Lets Talk About Oil and China
Brad Setzer's Forget China, Lets Talk About Oil speaks to where all that bank that oil producing countries are getting these days, is going exactly.
China's current account surplus is forecast to be close to 8% of GDP, that pales compared to the Saudis 30% of GDP. At any rate, both are hoarding huge amounts of cash. Brad notes that it is far harder to match the rising reserves (and one expects rising dollar holdings) of oil exporting central banks with rising holdings of US Treasuries in the US data (more on this later)
We alluded to why China is hoarding and why their surplus flows can't be reconciled in Bush's Political Contortion and the Suicide Squeeze, current accounts or trade deficit, will balance itself over time, as global economies slow, tens of millions of Chinese and other foreign workers will be transitioned to other sectors and internal projects by their governments. These employment sector transitions are already planned for and well underway. This is one of the reasons the Chinese have widened their band on the dollar and are hoarding cash reserves.
and in Japanese Trade surplus cut by 80% Something tells me that a big chunk of China's supposed surplus reserves are going to pay for their energy inefficency.
We weighed in on the oil producing economies windfall benefits in Where's the Beef or Where's Waldo. Without our consumption at the current parabolically increased prices, these "resource" based economies have little or no legs to stand on... we are currently ramping up their economies and current account reserves in an accelerated manner, that would have taken decades under normal conditions...
Mr. Setzer comments "that makes it hard to formally estimate the impact oil exporters are having on US rates - lots of the purchases of US assets are laundered through London" You bet Brad, London is where the IPE (International Petroleum Exchange) is based.
More from Where's The Beef: The trade surplus reserves are being hoarded in various forms, gold, precious metals, and various assets. A large chunk is in oil futures and options... if you have a barrel of cash when the shit does hit the fan, you can continue to invest internally to keep your population employed and satiated, and everyone else can go fly a collective kite...
Brad comments further on the increase in emerging economy oil export revenue and Chinas surplus.
$129 billion in 1998; $281 billion in 2002; And an estimated $703 billion in 2005. That is an increase of $422 billion between 2002 and 2005. How much of that was spent rather than saved? About $103 billion was spent on imports (or perhaps was offset by fall in non-oil export); the rest went into higher savings.
China has about $300 billion to invest in 2005; the oil exporters have a bit more than $350 billion to invest. And one way or another, most of those funds are making it back to the USA, since the US is the only country that needs a comparable amount of financing!
Mr. Setzer quotes the NY TIMES: Some economists think the surging growth of oil producers' investments in the US has become and important factor keeping US interest rates low, similar to the effect of Chinese investment of its huge foreign-exchange reserves .
The overall conclusions are firstly, that these surpluse's being recycled back into the bond market are causing US long end interest rates to be at artifically low levels. And secondly, due to the resulting over liquification the US has sat out the effect of higher oil prices on the economy. Meanwhile, the countries with the deficits watch their deficits grow, whilst the countries with the surpluse's watch their surpluse's rise. Where does it end?
China's current account surplus is forecast to be close to 8% of GDP, that pales compared to the Saudis 30% of GDP. At any rate, both are hoarding huge amounts of cash. Brad notes that it is far harder to match the rising reserves (and one expects rising dollar holdings) of oil exporting central banks with rising holdings of US Treasuries in the US data (more on this later)
We alluded to why China is hoarding and why their surplus flows can't be reconciled in Bush's Political Contortion and the Suicide Squeeze, current accounts or trade deficit, will balance itself over time, as global economies slow, tens of millions of Chinese and other foreign workers will be transitioned to other sectors and internal projects by their governments. These employment sector transitions are already planned for and well underway. This is one of the reasons the Chinese have widened their band on the dollar and are hoarding cash reserves.
and in Japanese Trade surplus cut by 80% Something tells me that a big chunk of China's supposed surplus reserves are going to pay for their energy inefficency.
We weighed in on the oil producing economies windfall benefits in Where's the Beef or Where's Waldo. Without our consumption at the current parabolically increased prices, these "resource" based economies have little or no legs to stand on... we are currently ramping up their economies and current account reserves in an accelerated manner, that would have taken decades under normal conditions...
Mr. Setzer comments "that makes it hard to formally estimate the impact oil exporters are having on US rates - lots of the purchases of US assets are laundered through London" You bet Brad, London is where the IPE (International Petroleum Exchange) is based.
More from Where's The Beef: The trade surplus reserves are being hoarded in various forms, gold, precious metals, and various assets. A large chunk is in oil futures and options... if you have a barrel of cash when the shit does hit the fan, you can continue to invest internally to keep your population employed and satiated, and everyone else can go fly a collective kite...
Brad comments further on the increase in emerging economy oil export revenue and Chinas surplus.
$129 billion in 1998; $281 billion in 2002; And an estimated $703 billion in 2005. That is an increase of $422 billion between 2002 and 2005. How much of that was spent rather than saved? About $103 billion was spent on imports (or perhaps was offset by fall in non-oil export); the rest went into higher savings.
China has about $300 billion to invest in 2005; the oil exporters have a bit more than $350 billion to invest. And one way or another, most of those funds are making it back to the USA, since the US is the only country that needs a comparable amount of financing!
Mr. Setzer quotes the NY TIMES: Some economists think the surging growth of oil producers' investments in the US has become and important factor keeping US interest rates low, similar to the effect of Chinese investment of its huge foreign-exchange reserves .
The overall conclusions are firstly, that these surpluse's being recycled back into the bond market are causing US long end interest rates to be at artifically low levels. And secondly, due to the resulting over liquification the US has sat out the effect of higher oil prices on the economy. Meanwhile, the countries with the deficits watch their deficits grow, whilst the countries with the surpluse's watch their surpluse's rise. Where does it end?
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