The economics behind the bull and bear case

[explod]

Re: XAO Analysis

Nah that doesn't wash. Explod is using GDP and Consumption in some mixed up way. He is by saying that their economy is one that consumes 75% of their product therefore is non productive work.

That needs addressing because it makes no sense. Just because they consume big macs, drive huge SUVs and spend a lot on advertising and entertainment does not make the economy a failure. In fact, in terms of living standards, it would seem to be a success would it not?

There is very much more to it than that. Sometimes one loses some of it in the attempt to explain, and I do that a lot.

We are away off topic so we need to identify a thread to continue the discussion. Alot of isues to cover to resolve e.g GDP et al.

What we have for example in the US at a personal level on a large scale is people spending above earnings, but in addition borrowing to do that and now at both the personal and national (if like) level, the amount to service these climbing debts is more than income.

But lets create or find the right thread to continue.

 

[professor_frink]

afternoon folks,

first few posts are split from the XAO analysis thread, very much off topic, but has the making of an interesting discussion

So here's a place for the bulls and bears to put forward their respective cases.

Will keep an eye on it to make sure things stay civil.

Would be great to see both sides put forward an argument based on actual facts, figures, economic data(or why it shouldn't be used in some bearish cases)

Enjoy.

 

[Buckfont]

Just had the same problem. Possibly to do with the new changeover

 

[Trembling Hand]

Re: XAO Analysis

Alot of isues to cover to resolve e.g GDP et al.

What we have for example in the US at a personal level on a large scale is people spending above earnings, but in addition borrowing to do that and now at both the personal and national (if like) level, the amount to service these climbing debts is more than income.

So just to figure out what you were trying to say about non productive workers? and consumption? From the above you're saying its the debt beyond their means that is the problem?

Which has nothing to do with their economy being consumption based? Correct?

 

[explod]

Re: XAO Analysis

So just to figure out what you were trying to say about non productive workers? and consumption? From the above you're saying its the debt beyond their means that is the problem?

Which has nothing to do with their economy being consumption based? Correct?

It is intertwined, and with other factors also: in fairness to you and myself I am too tied up to put a full explanation together at the moment. Bear with it for a day or so and I will be back with it.

cheers explod

 

[motorway]

.


http://www.olsenblog.com/2010/02/ge...aa-rating-is-geithner-the-captain-of-titanic/


Motorway

 

[Dowdy]

Re: XAO Analysis

Unproductive? Will look forward to the reasoning on that one.

There are situations where is works and where is doesn't.

Example where it works
Eg. You import tools from overseas in order to make a building company's production more efficient and hence build more homes.

What makes it not work is when:
> you import TV's and people buy those TV's with borrowed money (credit cards)

What makes an economy grow is when you save you money and use that capital for investment or consumption.

The real problem is the personal and federal debt.

 

[Trembling Hand]

Re: XAO Analysis

The real problem is the personal and federal debt.

Which has nothing to do with consumption!!!!! Its about debt.

 

[Dowdy]

Re: XAO Analysis

Which has nothing to do with consumption!!!!! Its about debt.

Only when you consume things with money that isn't yours.

Have you had a look with our debt levels lately?

 

[>Apocalypto<]

Theory: that there is much worse to come is not theory, it is based on sound fundamental judgements that have measured the unsoundness.

The boilouts are fading out, it went in the main to buy valueless sludge (Loans on assets that have gone to zero) to save the banking system. If you read the business sector of Sunday's Age the unsubstanciated jawboning of our so called national economists are a joke, but not funny, downright alarming.

Whiskers, do yourself a favour and download a free issue of "the Privateer" (I have no association just a subscriber for many years) and have a big think about the real picture in the world economy today, and it is all inextricably connected; and on the facts, which are backed up by respective governments and banks own figures we are in for a bloodbath compared to the crash of 08

In an objective look at inputs on the "Imminenet and Servere Market Correction" and "Gold Price" threads it will be seen that the actual facts have been posted for a number of years.

Theory (maybe at your peril) by all means but now its time to look at backed up facts

IMVHO of course

I will shortly post up a brief excerpt from "the Privateer" on the Imminent and servere market correction thread"

did you just see the latest aussie job figures implode, nothing wrong with AUS last NFP data not great but US unemployment dropped.

did you ever stop to think that your opinion and the people behind the Privateer maybe wrong..........

no one know what will happen not me not u not the Privateer no one knows exactly.

learn to make money off the current signals not the heresy that may or may not happen.

good on ya

 

[explod]

Re: XAO Analysis

Which has nothing to do with consumption!!!!! Its about debt.

Granted T/H, GDP is a measure of economic output. Consumption is what is purchased, used up, provided or expended.

