Predictable as a spring shower. Funny I just read about the sweet young thing, all of 18, buying a $1.8 million condo in Florida. What could possibly go wrong?
Saturday, December 11, 2010
Eliminating imported fossil fuels- Part 1
BEYOND FOSSIL FUELS
Using Waste, Swedish City Shrinks Its Fossil Fuel Use
By ELISABETH ROSENTHAL
Published: December 10, 2010
NY Times
KRISTIANSTAD, Sweden — When this city vowed a decade ago to wean itself from fossil fuels, it was a lofty aspiration, like zero deaths from traffic accidents or the elimination of childhood obesity.
But Kristianstad has already crossed a crucial threshold: the city and surrounding county, with a population of 80,000, essentially use no oil, natural gas or coal to heat homes and businesses, even during the long frigid winters. It is a complete reversal from 20 years ago, when all of their heat came from fossil fuels.
But this area in southern Sweden, best known as the home of Absolut vodka, has not generally substituted solar panels or wind turbines for the traditional fuels it has forsaken. Instead, as befits a region that is an epicenter of farming and food processing, it generates energy from a motley assortment of ingredients like potato peels, manure, used cooking oil, stale cookies and pig intestines.
A hulking 10-year-old plant on the outskirts of Kristianstad uses a biological process to transform the detritus into biogas, a form of methane. That gas is burned to create heat and electricity, or is refined as a fuel for cars.
Once the city fathers got into the habit of harnessing power locally, they saw fuel everywhere: Kristianstad also burns gas emanating from an old landfill and sewage ponds, as well as wood waste from flooring factories and tree prunings.
Over the last five years, many European countries have increased their reliance on renewable energy, from wind farms to hydroelectric dams, because fossil fuels are expensive on the Continent and their overuse is, effectively, taxed by the European Union’s emissions trading system.
But for many agricultural regions, a crucial component of the renewable energy mix has become gas extracted from biomass like farm and food waste. In Germany alone, about 5,000 biogas systems generate power, in many cases on individual farms.
Kristianstad has gone further, harnessing biogas for an across-the-board regional energy makeover that has halved its fossil fuel use and reduced the city’s carbon dioxide emissions by one-quarter in the last decade.
“It’s a much more secure energy supply — we didn’t want to buy oil anymore from the Middle East or Norway,” said Lennart Erfors, the engineer who is overseeing the transition in this colorful city of 18th-century row houses. “And it has created jobs in the energy sector.”
In the United States, biogas systems are rare. There are now 151 biomass digesters in the country, most of them small and using only manure, according to the Environmental Protection Agency. The E.P.A. estimated that installing such plants would be feasible at about 8,000 farms.
So far in the United States, such projects have been limited by high initial costs, scant government financing and the lack of a business model. There is no supply network for moving manure to a centralized plant and no outlet to sell the biogas generated.
Still, a number of states and companies are considering new investment.
Last month, two California utilities, Southern California Gas and San Diego Gas & Electric, filed for permission with the state’s Public Utilities Commission to build plants in California to turn organic waste from farms and gas from water treatment plants into biogas that would feed into the state’s natural-gas pipelines after purification.
Using biogas would help the utilities meet requirements in California and many other states to generate a portion of their power using renewable energy within the coming decade.
Both natural gas and biogas create emissions when burned, but far less than coal and oil do. And unlike natural gas, which is pumped from deep underground, biogas counts as a renewable energy source: it is made from biological waste that in many cases would otherwise decompose in farm fields or landfills and yield no benefit at all, releasing heat-trapping methane into the atmosphere and contributing to global warming.
This fall, emissaries from Wisconsin’s Bioenergy Initiative toured German biogas programs to help formulate a plan to develop the industry. “Biogas is Wisconsin’s opportunity fuel,” said Gary Radloff, the initiative’s Midwest policy director.
Like Kristianstad, California and Wisconsin produce a bounty of waste from food processing and dairy farms but an inadequate supply of fossil fuel to meet their needs. Another plus is that biogas plants can devour vast quantities of manure that would otherwise pollute the air and could affect water supplies.
