Mostly: Classical

[amarksp]

Martin M

In an issue of the Financial Monitor, Martin Murenbeeld, Chief Economist of Dundee Group of Companies, actually calculated the effect that past U.S. recessions had and found that “China is not as dependent on the U.S. economy as one might have thought.”

According to Murenbeeld, for the seven years (not counting 1960) that the U.S. economy was in recession, the average increase in Chinese exports as a percent of GDP was 0.14%, with a range of -0.75% in 2001 to 1.29% in 1991.

“U.S. recessions don’t seem to hurt Chinese exports in any consistent manner!” Murenbeeld exclaimed.

He added that for the same seven years the change in U.S. imports as a percent of GDP averaged -0.09%, meaning that “U.S. recessions do hurt U.S. imports in a consistent manner!”

A U.S. recession might cut 1% off the Chinese exports to GDP percentage, meaning that Chinese

GDP growth is damaged by at least 1% with the loss of exports, according to the report. But simple regression analysis for the period 1980-2006, suggests a 1% rise in U.S. GDP adds 0.58% to Chinese GDP. Assuming Chinese GDP would grow at 9.6% in a world where U.S. GDP grows 3.0%, a U.S. GDP growth of -1% would knock 2.3% off the Chinese growth rate.

“This is less than one might have imagined!” Murenbeeld said. “My inclination is to suggest that Chinese exports and Chinese GDP dance to their own drummer more than to the U.S. drummer.”

In other words, demand for commodities in China will not wither away in the event of a U.S. recession.

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"Things are getting more serious," said Martin Murenbeeld, of Victoria-based M. Murenbeeld & Associates Inc., publisher of the Gold Monitor. The news that Mr. Ben Bernanke will accompany U.S. Treasury Secretary Henry Paulson to China may have triggered the recent currency weakness, he said.

"That's the kind of feeling I sense in the market," Mr. Murenbeeld said. "Everybody is waiting for the Asian currencies to be revalued upward."

Given the currency risks and possible geopolitical flare-ups, gold could reach $710 an ounce by the end of the year, he said.