The US is an enourmous and complex economy and few let alone myself will get round to a satisfactory and clear explation of it all. I have noted many economists make the statement that the US GDP is made up of 70% consumption. ie. Mark Faber, Michael Panzer, James Turk, Chuck Butler et al.

the following overnight on a new count from Money Week:

“ForgetGreece – the real debt crisis is still to come.” The story says, in part, “Sure, financial markets are fretting that within two years,Greecewill have racked up public borrowings equal to more than 120% of GDP. But that’s nothing compared to the global picture. Dylan Grice, at Société Générale, has crunched the numbers for the whole of the EU, the UK and the US. He’s found that the average total net liabilities – including unfunded pensions, social security and healthcare – of these countries’ governments emerged at a terrifying 400% of GDP.” (Click here for the full story)

 

[explod]

did you just see the latest aussie job figures implode, nothing wrong with AUS last NFP data not great but US unemployment dropped.

did you ever stop to think that your opinion and the people behind the Privateer maybe wrong..........

no one know what will happen not me not u not the Privateer no one knows exactly.

learn to make money off the current signals not the heresy that may or may not happen.

good on ya

My interest in posting my views have nothing to do with making money, my trading manner is going fine thank you. However the popular press and many newcomers to ASF believe that the market is a bed of roses. Remember on talk back radio a years or so back listening to Michael Heffernan encouraging 3AW listeneers to get right into it, no worries "its a beautiful thing"

Rubbish, it is a dangerous thing and the devils advocate is needed, even if I often do get it and my understanding wrong sometimes (there are plenty to, and they do pick me upon it, yourself included, which I appreciate) but we learn in the process. Though its written, the forum is after all, lots of discussions

And will do a little number for you later on how the US calculate the job numbers.

 

[explod]

From Michael Panzer 09/02/02

At first glance, today's report from the U.S. Bureau of Labor Statistics that job openings rose 2.6 percent in December from a month earlier could be seen as a positive sign for the labor market, especially considering that official jobless totals have declined for three straight months (through January).

Since the downturn began, however, the ranks of the unemployed have swelled at a far faster pace than the number of job openings. Back in December 2007, for example, there were 1.8 unemployed workers per opening; at the end of last year, the ratio was 6.1, a jump of nearly 240 percent.

This dramatic divergence suggests two things: not only are people worried about losing their jobs, they are also concerned that they will have a much harder time finding a new one than before. Given how important a paycheck is to most Americans, no wonder so many remain pessimistic about the outlook.

 

[Whiskers]

Granted T/H, GDP is a measure of economic output. Consumption is what is purchased, used up, provided or expended.

The US is an enourmous and complex economy and few let alone myself will get round to a satisfactory and clear explation of it all. I have noted many economists make the statement that the US GDP is made up of 70% consumption.

GDP is just a measure of the productivity of a nation. Just because 70% of the GDP comes from 'Consumption' doesn't necessairly make a weak or fragile economy.

One reason to not put too much weight on the GDP alone is because it is only a measure of 'production' within the borders of the country. Much 'wealth' is related to productivity via subsiduaries in other countries where that GDP is reported on that other countries GDP.

Productivity as in GDP and real wealth (or debt) are two different things.

ie. Mark Faber, Michael Panzer, James Turk, Chuck Butler et al.

the following overnight on a new count from Money Week:

Quote:
“ForgetGreece – the real debt crisis is still to come.” The story says, in part, “Sure, financial markets are fretting that within two years,Greecewill have racked up public borrowings equal to more than 120% of GDP. But that’s nothing compared to the global picture. Dylan Grice, at Société Générale, has crunched the numbers for the whole of the EU, the UK and the US. He’s found that the average total net liabilities – including unfunded pensions, social security and healthcare – of these countries’ governments emerged at a terrifying 400% of GDP.” (Click here for the full story)

I agree that the US has a lot of unfunded liabilities... BUT, this quote distorts/skews the picture. Again, GDP is about productivity and arguably not the perfect measure of productivity at that, because it doesn't account for underground financial activity not reported to the Gov and we know that the US has a large underground economy in the agricultural and textile industries to mention a couple... not to mention the secret activities of the CIA and other government agencies.

Other measures of wealth are probably more important in determining the health of a country, such as tangible v intangible assets, the savings rate and debt to equity ratio's of it's citizins and corporations.

Say for example the US is actually holding considerably more gold reserves than we are led to believe and/or they decide to open up those large areas of currently protected coastline for oil exploration and development. If the US changes policy, his would substantially change the equation.

I say don't get too obsessed with 'current' reports assuming the status quo will never change... keep an eye on what other unrealised/unreported assets and income sources may be available.

For me fixing issues in order of priority such as improved accountability, regulation and oversight of the financial industry is what the world needs and wants now for a better degree of trust and confidence in the short term. Once that happens a lot of the other issues will work themselves out in a much more orderly manner.

 

[ducati916]

et al

GDP is the total of all economic activity in one country, regardless of who owns the productive assets. Other measures are GNP & Net National Income.