In Kristianstad, old fossil fuel technologies coexist awkwardly alongside their biomass replacements. The type of tanker truck that used to deliver heating oil now delivers wood pellets, the major heating fuel in the city’s more remote areas. Across from a bustling Statoil gas station is a modest new commercial biogas pumping station owned by the renewables company Eon Energy.
The start-up costs, covered by the city and through Swedish government grants, have been considerable: the centralized biomass heating system cost $144 million, including constructing a new incineration plant, laying networks of pipes, replacing furnaces and installing generators.
But officials say the payback has already been significant: Kristianstad now spends about $3.2 million each year to heat its municipal buildings rather than the $7 million it would spend if it still relied on oil and electricity. It fuels its municipal cars, buses and trucks with biogas fuel, avoiding the need to purchase nearly half a million gallons of diesel or gas each year.
The operations at the biogas and heating plants bring in cash, because farms and factories pay fees to dispose of their waste and the plants sell the heat, electricity and car fuel they generate.
Kristianstad’s energy makeover is rooted in oil price shocks of the 1980s, when the city could barely afford to heat its schools and hospitals. To save on fuel consumption, the city began laying heating pipes to form an underground heating grid — so-called district heating.
Such systems use one or more central furnaces to heat water or produce steam that is fed into the network. It is far more efficient to pump heat into a system that can warm an entire city than to heat buildings individually with boilers.
District heating systems can generate heat from any fuel source, and like New York City’s, Kristianstad’s initially relied on fossil fuel. But after Sweden became the first country to impose a tax on carbon dioxide emissions from fossil fuels, in 1991, Kristianstad started looking for substitutes.
By 1993, it was taking in and burning local wood wastes, and in 1999, it began relying on heat generated from the new biogas plant. Some buildings that are too remote to be connected to the district heating system have been fitted with individual furnaces that use tiny pellets that are also made from wood waste.
Burning wood in this form is more efficient and produces less carbon dioxide than burning logs does; such heating has given birth to a booming pellet industry in northern Europe. Government subsidies underwrite purchases of pellet furnaces by homeowners and businesses; pellet-fueled heat costs half as much as oil, said Mr. Erfors, the engineer.
Having dispensed with fossil fuels for heating, Kristianstad is moving on to other challenges. City planners hope that by 2020 total local emissions will be 40 percent lower than they were in 1990, and that running the city will require no fossil fuel and produce no emissions at all.
Transportation now accounts for 60 percent of fossil fuel use, so city planners want drivers to use cars that run on local biogas, which municipal vehicles already do. That will require increasing production of the fuel.
Kristianstad is looking into building satellite biogas plants for outlying areas and expanding its network of underground biogas pipes to allow the construction of more filling stations. At the moment, this is something of a chicken-and-egg problem: even though biogas fuel costs about 20 percent less than gasoline, consumers are reluctant to spend $32,000 (about $4,000 more than for a conventional car) on a biogas or dual-fuel car until they are certain that the network will keep growing.
“A tank is enough to get you around the region for the day, but do you have to plan ahead,” Martin Risberg, a county engineer, said as he filled a biogas Volvo.
Friday, December 10, 2010
"If Israel falls, the West falls. That is why we are all Israel." - Geert Wilders
Wilders urges Israel to annex West Bank
Published on : 6 December 2010Dutch anti-Islam politician Geert Wilders has called on Israel to settle the West Bank. In a speech Mr Wilders gave in Tel Aviv on Sunday, he urged Israel to build more settlements in Judea and Samaria, as the West Bank is historically known, in defiance of international calls for a construction freeze.
The Freedom Party leader said that Israel needs defendable borders for its own survival and security: "A county that is only 15 kilometres wide is impossible to defend. That is the strategic reason why Jews need to settle Judea and Samaria".
Mr Wilders also said Palestinians should be allowed to voluntarily settle in Jordan. The country could then rename itself Palestine and the Palestinians could "freely elect their own government in Amman." The Dutch politician said there was no reason for the Jordanian king to become nervous: "If the present Hashemite King is still as popular as today, he can remain in power. That is for the people of Palestine to decide in real democratic elections."
