The August trade data: the adjustment continues

i'm surprised :P you've been focussing on the (lack of) US manufacturing goods exports, but (as a kansan!) do you think US ag exports might be the 'saviour' to rescue us from global trade imbalances? sep ag export prices were up 23% from a year ago...

The US is a (net) exporter of grain, and nothing warms the heart of a Kansan expat like a rise in the price of wheat. I have been meaning to look at the y/y increase in grain exports but haven't got around to it. Alas, all good Kansans also know that the price of grain usually rise when the harvest (in Kansas) is bad, so it never is quite as good as you think ... though this year, i think bad weather in australia (and general conditions) had more to do with the rise in the price of wheat. All that said, the cash income on say 600 acres of wheat is still, I suspect, smaller than the return on 600 square feet of prime NY real estate ... and renting out a NYC apartment is a lot less work. (I am not sure I have the ratio quite right, but you get the idea)

Interesting to note that US import prices from China rose (again.) Now 1.6% y/y, and last three months rising at 4% annualized pace. Who said exchange rates and food prices don't matter?

that helps the REER tho right? btw bolstering twofish: The world economy is expected to shrug off the effects of the recent financial turbulence, according to a think tank whose projections often mirror those of the IMF.

It's been two years since Katrina and five years since gas prices started going up in earnest - just about the right interval for oil demand to respond to sustained price signals. Demand elasticity for oil may be very low in the short term, but it's far more responsive in the medium term, and that's about where we are now.

"The world economy is expected to largely shrug off the effects of the recent financial turbulence, according to ... " = Peterson Institute for International Economics = Blackstone

Overly indebted US consumers slow their compulsive buying habits, imports from the Far East decline, and the trade deficit continues to fall. It is not an entirely unexpected economic development. Retailers Report Slow September Sales Thursday October 11, 12:20 pm ET By Anne D'Innocenzio, AP Business Writer http://biz.yahoo.com/ap/071011/retail_sales.html "Sales are coming in soft, as expected," said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. "It was a perfect storm, a combination of abnormally warm weather, high food and energy prices, a continued sluggish housing marketing and tight credit."

Wow, Look at the Rocketing price of Gold to a new 25 year high of $759 per ounce. Perhaps investors are losing their faith in "fiat" money under Helicopter Bernanke. http://money.cnn.com/data/commodities/index.html

the price of grain in kansas now has to reflect the 'opportunity cost' to the farmer of not planting crops destined for biofuels. the farmers are neutral in this. they just respond to the cash return for each crop. the ethanol manufacturing capacity of the united states is now equivalent to 25% of the corn crop. (check that figure before you take it on board. that's only from memory.) cars are going to start eating your food. it's a big story. you will believe it when your bread and steak prices take off. dave chiang missed the boat again. compare the rise in the gold price with the rise in grain prices. http://eshop.whtt.org/index.php?news=2&id=1774http://eshop.whtt.org/index.php?news=2&id=1774

I concur with EthanJ. The biggest response to oil & gas price changes is in what you drive, and it is not like people would trade in their vehicles day 1 of a gas price shock. It takes time, but adjustments are made by the market. Gillies - Dave Chiang missed it because it wasn't in the PRC talking points memo.

Gillies, Gold Stocks perform a leverage multiplier of the actual Gold price. For instance, South Africa's Gold Fields at $11 per share two years ago, is now $18 per share for a 81% rise. I also do own physical Gold in the form of "proof" China Pandas and US Gold Eagles, but more for coin collecting hobby than Gold speculation. But everytime I bite into my lunch sandwich bread, I think I am entirely justified cursing Helicopter Bernanke and the entire Federal Reserve crew for the monetary destruction of the US currency purchasing power value.

dave chiang. i am sure that leveraged strategies are possible in the grain futures markets, also . . . for more about the ethanol capacity of the united states see - http://www.ethanolrfa.org/industry/locations/http://www.ethanolrfa.org/industry/locations/ this is a big story -

Gillies, It'll be a short-lived story as word gets out that biofuels are actually a net contributor of greenhouse gases (GHGs). Not CO2 alone, mind you, but NO2 from the fertilizers used to grow the crops - NO2 is a far more potent GHG than CO2. Corn for ethanol and Biodiesel from soybeans is similarly dangerous. Both biofuels actually contribute MORE to global warming than an equal energy-equivalent of oil!

