Mish's Global Economic Trend Analysis

Geithner Seeks Support for Iran Oil Sanctions From China; What Should China's Response Be? Shoddy Reporting by Bloomberg on Oil Story
Bank Lending, M2 Money Supply Soar in China; Premier Wen Jiabao calls for "Measures to Boost Confidence in Stock Market"; US vs. China Money Supply - Who is Printing More?
Population: The Elephant in the Room; Peak Oil Implications on Population Growth; What Level of Human Population is Sustainable?

Geithner Seeks Support for Iran Oil Sanctions From China; What Should China's Response Be? Shoddy Reporting by Bloomberg on Oil Story

Posted: 10 Jan 2012 01:37 PM PST

CNBC Reports Geithner Seeks Support for Iran Oil Sanctions From China

As Iranian President Mahmoud Ahmadinejad continued his Latin American tour, U.S. Treasury Secretary Timothy Geithner arrived in Beijing to persuade the Chinese government to support sanctions on the Iranian oil industry.

China is the largest importer of Iranian crude but decreased volumes recently due to a dispute over contract terms. Although the country's demand for crude oil has decelerated, the latest data still showed a growth of 6 percent in 2011 compared to a year earlier.

What Should China's Response Be?

I propose this:

Dear Secretary Geithner

In light of the fact that the US Defense Secretary announced on Face the Nation that "Iran Not Trying to Develop Nuclear Weapon" China will not support a US-Led oil embargo.

Moreover, we will consider any efforts by the US or Europe to block Iranian exports to be economic warfare against China.

We call on the United States to dump their unfounded economic attack on Iran immediately.

That would set the proper tone for discussion and make the Obama administration as well as Republican warmongers look foolish in the process.

Unfortunately, China is unlikely to do that. Instead, If the US and Europe are stupid enough to ban Iranian oil, China would have additional leverage on those disputed Iran oil contracts mentioned above.

Shoddy Reporting by Bloomberg on Oil Story

I call your attention to shoddy Bloomberg reporting in Obama Prepared to Use Force to Stop Nuclear Iran, Former Adviser Ross Says.

Nowhere in the slanted article does the author mention the fact that Leon Panetta emphatically stated "Are they trying to develop a nuclear weapon? No. But we know that they're trying to develop a nuclear capability, and that's what concerns us."

Instead all we see mentioned in the above Bloomberg article is "They need to know that if they take that step, they're going to get stopped," Defense Secretary Leon Panetta said Jan. 8 on CBS News' Face the Nation."

Not only is Panetta's position absurd, so is the war-mongering position started by Bush and continued with Obama.

Speaking of which, notice how these war-mongering nutcases think:

"[Former Obama advisor] Ross underscored that U.S. willingness to stop Iran from getting nuclear weapons affects decision-making in other countries that fear Iran, including Israel and Gulf states. If the White House abandoned a pledge to stop Iran made by Obama and President George W. Bush before him, the U.S. would lose all credibility, he said."

Credibility is lost when the secretary of Defense freely admits Iran has no nuclear weapons program, when Iran volunteered to step up inspections, yet the US insists that Iran stop its nuclear program entirely, not just its weapons program (that it does not even have, much like the nonexistent WOMD program that Bush used in a war that wasted $trillions in Iraq).

Credibility in news reporting is lost when Bloomberg quotes the defense secretary, leaving out the most important part.

I emailed, Mark Silva, the Bloomberg editor responsible for this story this morning. I will send a second email with a link to this article Mark Silva and also to Indira Lakshmanan, the reporter for this slanted story as well.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Bank Lending, M2 Money Supply Soar in China; Premier Wen Jiabao calls for "Measures to Boost Confidence in Stock Market"; US vs. China Money Supply - Who is Printing More?

Posted: 10 Jan 2012 09:29 AM PST

Chinese stock have been on a 2-day tear as Premier Wen Jiabao has come flat out in support of the stock market.

Moreover, money supply in China is up the most since last April and new Chinese loans exceeded the estimates of all 18 Bloomberg economists. M2 rose 13.6 percent, the fastest pace since July.

