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16 Timeline

UNFINISHED CONTENT

This does not look at Russia or India.

www.ny.frb.org/research/global_economy/IRCTimelinePublic.pdf


Worldbank Financial Crisis/

World Financial Timeline

BBC Political Timeline: China



At the very end of the 1980s not only did the Berlin wall fall but also both China and Russia opened for business, encouraging foreign investment, a market economy and private sector.





1986-90 China Opens for Business

China's "Open-door policy" opens the country to foreign investment and encourages development of a market economy and private sector.
  • 1997 Hong Kong reverts to Chinese control.
  • 1998 - Thousands of state-owned enterprises are to be restructured through amalgamations, share flotations and bankruptcies.
  • 1989 The Berlin Wall Falls
  • 1989 Stockmarkets open in Shanghai and Shenzhen

Investors Pour In

China opens up to globalisation message and manufacturing grows. Foreign investors pour in looking to cash in on the new market of 4 billion people, the Chinese people, but the Chinese people are poorly paid and so it is a ghost market. Most Chines firms export.
  • Some American Banks try to invest in China but meet cultural problems.
  • Books: "China shakes the world: The rise of a hungary nation" and "Mr China"
  • Chinese goods are predominantly paid for in the world reserve currency US dollars!

Subsistence Economy

If a worker must spend all they earn to survive. This supports the subsistence economy. The luxury economy is completely unsustained by the home market. But if the worker has money to spend on luxury products then they do not need to be exported, profits of firms will be lower and savings less prevalent.


US Government MIC Spending High

At the end of the cold war the Military Industrial Complex (MIC) is left with little to do. US examines its role as the only super power. US carries on spending on Military Industrial Complex (MIC) biasing natural economics? Government hopes to use MIC in conquest to bring back spoils of war but plan fails due to resistance (asymmetric warfare) in Iraq and Afghanistan.

– “Appropriately tight” fiscal and monetary policies (1995-1997)

To rein in high inflation that started in 1993, China imposed appropriately tight fiscal and monetary policies. There was a surge in fixed-asset investment in the latter half of 1992, which was followed by major food price rises in 1993.

After the new policies were launched, the PBOC stepped up efforts to control money supply and finally reduced the consumer price index from 21.2 percent in January to 12.3 percent in August in 1995. The annual price increase was kept under 15 percent and gradually leveled out in the following years.

2000 A Chinese Industrial Revolution

– “Proactive” fiscal policy and “prudent” monetary policy (1998-2004)

The proactive fiscal policy and prudent monetary policy were adopted in 1998 to counteract the negative impact of the 1997 Asian financial crisis.

China issued 910 billion yuan worth of national bonds over these years and invested the proceeds in infrastructure. The move boosted domestic demand, which had been weakened by the financial crisis, and contributed 1.5 to 2 percentage points of national output growth each year.


China undergoes an industrial revolution driven by a huge demand for exports based on their cheap labour which undercuts western labour. Chinese manufacturing replaces a large amount of US manufacturing and many US businesses move manufacturing to China. Chinese labour drops prices of manufactured goods, giving western consumers more spare cash. A new Chinese middle class forms who make extraordinary profits from exporting the products of the cheap labour.

 to borrow. Borrowing fuels consumption and house price boom.
US broad money remains steady but US production is slowly replaced by Chinese production. Inflation steady as neither quantity of products nor quantity of money changes much.

  • 2001 November - China joins the World Trade Organisation.
Shanghai: The financial powerhouse drives China's economy
2006 May - China has overtaken the US as the biggest emitter of CO2.

2005 China invests abroad



– “Prudent” fiscal and monetary policies (2005-2007)

China switched to a “prudent” policy at the beginning of 2005. During 2005, the country reduced issues of long-term National Construction Bonds to 80 billion yuan (11.7 billion U.S. dollars) from 110 billion yuan the previous year and cut the fiscal deficitby 19.8 billion yuan to 300 billion yuan.

In 2007, the PBOC raised the reserve ratio 10 times, from 9 percent in January to 14.5 percent as of December. The central bank had raised the ratio only five times over six years since 2000.