There are numerous omissions in GDP, the most egregious being:

*Transfer payments
*Gifts
*Unpaid and domestic activities
*Barter transactions
Second-hand transactions
*Intermediate transactions [this is basically Capital Goods and is huge]
*Leisure
*Depletion of resources
*Environmental costs [currently very low, underpriced]
*Non-Profits, Inefficient Enterprises
*Changes in quality, Technological evolution.
*Unrecorded transactions [catch-all]

The output value measure of GDP is obtained by value added, or, value of production less cost of inputs.

The expenditure measure of GDP is obtained by adding all spending:

*Consumption + Investment = Expenditure + Exports of Goods/Services = Total Final Expenditure - Imports of Goods/Services = GDP

Of course, the devil is in the details. Each category listed above contains components or the lack thereof, that add, or subtract, to the utility of the final number.

A particularly contentious issue, or category, is the Investment category. Investment is usually defined along the following lines: spending [investment] within factories, machinery, equipment, dwellings, and inventories.

The issue arises with capital goods, and how they are costed and imputed into final GDP. An example:

Iron ore is mined, and sold to a steelworks that turns it to steel, which is sold to a manufacturer of steel metal tools, which manufactures a machine tool, which is sold to a manufacturer [using the tool] to manufacture a component of an automobile, which sells the component to Ford.

In GDP, the calculation is as follows:

Selling price of iron ore - mining costs.
Selling price of Ford - purchase costs of iron ore.

All the intermediate transactions [with associated profits/losses] are lost to the final GDP calculation. Thus we can see immediately that the assertion of consumer purchases constitute 70%+ of the economy, is a fallacy.

Another major problem is in the use of deflators. Essentially, when prices are changing rapidly, their accuracy becomes seriously impaired, in a non-linear manner.

jog on
duc

 

[explod]

et al

Thus we can see immediately that the assertion of consumer purchases constitute 70%+ of the economy, is a fallacy.

jog on
duc

I did not say that: what I did say :_

Consumption is what is purchased, used up, provided or expended.

And in saying that, health care, work benefits and other costs of the cummonity at all levels of Government should be included. GDP to be ballanced requires the inputs of all sides of the commercial and social ledger. That it is just one and one makes two relating to for example "I grow spuds and sell to Bob and buy a shovel off Bob" is not how it is anymore IMVHO

 

[GumbyLearner]

To whoever is reading this thread?

One question?

Is Australian/US/UK/Euro/Japan etc... GDP calculated the same way as
China calculates theirs?

(P.S. You know what I'm talking about explod.)

 

[Whiskers]

To whoever is reading this thread?

One question?

Is Australian/US/UK/Euro/Japan etc... GDP calculated the same way as
China calculates theirs?

(P.S. You know what I'm talking about explod.)

There is an International Acounting Standard (IAS), but I don't think even Aus completely complies with it... China, maybe less. Even more reason not to put too much weight on any one measure.

 

[Beej]

To whoever is reading this thread?

One question?

Is Australian/US/UK/Euro/Japan etc... GDP calculated the same way as
China calculates theirs?

(P.S. You know what I'm talking about explod.)

Rather than just cast mysterious aspersions, can you provide some concrete detail?

If their method is wrong/flawed how much error margin do you think there is?

Do you think the error is general (ie could be plus or minus) or do you suggest it is a deliberate over-stating of the true number? Ie do you believe that the Chinese economy is not in fact expanding at all? Or do you just think it's not expanding as fast as they have been claiming?

Cheers,

Beej

 

[GumbyLearner]

Rather than just cast mysterious aspersions, can you provide some concrete detail?

If their method is wrong/flawed how much error margin do you think there is?

Do you think the error is general (ie could be plus or minus) or do you suggest it is a deliberate over-stating of the true number? Ie do you believe that the Chinese economy is not in fact expanding at all? Or do you just think it's not expanding as fast as they have been claiming?

Cheers,

Beej

Hi Beej

I'm not casting aspersions mate. Or trying to cause any fracas, I'm just looking for facts myself.

http://en.ce.cn/Business/Macro-economic/201001/30/t20100130_20892265.shtml

http://www.chinadaily.com.cn/bizchina/2010-01/29/content_9399834.htm

http://seekingalpha.com/article/116292-differences-in-calculating-gdp-have-pros-and-cons

Excerpt

I think that Roubini's point on China's GDP being close to zero was based more on the idea that in our current economic environment, the U.S. way of calculating GDP is more accurate or realistic. The China method tends to mask how dramatic their drop was in the last few months of the year. This does not necessarily mean it is more accurate or realistic in other economic environments, but in this environment do not expect a fourth quarter growth rate of 6.8% in China to reflect their true pain at the moment. Anyone understanding this better than me should feel welcome to comment as I am certainly not claiming to be an expert on this.


I was always under the impression that China's GDP was calculated on production, not on sales?

Maybe I'm wrong? If I'm wrong would you mind pointing me in the right direction?

DYOR