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Wednesday, March 11, 2009


china's exports collapse

brad setser quotes the journal:

China’s customs agency said Wednesday that merchandise exports in February plunged 25.7% from a year earlier. That is one of the biggest drops on record, and extends the 17.5% fall in January for a fourth straight monthly decline. Imports declined by a slightly less dramatic 24.1%, thanks in part to government spending, which other data also issued Wednesday showed picking up in February. That left a monthly trade surplus of $4.84 billion – the smallest in three years. The number was just a fraction of January’s $39.11 billion, reversing a string of record surpluses in recent months.

just yesterday i was noting the need of china's surplus to fall. a couple weeks ago, it seemed very probable that china would follow japan as global trade collapsed. now it has -- and perhaps some of the external pressure on china to appreciate the renminbi will be replaced by internal pressure to devalue the renminbi (even if it might be of very limited efficacy in assisting exporters).

that would point toward continued dollar strength, especially in light of the continuing dollar funding gap. and it would also point toward a lessening of pressure on american manufacturing to shoulder the burden of global excess capacity contraction, marginally bettering american economic prospects.

but there is still the matter of financing american government deficit spending. as martin wolf earlier noted and says again, massive fiscal deficits represented the triumph of japanese policy in avoiding a deep depression. but having drawn on massive domestic savings, japan was free to do so without incurring the wrath of foreign exchange markets. and there are other issues which mark out our situation as quite a lot more difficult.

in a world where even radical growth of domestic savings is unlikely to fund even a quarter of planned government deficits, and where the primary foreign buyers of american debt have been contracted into relative insignificance, i can find only two avenues to financing spending of the kind intended to fill the output gap.

  1. print the money
  2. force the money out of other capital markets

i suspect we'll see some of both.

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