Bloomberg reports China Stocks Rise Most in 3 Months on Loan, Money Data

China's stocks rose the most in three months after new lending and money supply exceeded estimates in December, boosting speculation the government is relaxing monetary policies to bolster economic growth.

Chinese new loans totaled 640.5 billion yuan ($101 billion) last month, the highest amount since April, the People's Bank of China said yesterday. That exceeded the estimates of all 18 economists surveyed by Bloomberg. M2, a measure of money supply, rose 13.6 percent, the fastest pace since July, it said. That compared with the 12.9 percent median of 18 estimates.

Premier Wen Jiabao called for measures to boost confidence in the nation's stock market, the Shanghai Securities News reported today, citing his comments at the National Financial Work meeting. He urged reforming initial public offerings and improving companies' dividend payouts, according to the report.

The premier's comments signal the government may take more measures to boost stocks, including allowing social security funds to buy equities, David Li, UBS's chairman and country head for China, said in an interview in Shanghai. Funds may flow out of the property market and into stocks as the government isn't showing any inclination to ease curbs in the real-estate industry because prices "are still high," he said.

Central bank governor Zhou Xiaochuan said yesterday the nation must be ready to combat possible shocks from Europe's debt crisis and an uncertain U.S. economic outlook. China cut the reserve requirement for the first time since 2008 on Nov. 30 as Europe's debt crisis eroded demand for its exports.

$SSEC Shanghai Stock Index Daily Chart

The Shanghai stock index has been on a big two-day advance, but let's put some perspective on the story.

$SSEC Shanghai Stock Index Monthly Chart

US vs. China M2 - Who is Printing More?

For all the hype talk about US hyperinflation and soaring money supply from the Bernanke Fed, let's add some perspective on money supply growth as well.

US vs. China M2 Absolute Amounts

click on chart for sharper image

US vs. China M2 Year-Over-Year Percentage Change

Charts courtesy of Chris Puplava at Financial Sense. I asked for them yesterday in expectation of writing this post today. Chart annotations and comments are mine.

The above chart provides a nice visual explanation for the "reverse decoupling" and outperformance of the US stock market in 2011. Money supply plunged in the Eurozone as well.

Bernanke flooded the markets with liquidity, yet all if did was hold stocks flat. Compared to China and Europe, that was a huge "accomplishment" but it fueled a rise in gasoline and food prices and brutally punished those on fixed incomes with excessively low interest rates on savings accounts.

Note that Money supply in China in mid-to-late 2009 was soaring at 30% annual growth. The recent stock market plunge in China came with growth "collapsed" to 13.60%. Meanwhile M2 growth in the US peaked at 10%.

All things considered, it is amusing to hear all the US hyperinflation rants, especially those accompanied with a virtual love affair for China such as Peter Schiff and Jim Rogers.

Those looking for malinvestment can find no bigger place than China.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Population: The Elephant in the Room; Peak Oil Implications on Population Growth; What Level of Human Population is Sustainable?

Posted: 09 Jan 2012 11:27 PM PST

"In the last 200 years the population of our planet has grown exponentially, at a rate of 1.9% per year. If it continued at this rate, with the population doubling every 40 years, by 2600 we would all be standing literally shoulder to shoulder." says Professor Stephen Hawking as reported by Edward Morgan in Looking at the New Demography.

Suffice to say the rate of population growth will not continue, and Morgan makes the case we are already in stage 5 of The Demographic Transition Model

click on chart for sharper image

Peak Oil Implications on Population Growth

Whereas Morgan presents a relatively benign view of things, even wondering if there are ways to reverse stage 5 decline, Paul Chefurka in Population: The Elephant in the Room sees things quite differently, primarily because of oil usage.

Each of the global problems we face today is the result of too many people using too much of our planet's finite, non-renewable resources and filling its waste repositories of land, water and air to overflowing. The true danger posed by our exploding population is not our absolute numbers but the inability of our environment to cope with so many of us doing what we do.

It is becoming clearer every day, as crises like global warming, water, soil and food depletion, biodiversity loss and the degradation of our oceans constantly worsen, that the human situation is not sustainable. Bringing about a sustainable balance between ourselves and the planet we depend on will require us, in very short order, to reduce our population, our level of activity, or both. One of the questions that comes up repeatedly in discussions of population is, "What level of human population is sustainable?"