He told his audience that the West too often points an accusing finger at Israel, which, according to Mr Wilders "is not to blame for the situation in the Middle East." The Dutch politician said he knew why the Palestinians are a problem in Israel: "Because the Palestinians were not welcomed in the neighbouring Arab countries. There was no Arab solidarity; the refugees were forced into camps and slums, where many of their descendants still linger today."
Mr Wilders also said that the United Nations has not handled the situation well: "Under international definitions the status of refugee or displaced person only applies to first generation refugees. However... descendants of Palestinian refugees are granted the same refugee status as their ancestors. Consequently, the number of so-called Palestinian refugees registered with the UN increased from 711,000 in 1950 to over 4.7 million in 2010. These refugees are being used as a demographic weapon against Israel."
Mr Wilders said the Jews had built new lives for themselves in Israel and that Palestinians should do the same in Jordan. The situation could then slowly return to normal, even though he warned that: "Islam... conditions Muslims to hate Jews. It is a religious duty to do so." He said it made him sick to see how Western leaders refuse to acknowledge that Israel plays a vital role in the region: "If Israel falls, the West falls. That is why we are all Israel."
Unlike his former personal visits to Israel, Wilders was in Tel Aviv on Sunday as the result of an official invitation by Israeli Foreign Minister Avigdor Lieberman.
"Off With the Rich"
"Nothing is more unpredictable than the mob, nothing more obscure than public opinion, nothing more deceptive than the whole political system." - Cicero
The attack on Charles and Camilla is a richly deserved PR disaster for the 'student' protesters
Prince Charles and the Duchess of Cornwall are not, perhaps, universally beloved. But you don’t have to adore them, Queen Mother-style, to feel anger at a the sight of a couple in late middle age being screamed at by thugs. What a PR disaster for the “student” demonstrators – and I use the inverted commas deliberately, because several hard Left activists whose student days are long behind them have been boasting on Twitter all day about their presence at the protests. And don’t try to explain, please, that most of the students taking part would never have behaved so atrociously: we know that. The point is that the organisers – many of them unofficial – encouraged an atmosphere of hysteria, using social media to attract a more, shall we say, colourful type of protestor to the centre of the action. Well, they got their drama, and some of them will be thrilled by the humiliation of the Royal couple. But the mainstream protesters, sponsored and shepherded by the self-pitying NUS, are now tainted by association. As an irate parent might say on coming home to find the living room trashed after a party: “You’ve allowed a few of your friends to ruin it for everybody.”
Thursday, December 09, 2010
Nobody in Washington is paying any attention to the implications of what they are doing
Global bond rout deepens on US fiscal worries
Agreement in Washington on a fresh fiscal package has set off dramatic rise in yields of US Treasuries and bonds across the world, threatening to short-circuit any benefits of stimulus. The bond rout raises concerns that the US authorities may be losing control over events.
By Ambrose Evans-Pritchard 8:03PM GMT 08 Dec 2010
Agreement in Washington on a fresh fiscal package has set off dramatic rise in yields of US Treasuries and bonds across the world, threatening to short-circuit any benefits of stimulus. The bond rout raises concerns that the US authorities may be losing control over events.
By Ambrose Evans-Pritchard 8:03PM GMT 08 Dec 2010
Telegraph
The yield on 10-year Treasuries – the benchmark price of money worldwide and the key driver of US mortgages rates – has rocketed to 3.3pc, up 35 basis points since President Barack Obama agreed on Monday to compromise with Senate Republicans on tax cuts.
The Treasury sell-off has ricocheted through the global system, triggering bond sell-offs in Asia, Europe and Latin America. Japan's finance ministry braced as borrowing costs on seven-year debt jumped by a sixth in one trading session, while German Bunds punched through 3pc.
The White House deal with Congress will renew the Bush tax cuts for rich and poor alike for two years, as well as adding a further a 2pc cut in payroll taxes and an extension of unemployment aid.
