Remember, our "everything will be ok thesis" is once we pull through this 'minor credit issue' the world's economies will pull us through that 'minor consumer slowdown' we are going to experience. But with the growing Chinese middle class spending more on food - this cuts into their spending habits... no? I mean only XX% of the population is going to be buying new Buicks or flat screen TVs and benefiting from the falling prices for some of those items that middle class are now enjoying - but everyone, from rich to poor, needs to EAT.
Also, remember we import so much from this country of "CHEAP" labor. What happens when they demand higher wages so they can do minor things like... EAT. Chinese companies are already skimping in quality control since they are trying to outdo each other on pricing - and you see the results in dog food, kids toys, and I am sure I already forgot a few others in the near weekly recall news. So increased safety regulations, increased wages for their workers - and suddenly Chinese goods become more expensive.... and who pays? The US consumer - in the form of potential inflation. On top of the high food and energy prices she is already paying.... but wait, that's what the Fed was fighting all these months... trying to keep a stern eye on inflation. Keep it at bay. But now, with the market crying for interest rate cuts like a 16 year old girl wanting the coolest, rad car for her sweet 16th from daddy - oh we have another rock and hard place quandary. Amazing how this is so circular.
But everyone tells me China was in the greatest industrial revolution in the history of mankind, minting 100s of thousands of middle class (and daytraders) by the month. Well nothing is so smooth. We, as humans, tend to extrapolate the most recent past out to the future. While this will be an economic superpower, managing 10% GDP growth is no easy task.
Check out these numbers:
- Consumer prices rose 6.5 percent in August from a year earlier after gaining 5.6 percent in July, the Chinese statistics bureau said Tuesday.
- The central bank and economists fear that surging prices for food, particularly pork, will start rippling through the economy as people expect further price increases and demand higher wages.
- "Inflation expectations have begun to rise, and the government should do something significant," said Jim Walker, chief economist at CLSA Asia-Pacific Markets in Hong Kong. "Otherwise, the stock and property bubbles will get bigger and eventually crash."
- The statistics office said inflation had been driven by an 18.2 percent leap in the cost of food, which accounts for a third of the consumer price basket.
- Meat prices rose 49 percent in August from a year earlier, reflecting a shortage of pork, the staple meat in China. That results from a 10 percent drop in the Chinese pig population because of blue-ear disease and fast-rising feed grain costs, even as prices for pigs fell last year. Cooking oil cost 34.6 percent more in August than a year earlier, eggs were up 23.6 percent and vegetables 22.5 percent.
- The rising cost of such everyday goods has people grumbling and leaders worried. Inflation was one factor in the unrest that led to the 1989 Tiananmen Square pro-democracy protests, which were crushed by troops.
- The latest figures raise the risk of social unrest as the Communist Party prepares for its 17th National Congress, which starts Oct. 15. The congress is held every five years to decide leadership changes.
- "Replenishing the hog supply will take time," said Carl Weinberg, chief economist at High Frequency Economics in New York. "This is a political problem that is likely to surface as a criticism of the government."
- But many economists also say that the central bank may need to raise borrowing costs to limit inflation and slow growth. Inflation has now exceeded the central bank's annual target of 3 percent for four consecutive months.
- To keep a lid on inflation and prevent the economy from overheating, the central bank has raised interest rates four times this year and ordered banks seven times to hold more funds in reserve.
- "What worries me more is the liquidity in the market," Wuttke said. "There is so much money, and given all these exports and the money that comes back in U.S. dollars and also this easy credit, that really causes a major concern."
Hmmm, with such an interconnected global economy it's amazing what the rocket ship rise in pork prices in provinces in China could do to main street America.... as a great philosopher of our time, Scooby Doo once said... "Rut Roh Raggy".
Interesting sidenote fact I learned while reading the stories tonight: China has a "Strategic Pork Reserve (stockpiled in cold storage and animals kept on the hoof)" - I kid you not. You know... like our strategic oil reserve, except ....pigs.
Amazing what you learn on the internet these days. ;)
Just another data point people.... remember what a 9% drop in China's market did in February/March 07. What if the domestic market (up 150%+ this year) drops say.... 20-35%. On top of all the other headwinds. Just something to think about. Nothing goes straight up, or 50%+ annualized for 5 years.... nothing. "It's different this time" <--- not so much.