Oil first entered general use around 1900 when the global population was about 1.6 billion. Since then the population has quadrupled. When we look at oil production overlaid on the population growth curve we can see a very suggestive correspondence:

A closer look at the two curves from 1900 to the 2005 reinforces the impression of a close correlation:

The first questions everyone one asks when they accept the concept of Peak Oil is, "When is it going to happen?" and "How fast is the decline going to be?"

The steepness of the post-peak decline is open to more debate than the timing of the peak itself. There seems to be general agreement that the decline will start off very slowly, and will increase gradually as more and more oil fields enter decline and fewer replacement fields are brought on line. The decline will eventually flatten out, due both to the difficulty of extracting the last oil from a field as well as the reduction in demand brought about by high prices and economic slowdown.

The post-peak decline rate could be flattened out if we discover new oil to replace the oil we're using. Unfortunately our consumption is outpacing our new discoveries by a rate of 5 to 1. to make matters worse, it appears that we have probably already discovered about 95% of all the conventional crude oil on the planet.

A full picture of the oil age is given in the graph below. This model incorporates actual production figures up to 2005 and my best estimate of a reasonable shape for the decline curve. It also incorporates my belief that the peak is happening as we speak.

In ecology, overshoot is said to have occurred when a population's consumption exceeds the carrying capacity of its environment, as illustrated in this graphic:

Overshoot

Populations in serious overshoot always decline. This is seen in wine vats when the yeast cells die after consuming all the sugar from the grapes and bathing themselves in their own poisonous alcoholic wastes. It's seen in predator-prey relations in the animal world, where the depletion of the prey species results in a die-back of the predators. Actually, it's a bit worse than that. The population may actually fall to a lower level than was sustainable before the overshoot. The reason is that unsustainable consumption while in overshoot allowed the species to use more non-renewable resources and to further poison their environment with excessive wastes.

In the case of humanity, our use of oil has allowed us to perform prodigious feats of resource extraction and waste production that would simply have been inconceivable before the oil age. If our oil supply declined, the lower available energy might be insufficient to let us extract and use the lower grade resources that remain. A similar case can be made for a lessened ability to deal with wastes in our environment.

Excess Deaths

[Chefurka goes through a series of grim charts culminating with with this explanation of what is coming]

The Cost

The human cost of such an involuntary population rebalancing is, of course, horrific. Based on this model we would experience an average excess death rate of 100 million per year every year for the next 75 years to achieve our target population of one billion by 2082. The peak excess death rate would happen in about 20 years, and would be about 200 million that year. To put this in perspective, WWII caused an excess death rate of only 10 million per year for only six years.

Given this, it's not hard to see why population control is the untouchable elephant in the room - the problem we're in is simply too big for humane or even rational solutions. It's also not hard to see why some people are beginning to grasp the inevitability of a human die-off.

UN Population Projections

Let's put aside the really grim projections and simply ponder the "low population track" in the following charts of population projections from the UN.

I cannot find the article or source for that chart but the image is from a link on Seeking Alpha.

Demographic and Economic Questions

Is that low UN track that unbelievable? If not, what if the starting point is now, not 2040?
Who is going to pay the medical costs of all the retirees in the developed-world if people live longer and the population simply stagnates?
Where are the energy resources going to come from if the population keeps growing instead?
Where are the energy needs of China alone going to come from at the current rate of China's economic growth regardless of whether the Chinese population grows or not?

Those who think we are going to "grow" our way out the the current global economic mess better have good answers for the questions in points number one and three above.

Problem number two is a huge problem in Japan right now. Thee US will face the same problem not too far down the road.

Those who suggest immigration and population growth is the solution to problem number two better have an answer to question number three while also explaining how immigration and population growth is nothing more than a can-kicking exercise.

The China problem is right here, right now. Peak oil all but ensures China's growth rate is going to plunge in the not too distant future, there is going to be a huge global showdown over oil supplies with China the winner, or a cheap easy to produce means of renewable energy is found in the next five years?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Wednesday, January 11, 2012

Mish's Global Economic Trend Analysis

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