EthanJ makes a good point about the demand elasticity for petroleum; short term it is close to zero, but over 4-5 years, rises to something like 0.3 to 0.4, according to U.S. Dept. of Energy studies. Higher oil prices will begin to bite consumer demand, particularly as consumers real incomes are no longer rising, offsetting the price rise. As to other imports, slowing domestic consumer spending is also going to cut imports of consumer goods. Higher import prices and slowing real consumer income will similarly reduce the volume of imported goods which make up the vast majority of U.S. imports of merchandise.

Worried about high gas prices and global warming, buy a Toyota Prius which despite a more complex engine powertrain, the car is ranked by JD Powers and Consumer Reports as among the most reliable vehicles. My Prius gets me around 45-46 miles per gallon. The first 50,000 Prius cars sold every year even get a $3000 federal tax writeoff deduction. Interior space on the hatchback is even comparable to the larger Camry sedan. Around 200,000 miles, the hybrid car batteries are only now being replaced on the 1st generation Prius cars. If every vehicle on the road today were a Prius, the United States wouldn't have to import a drop of oil from the war-plagued Middle East or the rest of the world. Every day, the US spends $600 million on oil imports. The Prius has to be the quietest and smoothest driving vehicles on the road with the gas-electric hybrid powertrain.

Calculated risk has a little post about August Trade Deficit: "The ex-petroleum deficit is falling fairly rapidly, almost entirely because of weak imports (export growth is still strong). But unlike the previous decline in the trade deficit (during the '01 recession), petroleum imports are still strong." But I like this excerpt from the speech at the the Pachamama Alliance Awakening the Dreamer Global Community Gathering, by Van Jones: Van Jones: 'Grow the comfort zone' "People say that I am hard core about some of this stuff but I know because I have been to Davos, and I’ve sat with Bill Clinton and I’ve sat with Bill Gates and I’ve sat with Tony Blair and I’ve sat with Nancy Pelosi. I’ve sat with all these people who we think are in charge, and they don’t know what to do. Take that in: they don’t know what to do! You think you’re scared? You think you’re terrified? They have the Pentagon’s intelligence, they have every major corporation’s input; Shell Oil that has done this survey and study around the peak oil problem. You think we’ve got to get on the Internet and say, “Peak oil!” because the system doesn’t know about it? They know, and they don’t know what to do. And they are terrified that if they do anything they’ll lose their positions. So they keep juggling chickens and chainsaws and hope it works out just like most of us everyday at work. That’s real, that’s real." http://www.hopedance.org/cms/index.php?option=com_content&task=view&id=337&Itemid=98 About biofuels, which btw should be called agrofuels (nothing green on them), the last news are that grains are way too expensive to sustain production and lots of producers are closing their plants, adding to dangerous greenhouse and chemicals, water intense resource eating... A total disaster! And the last discovery of US drivers is that winter petrol increases quite a lot their car's mpg ratio. PS: “This is outside of my comfort zone” stupid sentence will go to history of literature.

David Chiang, In EU, we've got lots of cars with lower CO2 emissions than the Prius (its called Pious among ecologists), and with a far better mpg. A VW Passat bluemotion drinks 5,1 of diesel with 136 gr/km CO2 emissions. And it's a big and heavy car for EU standards. My 14 years old Renault Clio diesel drinks 6 liters at 85 miles/hour. In EU only taxi drivers of big cities buy Prius cars. It makes a lot of sense in big cities with big bottle necks and so on. Yous say: "If every vehicle on the road today were a Prius, the United States wouldn't have to import a drop of oil from the war-plagued Middle East or the rest of the world." Please, don't get too hot and make numbers. Brad would be extremely happy with this cut on imports.

Visions of a Biofuel Future Indentured servitude, a workforce confined to the borders of the plantation by armed guards, being "paid" by being allowed to live in unlit huts and drink water from the pig trough. Violations punished by summary execution and burial in an unmarked pit. This sounds like a historical account of life on a colonial plantation of the 18th century, but is actually the description of the sugar industry, today, in the Dominican Republic. The new film "The Price of Sugar," about the abuses of Hatian migrant workers on a Dominican sugar plantation, tells the story of a Catholic priest trying to organize the workers. (IMDB, NPR story) Of course, the larger issue here is that biofuel production is dependent on exactly this industry. As long as biofuels are an over-subsidized boondoggle, then industrially raised corn is fine. Well paid farmers driving their John Deere tractors don't present a human rights problem. But as EROEIs decline and we increasingly turn to human labor for biofuels, classical plantation problems will likely resurface in force. It may be quite some time before Americans are enslaved in the production of fuel for other Americans' cars, but are we so racist/nationalist/blind to accept the enslavement of others to these ends? By http://www.jeffvail.net/

