Share this page!

Brad Setser Profile picture
Twitter logo
Oct 4 • 5 tweets • 2 min read
The big current account surpluses in the world today are in China, Russia and Saudi Arabia (and the GCC).

Seems like the Saudis want keep their share of the global surplus too. Their "current account" break even oil price is only $60 a barrel.

1/x
ft.com/content/476d81…
Saudi production and oil export by volume numbers aren't released quickly, so calculating the Saudi break even (the price that balances the current account) takes a bit of guess work. But it is clearly well below the current oil price.

2/x
The Saudi break even has been pretty constant since 2008, apart from a brief spending spree from 2012 to 2014. I assume that the Crown Prince's big ambitions (Neom, etc) will raise imports over time, but it hasn't really happened yet.

3/
What has happened is a big shift in how the external surplus that the Saudis appear intent on maintaining through production cuts is managed -- it no longer primarily goes into reserves. As @jnordvig has noted, the Saudis now primarily buy equities.

4/
OPEC decisions are of course primarily viewed through their impact on the oil market. But higher oil prices also have implications for global capital flows given the size of the Saudi surplus. And now, unlike in the past, the Saudis aren't buying bonds ...

5/5

• • •

Missing some Tweet in this thread? You can try to force a refresh
　

Keep Current with Brad Setser

Brad Setser Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @Brad_Setser

Brad Setser Profile picture
Oct 6
The global financial architecture is (mostly) forged through the decisions made in resolving concrete cases of distress.

The Brady plan was made real by Mexico.

Zambia is much smaller than Mexico. It nonetheless could lay out important precedents.

1/x
ft.com/content/e8e95a…
The ultimate scale of the restructuring of China’s Belt and Road lending remains to be determined – Zambia, Sri Lanka, Ethiopia and Laos are a given. Angola and Pakistan constitute bigger exposures, but aren’t a certainty. Venezuela is a unique case. There are others.

2/
But Zambia was first in line and it cannot avoid setting a number of precedents for unwinding BRI loans gone bad

Chinese lending in Zambia has huge: it totals at least $6b, ~ 2x the exposure of the fx bond market and 3/4 of all official bilateral lending

3/ Image
Read 12 tweets
Brad Setser Profile picture
Oct 6
As a description of the past, the fall in headline reserves is a bit misleading. Falls in the value of US Treasuries easily could account for $400b of the drop in headline reserves (through q2), falls in the EUR, GBP and JPY could explain another $500b (through q3)

1/3
As a forecast for the future, it is much more reasonable. Intervention has picked up recently - the $20 billion fall in Korea's headline reserves in September is a case in point. That isn't all valuation changes.

2/3
bloomberg.com/news/articles/…
The fact check here is ultimately sort of boring: neither the IMF COFER data on dollar holdings (adjusted for Treasury mark to market) or the US BoP data show official sales in the first half of the year. Q3 will likely tip the balance toward sales. (chart is trailing 4qs)

3/3 Image
Read 4 tweets
Brad Setser Profile picture
Oct 5
Talk of a new Plaza agreement is wildly premature. The conditions for a global agreement aren't in place.

But Asian countries worried about the weakness of their own currencies could do more on their own.

My take for @CFR_org

1/x
cfr.org/article/global…
I have been struck by the fact that the decline in Asian currencies has been led by the countries with the strongest external balance sheets (Japan, Korea, Taiwan). All have substantial reserves, and/or large sovereign funds.

2/x Image
It isn't a secret why some currencies (India's rupee, the Thai baht) have moved less -- their central banks generally have intervened more.

Korea and Taiwan actually scaled back their intervention in July and August (the chart tho only covers data through q2)

3/x Image
Read 13 tweets
Brad Setser Profile picture
Oct 5
Chinese SoEs have discovered how to arbitrage to global market for natural gas, bigly.

"We’ve resold U.S. cargo. It’s allowed and the prices are favorable,” said Wu Qiunan, chief economist at PetroChina International"

1/x
wsj.com/articles/china…
Chinese companies (the big energy SoEs and ENN) have struck a number of long-term purchase contracts for US LNG at favorable prices, and are now reselling US gas to Europe at a large profit (while importing Russian gas at a discount). Capitalism ...

2/x Image
There is a geeky balance of payments angle here.

A Chinese company (a tax resident of China) buying US gas for sale to Europe is a classic example of "merchanting" -- the gas never crosses China's customs border but it should count in the balance of payments ...

3/x
Read 4 tweets
Brad Setser Profile picture
Oct 5
The FT followed yesterday's examination of the factors pulling down China's economy, notably the property market and risks to infrastructure finance, with a look at one possible way that China could revive its economy -- support for household consumption.

ft.com/content/92cbe9…
. @edwardwhitenz is not exactly optimistic -- China has had ample opportunity to reform the policies that lead to high savings and low level of consumption in the past, and Beijing consistently hasn't made the most obvious policy changes. Image
The policy shifts that would help raise consumption in China aren't exactly a secret. Reducing out of pocket costs for access to medical care, more access to social services (and retirement benefits) for migrant workers, and the like. China is an extreme outlier in many ways. Image
Read 6 tweets
Brad Setser Profile picture
Oct 4
Only Martin Wolf could summarize China's economy so perfectly in a single sentence.

"The fundamental macroeconomic problems are excess savings, its concomitant, excess investment, and its corollary, growing mountains of unproductive debt"

ft.com/content/fa1510…
The original sin of China's response to the global financial crisis was that it solved one problem (excessive reliance on exports) by adding to another (excessive investment). An already exceptionally high level of investment was raised to the stratosphere.

2/ Image
The underlying source of China's reliance on a mix of exports and investment for (rapid) growth was never addressed -- a low level of household income and corresponding weakness in household consumption.

3/ Image
Read 10 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!

Send Email!

Email the whole thread instead of just a link!

Separate emails with commas

:(