David Bloom, currency chief at HSBC, said it is hard to disentangle whether investors are shunning bonds because they expect US stimulus to boost growth next year, or whether they are losing patience with profligacy in Washington.
"If this is all about growth, that's brilliant. But if yields are rising because people think Amirca's fiscal situation is unsustainable, then its armaggedon," he said.
"The US can get away with this only because it is the world's reserve currency. This would be totally unacceptable in any other country. We think these problems will start to crystallise for the US in the second half of 2011, once the European debt crisis has stabilised," he said.
The warnings were echoed by Li Daokui, a rate-setter for China's central bank. "The focus of the market is still in Europe, but we must be aware that the US fiscal situation is much worse than in Europe," he said.
The US tax deal adds $1 trillion of stimulus over two years, according to BNP Paribas. America's budget deficit will remain stuck near 10pc of GDP, not just in 2011 but also in 2012. This will push gross public debt to 110pc of GDP under the IMF definition, near the brink of a debt compound spiral. The contrast with fiscal tightening in Europe has become starkly evident.
Both Moody's and Fitch warned that the US must map out a credible strategy to control spending. "We have long-term concerns about the US rating outlook and they're not yet being addressed," said Stephen Hess, chief US analyst for Moody's.
Stephen Lewis, from Monument Securities, said the bond rout is a sign that Washington can no longer take global markets for granted. "We have reached the limits of tolerance for budget deficits. There is a feeling around the world that nobody in Washington is paying any attention to the implications of what they are doing, but there is a very real risk that this will backfire if it causes mortgage rates to keep going up," he said.
"At the same time we've seen a loss of confidence in Fed strategy. There is a feeling that the Fed doesn't care about inflation – in fact, wants more of it – and that is certainly not in the interest of bondholders," he said.
The standard rate for 30-year mortgages in US has moved up in tandem with Treasury yields. The rate has been creeping up ever since the US Federal Reserve first signalled plans for a fresh blast of quantitative easing, rising 85 basis points in three months.
The housing squeeze raises serious doubts about the Fed's plan to purchase a further $600bn in Treasuries over coming months, or QE2 as it is known. Fed chair Ben Bernanke stated on Sunday that the explicit purpose of the policy – which he calls "credit easing" – is to bring down yields.
"We're not printing money. What we're doing is lowering interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster," he said.
US data on foreign holdings of Treasuries and agency bonds are published with a delay, but monthly figures show that China sold a net $24bn in September and Russia sold $10bn. The concern is that investor flight from US debt will overpower the monthly purchases of $100bn by the Fed, making it ever harder for Washington to raise the $1.4 trillion needed next year to cover the deficit.
The rise in yields risks becoming a textbook case of a central bank losing control over long-term rates. The danger is that market fears of future bond losses – whether from inflation or higher default premiums – will neutralise the stimulus, or lead to stagflation.
Tom Porcelli, from RBC Capital Markets, said the Fed rates might be nearer 4pc by now if the Fed had not acted. However, he said there was no justification for QE2 at a time when the economy is growing at more than 2pc, and core inflation – though the lowest since the 1960s – is positive at 1pc. "Nobody believes that we're slipping into deflation anymore. That phase has passed," he said.
Wednesday, December 08, 2010
The Fight Over the Euro and the Increasing Deficit in Washington
I think I am with Rufus, somewhat bewildered by what happened in Washington in the last two days. Boiled down we have a new stimulus plan that will add at least another $1 trillion to the deficit, the same deficit that was ending the world two weeks ago.
The stock market loved it till about lunch time and then took another look at Europe and lost its courage. Obama gave one of his bizarre talks and may have helped the downturn. Oil keeps going up as Obama keeps shutting oil wells down. No surprise there. What is also no surprise is the depth of their stupidity. Let me see if I have this straight.
WE have added another trillion to the deficit in a coordinated effort to create employment. At the same time we are shutting down high paying energy jobs in the gulf area by restricting oil drilling. The restriction is driving up the cost of imported oil which adds to the trade deficit. The higher price of oil is in fact a foreign tax on the American consumer and is another net job killer. This is being done for environmental reasons but foreign drilling in the same waters off Cuba continues.
rufus said...