DC Said But everytime I bite into my lunch sandwich bread, I think I am entirely justified cursing Helicopter Bernanke and the entire Federal Reserve crew for the monetary destruction of the US currency purchasing power value. Hey Dave! while I have been critical of Fed laxity in the face of loose US fiscal policy, the bond market would have policed the most egregious of both. Unfortunately, (for savers of USDs, the global financial system and eventually Chinese & Japanese taxpayers), cynical neo-mercantilist policies the cornerstones which have been USD reserve accumulation by first the BoJ and then PBoC waylaid adjustment. The web of dependancies related to de facto elimination of interest rate signals in the USD bloc is so great that economists decades hence will be replaying the past six years in an attempt to model and measure precisely just how seriously the Japanese and especially the Chinese, buggered the market in general, and the US in particular, in pursuit of no-holds-barred-development and mercantile advantage. The US is of course culpabable for not taking the hard decisions domestically to counter what they could undercircumstances of a spayed bond-market without sparking trade conflagration, primarily through raising taxes on both consumption and energy. When the modelers complete their task, I think they will find a more globally balanced, sustainable lower-inflationary environment would have resulted rather than the bellicose protectionist train-wreck about to ensue. So the next time you bit into that sandwich, you should be looking closer to home for the ultimate culprit of lunchtime sticker-shock...

Europe must look east to deal with the euro Think Beijing, says Fred Bergsten The bad news for Europe is that the dollar is likely to decline by at least another 15-20 per cent on average. Growth differentials have now moved against the US, which may experience the slowest expansion of any G7 country in 2007. Differentials in short-term interest rates have correspondingly moved against the dollar. The US current account deficit is still running close to 6 per cent of gross domestic product and, along with America’s own capital outflow, requires financing through an unsustainable $7bn of foreign capital inflow every working day. The sharp pick-up in US productivity growth that underpinned the strong dollar for a decade has been fading. The euro creates a meaningful international competitor for the dollar for the first time in a century and will attract continuing portfolio diversification from around the globe, including the super-rich sovereign wealth funds. The good news for Europe is that most of the remaining decline of the dollar should take place against the currencies of the East Asians and the oil exporters. They are running the counterpart surpluses to the US deficits. They have piled up massive foreign exchange holdings that already far exceed any plausible needs. They are enjoying rapid economic growth that could most easily accommodate the reductions in external surpluses... But the exchange rates of the largest surplus countries of Asia have barely budged. China is, of course, the most blatant case. Its global current account surplus is likely to exceed $400bn in 2007, more than half of America’s global deficit. This will represent more than 12 per cent of its GDP and provide one-third of its total economic growth. The renminbi needs to rise over the next several years by a trade-weighted average of more than 30 per cent, and much more than that against the dollar, as part of a broader rebalancing of China’s growth strategy towards relying more on domestic consumption than on investment in heavy industry and climbing trade surpluses. China claims to have adopted a market-oriented currency policy in July 2005. At that time, it was buying $20bn- $25bn monthly in the foreign exchange markets to block appreciation of the renminbi. It is now intervening at $40bn-$50bn per month. On that metric, its exchange rate is about half as market-oriented as two years ago. It is thus no surprise that the renminbi’s rise of about 10 per cent against the dollar over this period was more than offset by the dollar’s fall against other currencies, so that China’s average ex­change rate is weaker today than it was then, or in the early part of this decade when China’s current account was near balance and the dollar was at its record peak. Nor is it a surprise that China’s external surplus continues to soar... The obvious places to start are effective implementation of IMF rules against competitive currency undervaluation and “prolonged, large-scale one-way intervention”, and the World Trade Organisation...

gillies - not to worry about US food prices increase, there's always Cup Noodles (2 cups for $1) by Maruchan at your local store as perfect if-not-better substitute. Guest - it's good to see that you have cut down alot on your past compulsive multi-links posts. Dave Chiang - now that Warrent Buffet's investment is totally out of Petro China, what's your action plan, if any?

I am curious to see how bergsten would propose implementing the imf's prohibition against prolonged one way intervention ...