China Invest in West

Chinese firms and wealthy middle classes, look to invest their USD. (Debt, equities or commodities are the three main forms of investment.) They can invest at home or abroad. The USD could be;
  • Spent on foreign materials for Chinese developments,
  • Spent on foreign materials for Chinese consumption,
  • Investing in Chinese debt, equities,
  • Investing in foreign debt, equities,
  • Converted to Chinese yuan, (TODO are they limited in what they can convert?The additional Yuan in circulation keep the Yuan value close to the USD.) - Chinese central bank uses USD to buy US debt in US treasury bonds and I suppose various other debt derivatives.

US Banks make a killing doing the investing i.e. offering services to China. "We are a service industry offering important services." Chinese investment combined with reckless lending fuelling additional western spending and housing boom. Banks and borrowers believed, interest rates would never rise, and houses could never go down. Banks gave 125% mortgages and other ridiculous credit.

China Keeps Yuan Low 

Chinese middle class become wealthy and want it to stay that way, China want to keep exporting consumer goods and profiting from it.

Chinese central bank pegs the Yuan against the dollar by buying US dollars with created Yuan and using the USD to buy US bonds thus encouraging US government overspend, while increasing its own currency in circulation. Both currencies do not devalue because of matched increase in available goods production in China.

US postpones inflation because of cheap goods from China.

2006 November - African heads of state gather for a China-Africa summit in Beijing. Business deals worth nearly $2bn are signed and China promises billions of dollars in loans and credits.

Government says pollution has degraded China's environment to a critical level, threatening health and social stability.

2007 January - Reports say China has carried out a missile test in space, shooting down an old weather satellite. The US, Japan and others express concern at China's military build-up.

2007 February - President Hu Jintao tours eight African countries to boost trade and investment. Western rights groups criticise China for dealing with corrupt or abusive regimes.
   
2007 June - New labour law introduced after hundreds of men and boys were found working as slaves in brick factories.

2007 July - China's food and drug agency chief is executed for taking bribes. Food and drug scandals have sparked international fears about the safety of Chinese exports.



2007 Global Financial Crisis


– Tight monetary policy (current)

Earlier this year, facing pressure from surging inflation, a resurgence in fixed-asset investment and excessive lending and liquidity, China decided to shift its monetary policy from “prudent” to “tight”.

Tight policy has included raising commercial banks’ reserve-requirement ratios, allowing the currency — renminbi (also called the yuan) — to appreciate and controlling bank lending.

The latest move was in June, when the central bank — People’s Bank of China (PBOC) — raised the reserve ratio by 1 percentage point in all: 0.5 point effective June 15 and another 0.5 point effective June 25. The rise on June 25 was the sixth this year and brought the ratio to a record 17.5 percent.

The tight policy appears to have had an impact. The consumer price index eased to 6.3 percent in July from a near 12-year high of 8.7 percent in February.

Economic growth slowed to 10.4 percent in the first half of 2008 from 11.9 percent for all of 2007.




2001, the Federal Reserve began cutting rates dramatically, and the fed funds rate arrived at 1% in 2003. Debt was sold far and wide to pension funds, hedge funds and international governments in the form of new "AAA" rated derivatives.

People stopped spending leading to the risk of deflation thus slowing down the old supply chain. Government tries to prop up spending by reducing interest rates, and so prop up the old supply chain instead of building the new one.

2006 cracks began to appear. New homes sales stalled,

July 2007 - Dow Jones Industrial Average reaches all-time highs.

August 2007 - Treasury Bill Yields Fall as Investors Avoid Commercial Paper.

 this continues through 2007, The debt derivatives ratings dropped substantially. See

October 2007 -  CDO Write Downs. US new home sales stalled. Investors looked for quality investing in US
Treasury bills yields fell a shocking 1.5% in a matter of days, several hedge funds collapsed.
Many institutional funds were faced with margin and collateral calls from nervous banks, which forced them to sell other assets, such as stocks and bonds, to raise cash. The increased selling pressure took hold of the stock markets, as major equity averages worldwide were hit with sharp declines in a matter of weeks, which effectively stalled the strong market that had taken the Dow Jones Industrial Average to all-time highs in July of 2007.

