their processing units. They did this for two critical reasons:* Squeezed Profit Margins: Because the war drove crude prices up to $120–$150 a barrel, but domestic fuel prices were capped or managed by the government to protect citizens, refiners were losing immense amounts of money on every barrel they processed. [3, 4]
* The Product Export Ban: Beijing banned the export of refined gasoline, diesel, and jet fuel to guarantee domestic energy security. Normally, Chinese mega-refineries import vast amounts of crude just to process it and export the finished fuel to the rest of Asia. When the government blocked those exports, refiners lost their buyers, rendering millions of barrels of processing capacity instantly useless. [5, 6]
…
10:17 am
August 4, 2010
Offline
According to the always correct Google, only about 25% of US treasuries are foreign-owned, and China has less than 10% of that, and represents under 2% of US public debt. They've been winding down some of their previous holdings (Japan and the UK hold more now), but they can't just dump them on the market as a weapon, as there would be nasty blowback in price drops of their holdings, currency strengthening shock, and so on.
Similarly, other countries may want to reduce the power of the US financial system, but the US bond market is still the go-to place for financial security in troubled times, the US dollar is heavily baked into the world financial system, etc. It isn't like everyone can just say "hmm, let's invest our hundreds of billions in US treasuries in Belgian government bonds instead".
The deep and entrenched US financial system can be looked at as a financial service export as much as a foreign financing source for the US, and changes would be a gradual evolution, not a quick alteration - a sudden run on US Treasuries makes for exciting fiction plots, but has significant difficulties in real-world realization! Things like increasing US domestic manufacturing output, or trade imbalances, or domestic capital allocation, or whatever, are higher-level questions on top of that.
11:00 am
September 11, 2013
Offline
Foreign investment (e.g. shares) and foreign debt buying (e.g. bonds) are not the same to me, I don't know but being reliant on the latter would seem to be less desirable for an economy.
1:56 pm
September 7, 2018
Offline
Bill said
Foreign investment (e.g. shares) and foreign debt buying (e.g. bonds) are not the same to me, I don't know but being reliant on the latter would seem to be less desirable for an economy.
The US economy continues to be a powerhouse and is easily capable of attracting both US and foreign buyers for govt bonds and for the stock markets even with the Canadian $ now at 0.70 US and moving to a possible 0.65US. Canada is not friendly to business and investors ..... taxes are high due to high spending and expensive social programs and constant handouts. I have been rebalancing my investments to invest less in Canada and more in the US.
2:41 pm
September 30, 2017
Offline
… I think the message here is "imbalance"
1:42 pm
September 11, 2013
Offline
canadian.100, I did the same, move investments to USA and elsewhere, starting around 2016.
It's not so much the governments as the reason, it's just that I suddenly realized the Canadians around me, when I listened to them and watched their voting patterns from municipal up to federal level, seemed (generally) anti-capitalism, anti private sector business development, and more pro-socialism, still do today, so my equities money is now mainly in places where capitalism and corporations are seen as positives and welcomed. Again, just my own super-macro approach, might as well sail with the wind.
7:10 pm
September 7, 2018
Offline
Bill said
canadian.100, I did the same, move investments to USA and elsewhere, starting around 2016.It's not so much the governments as the reason, it's just that I suddenly realized the Canadians around me, when I listened to them and watched their voting patterns from municipal up to federal level, seemed (generally) anti-capitalism, anti private sector business development, and more pro-socialism, still do today, so my equities money is now mainly in places where capitalism and corporations are seen as positives and welcomed. Again, just my own super-macro approach, might as well sail with the wind.
Well expressed! - I am in agreement with your assessment. I also note that so many Canadians are anti-capitalism, and pro-socialism - I believe it is not the way to go.
