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谢国忠

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麻省理工学院经济学博士

个性介绍: 1960年出生于上海,1983年毕业于上海同济大学路桥系,1987年获麻省理工学院土木工程学硕士,1990年获麻省理工学院经济学博士。同年加入世界银行,担任经济分析员。在世行的五年时间,谢国忠所参与的项目涉及拉美、南亚及东亚地区,并负责处理该银行于印尼的工商业发展项目,以及其他亚太地区国家的电讯及电力发展项目。1995年,加入新加坡的Macquarie Bank,担任企业财务部的联席董事。1997年加入摩根士丹利,任亚太区经济学家,2006年9月辞去该职务。

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谢国忠:盛宴即将结束  

2009-06-02 14:12:56|  分类: 言论 |  标签: |举报 |字号 订阅

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盛宴即将结束

2009-06-01


Please see the attached my op-ed piece arguing that the world isheading towards stagflation. Dollar, treasury, and oil have moved bigin the past two weeks partly due to rising inflation expectation. Idon't think inflation story is a straight line. As high oil pricethreatens economic outlook, the prices may reverse in the short term.However, the inflation story will stick around. As its expectationforces central banks to tighten, it will crash the stock market rally.

Thearguments against inflation are (1) that excess capacity keeps pricedown and (2) that money supply is kept within a dysfunctional financialsystem, i.e., money velocity is low. Neither can stop inflation, Ibelieve. Deflationary forces-IT and China are no more. Financial marketcan make inflation self-fulfilling through commodity speculation. Laborunions will rise in bad economic environment. 1970s is returning. Findyour platform shoes and polyester suits. It is a different party fromGreenspan's. Andy

 

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Crashing the party

 

Ignore the stock market rally, the world is heading for a long stretch of stagflation

 

Andy Xie

Updated on May 29, 2009

 

Thestock market discounts the future, they say. If so, the rally in thepast three months should foretell an economic boom ahead. Don't holdyour breath; it isn't coming. Instead, the world is sliding intostagflation. The culprit is the policy response to the global creditcrisis. Instead of restructuring, policymakers have been trying to washaway the consequences of the bursting bubble with liquidity. Instead ofcreating another boom, it will lead to inflation.

 

Inthe first quarter of 2009, the US economy contracted by 1.6 per cent,the eurozone's by 2.5 per cent, and Japan's by 4 per cent. Themanufacturing export-led economies in the developing world fared worse.The global economy has sunk about 5 per cent and global trade 20 percent from the peak in the second quarter of 2008. Even though the speedof shrinkage has slowed, the global economy is still likely to becontracting in the second quarter.

 

 

Acollapse of this magnitude hasn't happened since the 1930s. One wouldimagine that policymakers and investors would be repenting of theirbubble-making behaviour of the past. Yet, attention has shifted fromthe crisis to the elixir of liquidity. Rather than repent, investorsclamour for a new bubble. It seems like Alan Greenspan is still incharge.

 

 

The global economy is like atrain hanging over a cliff. While the front is in the air, there isenough of it still on the ground to keep the whole thing from fallingfurther. Financial markets are dancing on the roof of the train, andthe vibrations could send the train tumbling.

 

 

Thefuel for the market enthusiasm is liquidity. It has returned to stockmarkets with a vengeance. The inflow into emerging market funds,according to Morgan Stanley, has totalled US$21 billion in the past 10weeks, equal to half of the total inflow in giddy 2007. In financialmarkets, liquidity is akin to a free lunch. It's the tide lifting allthe boats. But, this time, the boats are not just stocks but also goodsand services. When asset inflation is followed quickly by consumerprice index (CPI) inflation, central banks must decrease liquidity.That would crash the asset market party.

 

 

MrGreenspan practised the liquidity sorcery for two decades at the USFederal Reserve without causing inflation. Three special factorsbrought him this extraordinary luck. First, the IT revolution wasmaking the supply side more efficient. In particular, thelabour-intensive service sector that dominates developed economies wasretooled, to save labour. This factor kept the wages of white-collarworkers down during Mr Greenspan's reign.

 

 

Second,the fall of the Berlin Wall unleashed more than 2 billion workers fromthe developing world into the global trading system. It triggered therapid relocation of manufacturing activities from high-cost developedeconomies to low-cost developing ones. As a consequence, global tradegrew twice as fast as the global economy, keeping a lid on the pricesof tradeable goods and the wages of manufacturing workers in thedeveloped economies.

 

 

Third, thecollapse of the Soviet block severely contracted the demand for naturalresources like energy. The rapid growth of China and India led torising demand for such resources, but the Soviet contraction offsetthis inflationary force. This demand and supply dynamic made thecommodity market an unattractive place for financial investment.Commodity prices remained low despite a prolonged global economic boom.

 

 

Today is quite different. IT has beenabsorbed into production already. Indeed, as it is increasinglybecoming a consumption tool - often for killing time at work - it isslowing, not increasing, productivity. The prices of manufactured goodsalready reflect wages in developing economies. Global trade no longershifts prices down like before. And the demand for commodities in theex-Soviet block is increasing, adding to the rising demand from Chinaand India.

 

 

Many argue that inflationcouldn't happen in a weak economy. But inflation was a problem in the1970s during a decade of sluggish growth. The term "stagflation" wascoined for that decade. I am afraid the world is entering anotherdecade of stagflation. The only force to keep inflation down isso-called excess capacity in a weak global economy. However, much ofthe excess capacity, like in the car industry, needs to be eliminatedpermanently, as future demand will be different from the past. The wayout is to restructure both the demand and supply side. But centralbanks around the world mistakenly see monetary stimulus as the way out.

 

 

As they pump more money into the globaleconomy, commodity prices may respond first. The oil price has risenmore than stock markets since March, to US$60 per barrel, even thoughdemand is still declining. The driving force is inflation expectations.Financial investment, rather than the demand for current use, isdriving the oil price. Hence, monetary growth is becoming inflationthrough expectation.

 

 

The current partyis likely to be short-lived. Next year, inflation expectations maybecome apparent. That would lead to expectations of interest raterises. While central banks will still be reluctant to raise rates,rising bond yields will force them to do so. But they won't raise ratesquickly enough to stem the inflation momentum. Stagflation willprobably take hold.

 

 

Some argue thatinflation should be good for stock and property prices, as it increasessales and profits in nominal terms. History points the other way. Inthe 1970s, US stocks averaged 1.3 times their book value, versus 1.7times now.

 

 

Stagflation is bad for stockmarket valuations. Thus, property prices should rise in tandem withinflation. But, the world has gone through a property bubble during aperiod of inflation. As CPI inflation picks up, wages will take a longtime to catch up with past property inflation. Property prices arelikely to fall as inflation rises. At some point, the two will meet, asdefined by the historical average ratio of wages to prices. Propertyprices will fall substantially before they rise.

 

 

Andy Xie is an independent economist



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