To help stem the impact of the crunch, the central banks of the U.S., Japan and Europe, through cash injections of several hundred billion dollars, helped banks with their liquidity issues and helped to stabilize the financial markets. The Federal Reserve also cut the discount window rate, which made it cheaper for financial institutions to borrow funds from the Fed, add liquidity to their operations and help struggling assets.

On March 20, 2008 Securities and Exchange Commission Chairman Christopher Cox said the collapse of Bear Stearns was due to a lack of confidence, not a lack of capital. Cox noted that Bear Stearns's problems escalated when rumors spread about its liquidity crisis which in turn eroded investor confidence in the firm.

On September 15, 2008, the firm filed for Chapter 11 bankruptcy protection following the massive exodus of most of its clients, drastic losses in its stock, and devaluation of its assets by credit rating agencies. The filing marked the largest bankruptcy in U.S. history.

2008 November - The Chinese government announces a $586bn (£370bn) stimulus package to avoid the economy slowing. Chinese Premier Wen Jiabao says the effect of the global financial crisis on China is worse than expected.

On December 9, 2008, investors bought T-bills yielding -0.01%, guaranteeing that they would receive less money three months later.

Quantitative Easing

Government and central banks buy bad loans.
  • Central banks buy government bonds from everybody to give them cash.
  • Central banks buy other assets from banks.
  • Central bank buys bad debt.

China Changes Investment Strategy

May 2009 China switches from buying bonds to buying commodities Telegraph - China fears bond crisis as it slams quantitative easing

2009-11 Trade collapse and international supply chains: Japanese evidence

2010 And Beyond







2009 February - Russia and China sign $25bn deal to supply China with oil for next 20 years in exchange for loans.



2010-05-22 TIMELINE-Obstacle course for U.S.-China ties in 2010

19 Jun, 2010 Timeline: China's reforms of yuan exchange rate


2009 July - Scores of people are killed and hundreds injured in the worst ethnic violence in decades as a protest in the restive Xinjiang region turns violent.

2009-09 TIMELINE-Resource-hungry China invests in Africa

2009-09 TIMELINE-Some major deals between China and Africa


(CF) Sep-24-2010 Timeline: straining of US-China relations in 2010

09 September 2010 Japan to investigate China's bond buying motives


2010 January - China posts a 17.7% rise in exports in December, suggesting it has overtaken Germany as the world's biggest exporter.

2010-01-20 TIMELINE-Chinese investments in Australian resources



Future

A recovery will be when the balance of payments says so. See Wikipedia: Balance of payments

If America pays government Dollar debt with created money then when money reaches the market inflation results.

If credit is not available to buy Chinese goods demand will drop, deflation results.

China has locked into US economic system but without labour regulations. Through the Dollar Yuan pegging. Chinese labour might as will be a poor working class in the US with almost no rights. It is in the direct interests of the people of America and
China other then the Chinese working classes, to keep it that way.


NOTES



Consumers reduce spending for a number of reasons.

Business slows down. Chinese imports slow down.

West needs to produce something for Chinese but instead tries to prop up old trade chains.


What now?
Will they raise wages to create a home market

Will the west suffer inflation i.e. demand outstrip supply?







Analysis

Deflation

Where are we?
  • deflation is caused by a surplus of valuables or a shortage of money.
  • It will scale up the effect of debt and credit.
Borrowing provides more money now but postpones and increases the problem. The only way to avoid deflation is to give money away to purchase the surplus of valuables. However it is probably better to have the deflation rather then a mountain of stored valuables. Remember the EU butter mountain.

China's Home Market

The current economy depends on the Chinese captive cheap labour force, the worlds working class. What will happen if the wages of these people rise or if they are freed and allowed to find work anywhere in the world?

The result of wage rises for workers in China would be price rises across the world but also the development of a Chinese home market.
Will  and so a potential decrease in exports and some shortage of products in the west while



 If Chinese workers work abroad   


When the Chinese grow their domestic market by improving wages then the West's surplus of valuables will possibly be replaced by a shortage and then all the extra money in circulation will need to be removed again to avoid hyper inflation.
  • inflation is caused by a surplus of money and a shortage of valuables.
  • It will scale down the effect of debt and credit.
Saving provides less money now but postpones and increases the problem. The only way to avoid inflation is to take money away by selling additional valuables in the economy.

