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Is China Cooking The Books?

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Looks like China has been cooking the books when it comes to its exports according to Bank of America. Things are a lot worse than they are letting on even echoing the pattern in 2008.

Latest research figures carried out by the Bank of America Corp. are set to rock the economies around the world once again. Has China been hiding the real state of its economic data? It would seem that the PRC hasn’t been quite as honest as it might have us all believe! According to the Bank of America Corp., the Chinese trade surplus that was meant to stand at some $61 billion turns out to be a meager mere tenth of that so far this year.

The true figure amounts to only $6 billion and that means it will be the smallest Q1 figure posted since the $10.8-billion deficit in 2004. Research on calculations carried out by the head of BoA’s Greater China Division, Lu Ting, suggests that the supposed tripling of China’s surplus was nothing more than fake, and that China has been cooking the books to appear to be better off than the rest of the world. True figures point to the fact that China’s growth rate is slowing down and that the economy is being restrained rather surging ahead. There’s being growing cause for concern since January this year as it turns out that China has been fibbing about its unemployment figures as well as GDP. Growing skepticism amongst analysts has led to worldwide concern as to the ability to provide real trade data.

Some are saying that the export situation can be likened to 2008 at the very moment when the financial crisis hit the world. China too was plunged into a difficult time as exports decreased back then. Shipments plummeted and out of that panic grew illegal practices in a bid to make money. Irregularities in export data have emerged and allowed for hot-money flows.

True figures seem to highlight that we have had the wool pulled over our eyes as figures show that there is a real growth of just 5% in exports, whereas the PRC has issued figures as high as 17.4%. Similarly, imports have increased by 7.6%, rather than the official government line figure of 10.6%. In a recent Bloomberg poll, investors believe that the Chinese economy is set to deteriorate in the coming year, despite what the official government figures might be stating.

But, it’s no consolation that China’s economy has also taken a downtown like the rest of us. While growth seems to be still partly there, it is definitely slowing down. That could be bad news for the rest of us, in already economic hard times, as we could see a knock-on effect around the world. That’s something we could surely do without right now! This is all in the wake of the Yuan’s all–time high. It currently stands at its highest level for almost twenty years in comparison with the Dollar. The Yen is suffering badly too from the adverse effects of never-before-seen monetary easing policies implemented by the Japanese government. Where do we go from here? Well, questions are now being raised as to how much longer China can withstand a growing Yuan in the face of a failing Dollar and troubled Yen. If it carries on much longer, China can only be on the receiving end of the adverse effects of that.

Source: tothetick

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Exports Keep Ireland Alive For Now

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Ireland maybe on the verge of an EU deal to push out debt payments for 12 to 15 years but it has been its exports that have managed to keep the nation afloat. In fact exports make up to 106% of GDP which has enabled it help trade its way out of the crisis in spite of the harsh austerity that has been imposed.

Ireland will export as much as India this year, and more than Brazil, fruit of an industrial policy dating back to the early 1990s that has made the country a hub for global pharma, software, medical equipment, and financial services. It will rack up a very German current account surplus above 4pc of GDP.

Exports make up 106pc of GDP, compared to 35pc for Portugal, 30pc for Spain 30pc, 29pc for Italy, and 21pc for Greece. Ireland has a much higher trade gearing than Club Med peers, and that is what has kept the country afloat despite a 26pc collapse in domestic demand. Growth was 1.5pc in 2011 and 0.9pc in 2012, better than the EU average.

The export story is by now well-known. The global drug giants almost all have plants in Ireland, employing 44,000 people and producing half the country’s merchandise exports, though this may be losing its edge. The country is facing a “Patent Cliff” as a clutch of drugs – such as Pfizer’s statin pill Lipitor – come off patent in the US. It is the reason why Irish exports slipped 15pc in December.

Microsoft, Google, Facebook, Twitter, and a host of household names have regional headquarters in Dublin, whether drawn by a corporation tax of 12.5pc or by the critical mass of a high-tech skills. How much value is added to the Irish economy is an open question. Google rotates some 45pc of its global revenues through Ireland under transfer pricing schemes.

Even so, Ireland is clearly a different animal from the Greco-Latins. It never had a seriously misaligned currency within EMU. It had a misaligned monetary policy that set off a credit bubble. Real interests set in Frankfurt averaged minus 1pc from 1998 to 2007 (compared to plus 7pc in the early 1990s). As Irish eurosceptics foretold, the effects were ruinous.

The country has since deflated the froth. The gap in unit labour costs with the EMU-core has been closed again, at least on paper. “We have cut costs right through the economy with an internal devaluation of 15pc or 16pc,” said Mr Noonan.

One can quibble with the claims. Nearly all the gain in labour costs has been in the non-tradeable public sector – nurses, policemen, teachers – where wages have been slashed 14pc, with another 5.5pc to come. Productivity levels have been flattered by the annihilation of the building industry. “Private wages have declined only modestly,” says the IMF in its latest report.