The US run institutions of mass-globalisation: the IMF, the WTO and the World Bank can not bully China the way that they can bully Chad, Nigeira and other rag-tag 3rd world countries, so, as brad inderectly said, there will be no imf attempt to implement the plolonged one way intervention rules... Steve

Macro Man -- "Interesting to note that US import prices from China rose (again.) Now 1.6% y/y, and last three months rising at 4% annualized pace." Where can one find these data (import price changes from a given country)?

Cassandra, None of the Western economist critics have ever asked themselves the question, where did the hundreds of billions that the Asian Central Banks retain originate from? Did the Japanese and Chinese Central Banks counterfeit those US Dollars themselves, or did Federal Reserve's Bernanke drop those dollars from his helicopter flying over Wall Street's Goldman Sachs abd Citicorp. Until the US Federal Reserve ultimately implements a "sound hard money" monetary policy, the rest of the world will be saddled with excess US Dollar liquidity. If we were to cut up every Americans credit charge card, I bet the trade deficit would also disappear overnight. Now the Western Economist pundits think the Chinese are irresponsible for not acting irresponsible like US consumers in debt. Asianman, I still retain my entire holdings of Petrochina shares and other, but I would no longer be a buyer at these price levels. PetroChina actually pays a decent dividend but is short term overbought. It is dangerous to chase shares at a higher price. I am actually looking more at natural resource companies in Brazil, Russia, and adding to Gold mining shares of some South African companies. A similar Gold mining company in the US would sell at a much higher PE ratio than South African company. But they mine and sell the exact same stuff.

I agree with Koteli; I do not think a vehicle like the Prius with essentially two engines and a heavy battery is as good a solution as diesel, and temperate countries seem to have less of a disadvantage versus the tropics in producing seed oil than in ethanol. I can get 16 miles per litre of (non-bio) diesel out of my VW golf. But it was a gasoline price of over 90 pence per litre that made me switch to diesel. The answer (higher fuel tax) is easy; it just takes a bit of political moral fibre, which politicians seem to lack. I think that there is a wider issue here, which brings me to DC's sandwich. The underlying cause of the rising price of wheat or oil is neither US nor Chinese monetary policy; I am pretty sure that both would be rising even in a moneyless economy (in terms of other items). It is simply that the increasing competition for resources from China, India etc is making the already developed world poorer. Our problem is going to be getting this sufficiently widely acknowledged in our democratic systems to make the sacrifices to deal with it. The cynical politics of the last couple of weeks here in the UK do not bode well.

AC, it is part of the standard import price release from the BLS. The data for China only goes back to 2003, however. I download it from my data provider and perform a simple calculation to arrive at the figures quoted.

Macro Man -- Thanks!

DC- Your rhetoric is disingenuous. As you know, for the most part, excepting open market operations, the Fed itself doesn't "create": creation arises from Treasury out of loose fiscal policy, the excess itself spawned from the cabal of Admin & Congress. The Fed, to some extent, "enables" though its influence at the short end. I am astounded that an obviously intelligent (though ideologically compromised) person such as yourself would try and argue that mercantilist accumulation of USD reserves did NOT have a dramatic impact upon prevailing long-term US interest rates, so meaningfully contributing to wayward signals in US housing markets, encouraging consumption over savings, defacto sactioning (and subsidising) US Govt deficits, and by intentionally hoarding all the proceeds in USDs, insuring the belated adjustment in the US trade account, something finally emerging as the main tenet of Brads post. At any time BOTH could have diversified, the USD proceeds into a global basket, but THAT was not politically expedient nor serving of mercantile industrial & trade policies. Of course, there have been some positive effects that have emerged as a result, but it is absolutely disingenuous to deny culpability when intentional BoJ PBoC actions were the prime enablers, preventing the market in USD rates and dollar exchange values from doing what they otherwise would have done as resident vigilante. I am not denying it was a shrewd with regards to achieving desired mercantile objectives, but why don't you just own up to it, and stop with ostrich denial which just interferes with the debate of where we go from here??!?

"If every vehicle on the road today were a Prius, the United States wouldn't have to import a drop of oil from the war-plagued Middle East or the rest of the world." geopolitics is never about one thing - geopolitics is about everything. there was a 'great game' on the frontiers of india and afghanistan well before oil was a strategic commodity. i agree that there is massive scope for belt tightening in transport fuel and in so many other things - but do not imagine that the middle east would suddenly cease to be 'war-plagued'. do not imagine, either, that america seeks cheaper oil, so much as the geopolitical power that emerges from denying other, smaller, nations the chance to get stronger on the back of their fossil energy resources.