Well, the votes are in. It's Overwhelming. A Landslide. I'm an idiot. The dumbest asshole in America. The Dumbest Asshole in the world!
I haven't a clue what's going on in DC. This is like a trip to "The Twilight Zone."
I'm not "sad." I'm not "glad." I'm bemused. I feel like I've gone to sleep, and awoke in the middle of a "Chinese Metaphysics" class.
Either I'm having a nervous breakdown, or the rest of the world is.
I feel like I'm watching that goofy Kenny Rodgers flick where the guy folds a Royal Flush (and, the rest of the world is standing around going, "that's all he could do." Huh?
Maybe I'll think about it in the morning. And, maybe not.
Mensa Ain't Us.
Dummer'n Doornails is Us.
Tue Dec 07, 10:05:00 PM EST
Meanwhile the fight between international financiers and the European Central Bank continues. The Euro goes down, the dollar goes up and the market gets depressed. Where this leads is very clear to someone, I hope.
_______________________________
Central Bank and Financiers Fight Over Fate of the Euro
By GRAHAM BOWLEY and JACK EWING
Published: December 7, 2010
NY Times
On one side is the European Central Bank, which is spending billions to prop up Europe’s weak-kneed bond markets and safeguard the common currency.
On the other side are hedge funds and big financial institutions that are betting against those same bonds and, by extension, against the central bank, that mighty symbol of Europe’s monetary union.
The war keeps escalating as traders position themselves for what some believe is inevitable: a default by Greece, Ireland or perhaps even Portugal.
The strains grew Tuesday, when European finance ministers made no pledge to increase the emergency fund that the European Union has put in place to help protect the euro. The head of the International Monetary Fund, meantime, urged Europe to take broader action to fend off speculators.
“The game now is one now of cat and mouse,” said Mohamed A. El-Erian, chief executive of the bond giant Pimco.
Since May, when the Greek debt crisis exploded, the European Central Bank has bought an estimated $69 billion of Greek and other government bonds. It has also indirectly injected hundreds of billions dollars into weak banking systems in Greece and Ireland.
But the speculators keep coming back. After the bond purchases fell to zero in October, the central bank waded back into the market aggressively last week, buying about $2 billion of debt securities, mostly Irish and Portuguese securities, traders said. The bank, based in Frankfurt, has yet to disclose the size and scope of the purchases late last week, when its intervention was the most intense.
While the bank appears to have backed off this week, traders are waiting for the official accounting of its latest purchases. The data are due Monday — and will provide some idea of just how aggressive the central bank has been.
Already, the central bank owns about 17 percent of the combined debt of Greece, Ireland and Portugal, Goldman Sachs estimates. Yet in the bank’s mano a mano with the bond market, psychology could be more important than money. No single hedge fund, after all, can hope to outgun the central bank.
The bank also has the element of surprise. By emphasizing that the central bank is “permanently alert,” Jean-Claude Trichet, its president, has raised the risk for speculators who might try to profit by selling short Greek, Portuguese or Irish bonds.
But the amount of intervention so far is far smaller than many investors and economists think is necessary to calm markets. These people assert that the central bank, its assurances aide, is concerned about taking on so many bonds of peripheral European countries — and being forced into what would be a de facto bailout of overextended government borrowers and the banks that bought their bonds.
And the markets continue to probe that discomfort. Pimco, for example, sold the vast majority of its holdings of Greek, Irish, Portuguese and Spanish government bonds late last year and early this year, although it continues to hold German bonds, considered Europe’s safest.
Pavan Wadhwa, head of European rates strategy at JPMorgan Chase, one of the main dealers in European government debt, said many clients had been eager to sell bonds of peripheral European nations to the central bank and would do more if the bank continued to buy, reflecting a belief that one or more countries were headed for insolvency.
“If the E.C.B. wants to buy, I would still be recommending to sell into the demand,” he said.
Mr. Wadhwa said in its latest operations the central bank had hoped investors would hold onto their bonds, encouraged by its presence in the markets. Instead, many had taken the opportunity to sell.