Yet the point remains that Spain has not begun to see this level of deflationary shock. Were it to try with such a closed economy, it would tip into free-fall, push the jobless rate above 30pc, and cause the debt trajectory to spin out of control. As for Italy, its unit labour costs rose as fast as Germany’s last year. Its deflation lies ahead.

Ireland not out of the woods yet!

Club Med can take no comfort from Ireland’s success, but is even Ireland itself out of the woods? The budget deficit is still 8pc of GDP five years into the ordeal, and public debt is already nearing the limits of viability at 121pc of GDP this year.

Dublin has pencilled in a 3pc deficit by 2015, but dissidents say 6pc is more likely. The IMF warns that a “stagnation” scenario of 0.5pc growth a year into the middle of the decade would cause the debt ratio to spiral up to 146pc by 2021.

That is a serious risk as Europe persists in botching macro-economic policy, and US austerity threatens the fragile world expansion later this year.

Investment has collapsed to 10pc of GDP.

This is the lowest in recorded Irish history and the currently the lowest in the EU. “If this does not recover over the next couple of years, I’ll be worried”, said Rossa White from the National Treasury Management Agency.

Indeed, it is the crux of the matter. Spending has been slashed through the muscle and into the bone. This presumably is what Laszlo Andor, the EU employment commissioner, was talking about last week when he decried a slash-and-burn policy in the name of competitiveness that is tipping the crisis economies into a “downward spiral” and making it even harder to cut control debts. Are his colleagues in the Berlayment listening to him?

A mass exodus of 40,000 to 50,000 each year to the four corners of the Irish Diaspora have kept unemployment down to 14.1pc, but 60pc of those left on the rolls have been out of work for over year — the highest rate in Europe — and that is where the “hysteresis” effects of lasting damage bites hardest. It steals from growth from the future by degrading work skills.

Troika has done more damage to Ireland than the English ever did in 800 years.

Irish trade union chief David Begg was speaking with poetic licence last week when he accused the Troika of doing more damage to Ireland than the British Empire ever did in eight hundred years, snapping that the English had at least left some “beautiful Georgian buildings.” Needless to say, he has not forgotten the Wexford massacre and the potato famine, and nor have we at this newspaper. Yet he made his point.

“When we meet the Troika, we tell them that austerity is not working, and they tell us that it is. It is a dialogue of the deaf,” he said.

Mr Begg said he had come to realise that EMU is constructed in such a way that the “entire burden of cost adjustment” falls on workers if there is macro-shock. He is right. An internal devaluation is achieved by forcing unemployment to such excruciating levels that it breaks the back of labour resistance to pay cuts. It is the polar opposite of a currency devaluation that spreads the pain. Note that Iceland’s unemployment is just 5.4pc today, and Britain’s is 7.7pc.

“Such a callous disregard for distributional justice – which we have witnessed in this country over the last five years – is a fatal flaw,” he said.

“For much of its history, European integration has proceeded on the basis of a ‘Permissive Consensus’. European citizens thought it was a good thing, or at least did no harm. I doubt that view is still current. From what I hear in the circles in which I move, today’s labour movement is disaffected from the European project,” he said.

“What will happen when people eventually realise that they are trapped in a spiral of deflation and debt. We may reach the tipping point,” he said.

Europe’s labour movement is the dog that has not barked in this long crisis. Bark it will.

Source: Irish Independent

India And Iran To Drop The Dollar

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Reuters has reported that India and Iran have decided to drop the dollar in some of their oil trade between the two countries.

 India and Iranhave agreed to settle some of their $12 billion annual oil trade in rupees, a government source said on Friday, resorting to the restricted currency after more than a year of payment problems in the face of fresh, tougher U.S. sanctions.

India, the world’s fourth-largest oil consumer, relies on Iran for about 12 percent of its imports or 350,000-400,000 barrels per day (bpd) and is Tehran’s second-biggest oil client after China.

…..

An Indian delegation has been in Tehran this week discussing options for payment and the source said the decision to pay in rupees was made after a meeting there.

“The Central Bank of Iran will open an account with an Indian bank for receiving payment and settling its import,” the source, who has direct knowledge of the matter, said, adding the new system will start “soon”.

The source did not specify the name of the Indian bank. But other sources have said that Iran could open an account with India’s UCO Bank as it does not have any interests in the United States.

In addition to rupee payments, Indian refiners will continue to make payments through the current mechanism using Halkbank, this source said, “as long as it continues”.

How about this for a kick in the stones for Obama’s administration 😉

India Trade Secretary Rahul Khullar said this week that the Indian delegation to Iran would work around the U.S. sanctions to protect oil supplies and promote Indian exports.

………..

Asian support for U.S. sanctions is vital since the region buys more than half of Iran’s daily crude exports

This follows a list of large Asian and Middle East countries that have abandoned the dollar in trade between themselves. In a previous post we wrote about Iran and Russia dropping the dollar.

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