Human behaviour, you can set your watch by it

A great piece on China this morning from copper market analyst Simon Hunt courtesy of John Mauldin's Thoughts from the Frontline. The article is worth reading and cites some sobering stats on demographic and resource hurdles (especially water) facing the country.
Rarely have I heard market hyperbole and salesmanship more fully in bloom than on the topic of China the past few years. Many people have had a vested interest in selling the “insatiable growth” story and so we have heard plenty of it. Hunt's latest report confirms that China has now entered into a period of significant trial and tribulation. Domestically he cites the following list of issues now threatening political and social stability:

• Home affordability
• Leadership instability
• A potential if not actual housing bubble
• The rising income and wealth differential between those who have made it and those who have not
• The country’s continued dependence on exports as its principal driver of growth
• Cheap credit, which punishes savings and encourages investment/speculation
• The misallocation of capital that springs from the previous factor
• Local/provincial government indebtedness
• A new assertiveness and arrogance at all levels
• Policy making that focuses on short-termism without addressing structural and longer-term issues, etc.
• Impact of rising wages
• Energy intensity
• Role of foreign companies
• Resource dependability – water, raw materials, etc.

This list reads of course, like a hit list of the classic human behaviour that has plagued not just China, but the entire developed and developing world the past decade.
Ultimately I suspect a revolution of the Chinese people will be needed to redress incredible systemic imbalances and realign the interests of the elite few with the needs of the many. And in the western world, what will our revolution look like?
For starters individuals are gradually pulling off the energy-sucking credit machine which has crippled our society for many years now. Increasingly families are cutting the money-changers out of their monthly cash flow by paying off debt and spending less. I am reminded of the scene in the first Matrix movie, where we are shown the web of human pods being used as batteries to feed the machines that have enslaved them. As each person comes to consciousness and sees the world as it really is they tear off the attachments that have been draining their energy and set forth on their own power.
The annual income of the bottom 90 per cent of US families has only grown 10 per cent in real terms over the past 37 years. That means that since 1973 most Americans have been increasingly dependent on credit—apparent rather than true wealth—to keep the American dream alive. Meanwhile, the incomes of the top 1 per cent have quietly tripled. In 1973, chief executives were on average paid 26 times the median income, now they are siphoning out more than 300 times the average person's income. Greed and misallocation of resources have bankrupted our families and are now bankrupting our companies and our nations. And our governments continue to aid and abet this by trying to restore a now antiquated status quo.
Regular people have been complacent in all this and much too easily anaesthetized by things (cheap imports from China). But one by one, individuals are coming to consciousness. This is a healthy and crucial step, but as one who has been wide awake on these issues for many years now, I feel compelled to caution newcomers as to the magnitude of the issues. Staggering funding deficits are systemic on pretty much every level today all around the globe. Individually and collectively we are much “poorer (and fatter!) than we think”.
It will be a lengthy journey back to health. But awareness is the first step. It is much better for society as a whole when individuals are enlightened and steadily working their way back to sustainable health rather than repeatedly blind-sided and victimized by ignorance and naive trust in ‘advisors’ and ‘leaders’ that never were looking out for our best interests. Their is strength in humble, honest, truth and individual discipline. Now we can find it.

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5 Responses to Human behaviour, you can set your watch by it

  1. Anonymous says:

    Unfunded Liabilities of State and Local government employee Retirement Benefit Plans

  2. Anonymous says:

    Rebate Checks Too Late to Avoid Recession
    April 28, 2008
    (CNN) –
    Economists question whether $110 billion in tax rebates will provide stimulus needed to hold-off recession and restart growth.
    NEW YORK ( — Tax rebates are starting to arrive in bank accounts. But many economists doubt that they will keep the economy from recession.
    The stimulus package, passed with overwhelming bipartisan support earlier this year, will give rebates to about 130 million Americans, costing the U.S. Treasury more than $110 billion. Married taxpayers earning $150,000 or less will get up to $1200 while single taxpayers earning $75,000 will receive up to $600.
    But since the measure passed Congress, there have been growing signs that the U.S. economy has already fallen into recession.
    “This is will not avert a recession, because it is too late,” said Lakshman Achuthan, the managing director of the Economic Cycle Research Institute. “For this to have kept us out of what was an avoidable recession, it needed to happen a couple of months ago, in January or February.”
    In the past three months, employers have cut 232,000 jobs from their payrolls. The unemployment rate has climbed to 5.1% from 4.7% as recently as November.
    Another 80,000 job losses are forecast to be reported in the April employment report this Friday, according to economists surveyed by, while the unemployment rate is expected to climb to 5.2%.
    In addition, leading retailers have reported disappointing sales. Auto sales have tumbled 8% from year-earlier levels in the first quarter. Home prices and sales have also continued their slide.
    Finally, rising food and energy prices have hit consumer confidence. With that in mind, Achuthan thinks that people who will be receiving rebates will probably use them to pay bills or deal with a tighter budget brought on by higher prices. In other words, there won't be the type of incremental spending that could actually spur the economy.
    But Rich Yamarone, director of economic research at Argus Research, thinks the U.S. will be able to avoid a recession, which is typically not officially recognized by the National Bureau of Economic Research until six months or more after one has begun.
    He points out that the government is expected to report a 0.4% increase in gross national product, the broadest measure of the nation's economic activity, for the first quarter Wednesday. That follows a 0.6% gain in the fourth quarter of 2007.
    While these are not exactly strong levels of growth, they are still growth. And Yamarone said the influx of cash from the rebates could keep GDP positive in the second and third quarters as well.
    “We believe 28% of the checks will be spent in the retail sector, and that they could add 0.8 percentage points to GDP,” said Yamarone. “I know that we're on the verge of a recession, but this has the promise to keep the economy growing.”
    But even Yamarone doesn't believe that the checks will cause a significant lift in employment, as retailers will try to make due with existing staff rather than hire more help for what could be a one-time boost in spending.
    “It might stop the job loss in the retail sector, and in that respect it could only be a temporary situation,” said Yamarone.
    What's more worrisome to some is that the rebates might do just enough to lull people into thinking that the economy is on the upswing again.
    Lehman Brothers economist Drew Matus believes that GDP will fall in the second quarter but that the rebates, along with interest rate cuts by the Fed, could lead to modest growth and an end to the recession in the third or fourth quarters.
    However, he sees GDP falling again by early 2009, as spending and economic activity will continue to stumble unless there is further assistance from the government.
    Matus said the stimulus checks will have almost no impact on problems in the housing and credit markets, which he said have been a major force driving the economy into recession.
    “It's a short-term fix,” he said. “Is it enough to restart the economy? I don't think so, not on its own. As far as the credit and real estate markets, $600 doesn't go far on mortgage payments.”

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