The chief investment officer of a large New York-based hedge fund, who spoke on the condition of anonymity because he was not authorized to comment publicly, said his fund and others had shorted Portuguese and Irish government bonds during the summer. They had done so by selling bonds in the cash market directly but mainly by buying protection against default in the market for credit-default swaps, a type of derivative.
“That trade was profitable,” this money manager said. But he said the fund had closed its position because the trade had no further to run — the market was now discounting a strong likelihood that Ireland would be forced to restructure its debt in four or five years.
Even after the central bank’s intervention last week, speculators have been maintaining large positions in credit-default swaps on Spanish bonds and on the debt of Spanish banks.
According to JPMorgan’s calculations, the credit-default swaps market implies around a 15 percent probability in any year of a Spanish default for the next five years.
Still, traders and analysts say the central bank is a sophisticated market actor. It conducts many trades via the Bundesbank and other national central banks, which in turn act through a circle of commercial dealer banks.
Mr. Trichet is known to keep a data terminal on his desk and speak frequently with the bank’s 20 in-house bond traders. He also occasionally visits them on a lower floor of the bank’s headquarters.
For the central bank, the timing of the latest flare-up was, in a way, convenient. Bond trading typically tapers off at the end of the year as fund managers close out their positions. So trading was thin and the bank was able to move the market with relatively small sums, traders said.
“It may be that the E.C.B. could have moved spreads a long way without buying that many bonds,” said Steven J. Major, global head of fixed income research at HSBC in London.
By placing a lot of orders with numerous banks, the central bank also created buzz in the market, which helped exaggerate the effect of its bond buying.
But according to many traders, the bank has so far not intervened in the markets for Spanish or Italian debt, which would be harder to influence because of their relatively large size.
Stephen Castle contributed reporting.
Tuesday, December 07, 2010
Monday, December 06, 2010
Have No Fear, We May Win by Default
China's credit bubble on borrowed time as inflation bites
The Royal Bank of Scotland has advised clients to take out protection against the risk of a sovereign default by China as one of its top trade trades for 2011. This is a new twist.
It warns that the Communist Party will have to puncture the credit bubble before inflation reaches levels that threaten social stability. This in turn may open a can of worms.
"Many see China’s monetary tightening as a pre-emptive tap on the brakes, a warning shot across the proverbial economic bows. We see it as a potentially more malevolent reactive day of reckoning," said Tim Ash, the bank’s emerging markets chief.
Officially, inflation was 4.4pc in October, and may reach 5pc in November, but it is to hard find anybody in China who believes it is that low. Vegetables have risen 20pc in a month.
The Communist Party learned from Tiananmen in 1989 how surging prices can seed dissent. "Inflation is a redistributive mechanism in favour of the few that can protect living standards, against the large majority who cannot. The political leadership cannot, will not, take risks in that regard," said Mr Ash.
RBS recommends credit default swaps on China’s five-year debt. This is not a forecast that China will default. It is insurance against the "fat tail risk" of a hard landing, with ramifications across Asia.
The Politburo said on Friday that China would move from "relatively loose" money to a "prudent" policy next year, a recognition that credit rationing, price controls, and other forms of Medieval restraint are not enough. The question is whether Beijing has already left it too late.
Diana Choyleva from Lombard Street Research said the money supply rose at a 40pc rate in 2009 and the first half of 2010 as Beijing stoked an epic credit boom to keep uber-growth alive, but the costs of this policy now outweigh the benefits.
The economy is entering the ugly quadrant of cycle – stagflation – where credit-pumping leaks into speculation and price spirals, even as growth slows. Citigroup’s Minggao Shen said it now takes a rise of ¥1.84 in the M2 money supply to generate just one yuan of GDP growth, up from ¥1.30 earlier this decade.
The froth is going into property. Experts argue heatedly over whether or not China has managed to outdo America’s subprime bubble, or even match the Tokyo frenzy of late 1980s. The IMF straddles the two.
It concluded in a report last week that there was no nationwide bubble but that home prices in Shenzen, Shanghai, Beijing, and Nanjing seem "increasingly disconnected from fundamentals".
