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The following article was published in our article directory on December 28, 2010.
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United States Worried About Sink into Deflation Cycle

Article Category: Business

Author Name: Amanda xzh

The U.S. economy is the main contradiction of insufficient effective demand, manifested in high unemployment, low capacity utilization and prices continued to decline. As the Great Depression and the Japanese deflation, expert, Federal Reserve Chairman Ben Bernanke is worried that the U.S. is most worried about the debt into a Japanese-style - deflation cycle.

U.S. intentions QE?

On the one hand, the structural recovery of the U.S. economy, employment is difficult to fully upgrade. For example, the demand from the U.S. economy, the personal consumption expenditure has been restored to the highest level before the crisis, but the investment has the highest level than before the crisis fell by 20%. Investment in real estate investment is the biggest decline, dropping to 56.9%. Compared with the fourth quarter of 2007, the current real estate practitioners by 20%, while weed out the real estate, manufacturing and automotive retail jobs after the decline in this period was only 2.4%.

On the other hand, the SME financing difficulties, decreased ability to absorb employment. Uncertain U.S. economic outlook, credit crunch tendency of various financial institutions, SME financing difficulties, the performance is one of the loans can be decreased, the second is interest rates sharply. SMEs in the main employment sector in the United States, and its contribution to employment rate of close to 85%. Therefore, the deterioration of the small and medium business financing difficulties and constraints of the U.S. job market as an important factor in recovery.

In addition, the high unemployment rate corresponds to the current U.S. capacity utilization in the industrial sector is far below historical levels. As of October 2010, the index only rose to 2001, the lowest level of economic recession. Idle capacity led to the U.S. price level at low levels, the core CPI in September 2008 after a sustained decline, reflecting excess capacity, declining growth in the context of the currency, deflation has become the biggest threat to the U.S. economy.

The Fed cut its benchmark interest rate to 0.25% or less after its decline in the nominal interest rate no space. And for the monetary policy more "relaxed" quantitative easing came into being. The core purpose of the policy are two: First, in the short term interest rates can not decline, down as much as possible long-term interest rates to stimulate economic recovery; second birth of market inflation expectations to avoid the Japanese economy into debt - deflation cycle.

On the one hand, the quantitative easing policy in favor of corporate finance and reducing the cost threshold, and stimulate business investment spending, thereby promoting economic recovery. In addition to equipment investment, construction investment will occur by low interest rates to stimulate growth, the stock because the stock will reduce the cost of investment and commodity prices is expected to re-growth. On the other hand, the policy of quantitative easing and the weak dollar also pushed up commodity prices, the birth of inflationary expectations. Since July 2010, copper, aluminum, wheat, crude oil and other commodity prices have generally increased, which in turn promote the PPI and the CPI rise in energy prices, the U.S. succeeded in preventing the decline in general price level. But also for the continuing influx of cheap funds foreshadowed the global emerging markets.

Quantitative easing policy of the United States as a consequence of long-term sustainability is the continuous influx of cheap money in emerging markets worldwide. After the 2008 financial crisis, the U.S. direct investment in China experienced a decline in the first two quarters of 2009, after growth in the third quarter to the end of the second quarter of 2010, the four quarters, the direct U.S. amount of investment reached 80 billion U.S. dollars, invested in Asia 500 million. Policy of quantitative easing in the second after an even larger inflow of hot money are being China and other emerging market countries.

As a major importer of raw materials, China's product prices and U.S. monetary policy or U.S. policy has a strong linkage relationships. After July 2010, the U.S. loose monetary policy, passive PPI rise of China, thus pre-start business inventory investment cycle, which constitutes China is the main driver of economic recovery.

The past decade, China and the U.S. PPI is almost exactly the same trend. To 2010, China increased first round of industrial prices in July, initiated by the rise in non-ferrous metals, August chemicals, petroleum, steel prices began to rise, 9,10 on building materials, coal prices began to sharply rise.

Industrial goods prices is to promote the recovery of industrial chain the main driving force. July 2010, China's chain trend of industrial prices rebounded, while industrial value added chain is also bottomed out over the same period. Chain growth due to industrial recovery, we increase the growth rate of industrial added value in 2011 forecast to increase from 12.3% to 13.3%. From the monthly trend of view, we expect industry growth rate of the bottom of the year will appear in March, the bottom of the growth rate of about 12%; while the top will appear in September 2011, the peak growth rate of about 14.5%.

Since August 2010, real estate sales rise month on month, 10 month sales of nearly 93 million square meters, compared with September while growth rate declined slightly over the ring, but still hit the same month a new high over the years. Integrated 15 primary, second-tier cities, average daily volume of real estate terms, in November than in October, although somewhat lower, but still remain high, much higher than in August 2010 prior to the transaction level.

October 2010, the domestic passenger car sales in October hit a new high over the years, reaching 1.2 million, essentially flat with September. Year on year growth from the point of view, an increase of 27.1% in October, a new seven month high. We expect-than-expected recovery in the automotive industry can still be maintained in the short term, but annual sales growth next year compared to over 2010, will have a certain level of decline. In addition, the midstream industry, iron and steel, nonferrous metals and chemicals, the upstream industry, electricity and coal, now radiate upward trend.

From the demand perspective, the round was undoubtedly the biggest driver of economic recovery stock to cover, while the inventory is the driving force covering the purchase price recovery. From the PMI indicators, along with the purchase price of the recovery PMI, PMI raw materials inventory index has been rising in April. The reasons for China's manufacturing industry in addition to covering stock prices, the stock has been more fully to the background is also important, producing finished products there is marked peak in June, after July's PMI manufacturing index then there have been bottoming out recovery. U.S. stock indexes from the PMI and the history of relations, the decline in finished goods inventory and output tend to bottom out at the same time, meaning that the adequacy of measures to the inventory of finished goods inventory key is to determine whether it peaked.

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