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Brad Setser

6 Nov, 9 tweets, 4 min read

The Council on Foreign Relations' graphics team has put together some good charts to support my recent piece warning about a loss of momentum in the global recovery.

cfr.org/article/global…

Plotting output relative to its 2019 average immediately puts the q3 recovery into context.

A look at the (still incomplete) data for a broader set of countries also highlights just how much of an outlier China's reportedly near complete recovery really is

A plot of (estimated) monthly US output highlights how the pace of the recovery slowed over the course of the third quarter (as the large initial stimulus was not sustained).

The chart also shows how services led this particular downturn

We also plotted China's industrial production against U.S. industrial production, to illustrate how China's recovery has been led by the rebound in its factories more than a rebound in consumption. China has coasted in a sense thanks to the surge in global goods demand

I wanted to expand a bit on the last point. The U.S. has seen a stronger rebound in real retails sales (because of goods demand) than in industrial production

China of course is the mirror image of the U.S.. Chinese industrial production has rebounded more strongly than Chinese consumption. That's due in part to another investment focused stimulus, but also due to the rise in China's exports

One theme of my piece (written prior to the U.S. election) is irritation at headline writers who think that China's faster growth means it is "supporting" the global recovery even as China's rising trade surplus implies it is drawing on global demand

The shift in global demand towards goods (and China's strength in PPE production) has meant that China's recovery has in fact been supported by the recovery in goods demand outside China, not the other way around

Yes, it is strange to argue that the large economy with the strongest global recovery has been drawing on demand from weaker economies ...

But that's what the combination of rapid growth, a near complete recovery in real output and a rising trade surplus implies.

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More from @Brad_Setser

Brad Setser

@Brad_Setser

5 Nov

The WSJ (Cezary Podkul and Megumi Fujikawa) on the search for global yield from Japan's financial institutions -- through the lens of Nochu's (Japan's financial cooperative for fishers and farmers) purchases of US CLOs

wsj.com/articles/how-a…

Podkul and Fujikawa allude to the centrality of the Caymans in the global flow of CLOs -- something the Fed highlighted last year

federalreserve.gov/econres/notes/…

The accounting here is interesting as it illustrates the role of tax centers in a range of capital flows, and illustrates the difference between gross and new flows too.

The Fed started categorizing US managed. Caymans domiciled CLOs as "foreign" in 17 and 18

Read 8 tweets

Brad Setser

@Brad_Setser

3 Nov

The IMF needs to junk its current metric for assessing reserves.

It simply doesn't work. It dilutes what should be strong signals of extreme vulnerability.

cfr.org/blog/it-time-s…

The IMF's metric (without adjustments) suggested that Turkey had a slightly stronger reserve position that China going into 2020. Which is absurd.

(and yes, I do read the details of the IMF's ESR!)

The reason is simple: measures of reserve need based on broad money (m2) imply that countries with big domestic deposit bases (China, Korea and the like) need a ton of reserves, while countries with small banking systems (like Argentina) need far fewer

Read 9 tweets

Brad Setser

@Brad_Setser

1 Nov

@petersgoodman

A bit more on global debt issues, spurred by the @petersgoodman article.

As noted in the NYT, debt service deferral cannot be the only way to help low income countries, as not all low income countries are highly indebted.

Yet some countries really do have too much debt

1/x

As the chart above shows, African countries borrowed heavily between 2010 and 2019 -- so external debt, net of reserves, rose from around $100b to over $400b ...

That's a problem now, as exports (needed to repay external debt) are down. External debt is now 2x exports

2/x

And since most of the new debt has come from Chinese policy banks and the bond market not traditional bilateral lenders or the MDBs, it carries a fairly high (for Africa) interest rate. Interest payments are rising faster than total debt

3/x

Read 12 tweets

Brad Setser

@Brad_Setser

1 Nov

@petersgoodman

The New York Times (@petersgoodman) highlights how the global financial response to the pandemic, to date, has fallen short of providing the financial support low income countries need to cope effectively with the shock

1/x

nytimes.com/2020/11/01/bus…

Deferring debts owed to bilateral creditors was always going to only be a small part of the solution, but especially if China deemed key institutions like the CDB to be "private."

It was thus a mistake to make the DSSI the central mechanism for providing pandemic support

2/x

Only about $5b of the $30b in non-MDB debt coming due in 2020 will be rescheduled; the initiative has failed even on its own terms.

And since debt burdens aren't uniformly distributed, even a broad DSSI limited to bilateral creditors would not have provided enough to most

3/x

Read 8 tweets

Brad Setser

@Brad_Setser

30 Oct

@S_Rabinovitch

Nice turn of phrase from @S_Rabinovitch. China's reported reserves have indeed been "uncannily steady" ....

economist.com/finance-and-ec…

This tho may be the most important bit --

... "currency traders sense the hand of the state, albeit more discreet than in the past. “My guess is that the central bank now has special trading accounts at the state banks" ...

I have long thought that you can get a more accurate picture of what China is really doing by adding the net foreign assets of the state banks to the PBOC's reported (CNY balance sheet) foreign exchange reserves -- which have indeed been a bit too steady for the last year +

Read 5 tweets

Brad Setser

@Brad_Setser

29 Oct

Today's GDP data obviously has gotten its share of coverage -- but I did want to highlight now unusual the downturn in q2 and partial recovery in q3 are. The downturn was led by services (usually the most stable component), and services are lagging the broader recovery

1/x

All this is looks totally crazy in the (annualized) contributions data, as, well, data wasn't designed for these kinds of swings.

But it is clear that goods consumption led the recovery

2/x

I de-annualized the data to put it on a more reasonable scale over the last year. Goods consumption is now 1.8 pp of US GDP higher than in q4 2019. Services consumption is down 2.7 pp of GDP

3/x

Read 7 tweets

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