Prices are 22 times disposable income in Beijing, and 18 times in Shenzen, compared to eight in Tokyo. The US bubble peaked at 6.4 and has since dropped 4.7. The price-to-rent ratio in China’s eastern cities has risen by over 200pc since 2004
The IMF said land sales make up 30pc of local government revenue in Beijing. This has echoes of Ireland where "fair weather" property taxes disguised the erosion of state finances.
Ms Choyleva said China drew a false conclusion from the global credit crisis that their top-down economy trumps the free market, failing to see that the events of 2008-2009 did equally great damage to them – though of a different kind. It closed the door on mercantilist export strategies that depend on cheap loans, a cheap currency, and the willingness of the West to tolerate predatory trade.
China is trying to keep the game going as if nothing has changed, but cannot do so. It dares not raise rates fast enough to let air out of the bubble because this would expose the bad debts of the banking system. The regime is stymied.
"The Chinese growth machine is likely to continue to function in the minds of people long after it has no visible means of support. China’s potential growth rate could well halve to 5pc in this decade," she said.
As it happens, Fitch Ratings has just done a study with Oxford Economics on what would happen if China does indeed slow to under 5pc next year, tantamount to a recession for China. The risk is clearly there. Fitch said private credit has grown to 148pc of GDP, compared to a median of 41pc for emerging markets. It said the true scale of loans to local governments and state entities has been disguised.
The result of such a hard landing would be a 20pc fall in global commodity prices, a 100 basis point widening of spreads on emerging market debt, a 25pc fall in Asian bourses, a fall in the growth in emerging Asia by 2.6 percentage points, with a risk that toxic politics could make matters much worse.
It is sobering that even a slight cooling of China’s credit growth led to economic contraction in Malaysia and Thailand in the third quarter, and sharp slowdowns across Asia. Japan’s economy will almost certainly contract this quarter.
Albert Edwards from Societe General said the OECD’s leading indicators are signalling a "downturn" for Asia’s big five (Japan, Korea, China, India, and Indonesia). The China indicator composed by Beijing’s National Bureau of Statistics has fallen almost as far as it did at the onset of the 2008 crash.
"I remain convinced we are witnessing a bubble of epic proportions which will burst – catching investors as unawares as the bursting of the Asian bubbles of the mid-1990s. Ignore these indicators at your peril," he said
In a sense, inflation is a crude way of curbing China’s export surpluses and therefore of resolving a key trade imbalance that lay behind the global credit crisis.
If China continues to stoke inflation – and blaming the US Federal Reserve for its own errors help – there will no longer be any need for a yuan revaluation against the dollar, and the US Congress can shelve its sanctions law.
On a recent visit to a chemical plant in Suzhou, I was told by the English manager that wage bonuses for staff will average nine months pay this year. This is what it costs to keep skilled workers. His own contract is fixed in sterling, which has crashed against the yuan over the last two years. "It is a sobering experience," he said.
China may have hit the "Lewis turning point", named after the Nobel economist Arthur Lewis from St Lucia. It is the moment for each catch-up economy when the supply of cheap labour from the countryside dries up, leading to a surge in industrial wages. That reserve army of 120m Chinese migrants everybody was so worried about four years ago has already dwindled to 25m.
China’s problem is that this is happening just as the aging crisis starts to bite. The number of workers will decline in absolute terms within four years. The society will then tip into precipitous demographic decline. Unlike Japan, it will become old before it is has built a cushion of wealth.
If there is a hard-landing in 2011, China’s reserves of $2.6 trillion – or over $3 trillion if counted fully – will not help much. Professor Michael Pettis from Beijing University says the money cannot be used internally in the economy.
While this fund does offer China external protection, Mr Pettis notes wryly that the only other times in the last century when one country accumulated reserves equal to 5pc to 6pc of global GDP was US in the 1920s, and Japan in the 1980s. We know how both episodes ended.
The sons of Mao insist that they have studied the Japanese debacle closely and will not repeat the error. And I can sell you an ocean-front property in Chengdu.
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