We must prepare to supply ourselves with what the Chinese now supply or to have something worth exporting.

This is why it is very important to have a positive balance of payments based on reliable sources of exports.

It protects us from the effects of deflation, and
Ensures that sources won't dry up,


Why does the west have Liquidity_Problems because all the moneys gone to China! See Non-Completeion




Inflation Deflation

They should be trying to establish production here and getting people to produce wealth here to earn money from. But given the profit incentives in china why should anybody make anything here? Reduce tax for capitalists, get rid of the higher rate.

Recognise talant in the workpace and promote it. Recognise lack of talent and demote it.

US end creates money to pay which when it ends up in the auction for items and creates inflation for the Dollar relieving debt further.

Quantitative easing re-capitalised the banks so as long as they hang on to it no inflation risk. TODO find out more about the exact terms.

Extended loans to debt countries need to be paid back not bailed out. But what if they can't pay interest. then cease capital.

China end creates Yuan to devalue it using it for government projects? and to buy Dollars and thus keeps them off the market to avoid inflation. Exports continue to keep inflation off.

China's product keeps inflation off and tends towards deflation further undercutting US industry, despite quantitative easing and other inflationary measures.


If a worker gets x and spends n% then a worker gets that and so on then . The spending power is the inverse

If


Some governments try to use lending to prolong collapse but banks obstruct this, thus keeping inflation under control.

The Controls

Governments can divert resources to production capacity but it must produce competitively. Or it must look at ways to reduce consumption without pain.

Governments can divert resources by law.

Banks can increase or decrease borrowing by law through the interest rates or other restrictions.

Effects

Effects of creating money but restricting money

debt bailout















UNFINISHED CONTENT

(I do not currently have figures for the amount of money being spent and lent in this way.)   

Then it Goes wrong
Defaults lead to lending stop and capital adequacy questions.

To continue lending Central bank steps in with quantitative easing. Lowering interest rates but restricting borrowing much to the annoyance of some.

Result? Capital adequacy maintained. CB buys junk loans for cash. Banks told don't do it again.

But with nobody to lent to what happens then? Perhaps investment in real production might start? No investors turn to commodities leading to commodity inflation, prices in everything double. Now that might bring us inflation. No because it hasn't effected final prices as the commodity costs of a product are not a significant part of the price paid here. Third world half food consumption!

Government debts? Well taxes pay for them.


More money does not go into circulation because it is needed to meet capital adequacy requirements.

Banks reduce lending, house prices drop, talk of double dip recession but actually house prices dropping is not a sign of recession.

Some save money and buy less Chinese production slows but more goes to domestic markets. 

If cheap Chinese goods cease because home domestic market increases then we get inflation.

But Chinese middle classes might not let that happen. They are hard masters and will keep people down!

They keep creating Yuan so as to keep value fixed against US and devalue products of China. They can use the money to buy US treasuries or on projects at home. Or to lend at home and create housing boom in new Chinese cities.


If any truly patriotic Chinese ruler were likely to get in power they would assassinate him to ensure the subordination of the Chinese working classes.
  
Lower production and inflation due to lack of real stuff!. Made to look OK at the moment because of foreign cheap labour. and tax on foreign investment returns. We try to maintain our dominance and their subordination through economics, then covert operations and finally offensive action but all this to maintain artificially high wages for our workforces over and above the workforces in the countries that we dominate.









The value of money is determined by auction. More money less value. Less goods




Create cash give it to those in favour so as to redistribute wealth by biasing the auction.

Reduce cash by recalling loans if you can or freeze it by the central bank issuing bonds which are treasury notes I think.

The result of all this is a greater and greater burden on the actual productive capability in society. It will go abroad if it can. We see greater and greater roles taken on by government or paid for by government or possible private roles but that are created by government legislation and so are parasitic private enterprises. Government should be light and should allow production and servicing to benefit from its real work.





(C)2010 Tom de Havas. The information under this section is my own work it may be reproduced without modification but must include this notice.







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