Guest post by Azizonomics.
But really, truly, the last thing we need to worry about is whether the Chinese love our bonds.
— ShitKrugmanSays (@ShitKrugmanSays) August 31, 2012
Krugman claims the US private sector is financing the deficit, not China:
So who’s actually financing the US budget deficit? The US private sector. We don’t need Chinese bond purchases, and if anything we’re the ones with the power, since we don’t need their money and they have a lot to lose. In fact, we don’t want them to buy our bonds; better to have a weaker dollar (a point that the Japanese actually get.)
Lots of people keep getting this wrong, even after all these years. But really, truly, the last thing we need to worry about is whether the Chinese love our bonds.
He cites as evidence that the current account deficit as a percentage of GDP is way down since before 2008:
The World is changing fast. Latest on the big geopolitical and economic trends. From Stratfor.
There are periods when the international system undergoes radical shifts in a short time. The last such period was 1989-1991. During that time, the Soviet empire collapsed. The Japanese economic miracle ended. The Maastricht Treaty creating contemporary Europe was signed. Tiananmen Square defined China as a market economy dominated by an unchallenged Communist Party, and so on. Fundamental components of the international system shifted radically, changing the rules for the next 20 years.
We are in a similar cycle, one that began in 2008 and is still playing out. In this period, the European Union has stopped functioning as it did five years ago and has yet to see its new form defined. China has moved into a difficult social and economic phase, with the global recession severely affecting its export-oriented economy and its products increasingly uncompetitive due to inflation. The U.S. withdrawal from Iraq has created opportunities for an Iranian assertion of power that could change the balance of power in the region. The simultaneous shifts in Europe, China and the Middle East open the door to a new international framework replacing the one created in 1989-1991.
Updates of some significant Economic vs Markets Charts. All in all, the credit markets are pricing in a somewhat more “realistic” picture of the Economy, where credit spreads etc all imply a significantly lower equities prices. While many of the European and Asian (check Hang Seng) indices have collapsed during the last months, the US markets have held up “stubbornly high”. The SPX index has been forming a rather big formation suggesting a significant sell off, if we are to break down, check here. It almost looks like somebody has been supporting the SPX chart, but this one is running out of bullets…All charts by Macro Story.
Copper vs SPX. Last time Copper traded here, SPX was close 1000. See our post earlier this week, Dr Copper and SPX.
For all charts continue below.