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China's Subprime Crisis Is Here

bloomberg.com

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Re: China's Subprime Crisis Is Here

#21

Post by miserable1980 »

necrodawg wrote: post #14
narrator wrote: post #9

Ahhh the old' China crisis again! The dog that didn't bark. The Charlie Brown football that never got kicked. The constant and unending crisis that is on its way any day now. As I have explained over the years in many previous comments, China's banking system is partially privatized central planning, the government prints it's own money. Thus, when there is a credit crisis the government just recapitalizes the banks…

I too have grown tired of shitty articles with shitty headlines that make some misunderstood argument on why China is about to have a bad time. It's at the point where I'm wondering if these publications are just fishing for clicks.

We've been in constant crisis mode since 2000 (just as I graduated college). This crap kept me from buying a home, delayed marriage and children, etc. In my mid 30s, I have no job security, almost no retirement and no home. I had no idea life in the 21st century was going to be so miserable for young people in North America. I guess this is globalization in action :(

Re: China's Subprime Crisis Is Here

#22

Post by sharetea »

This article is good, but it underscores how fast and catastrophic China's collapse is.

- China's total debt risen to 346% of GDP in 2015. http://seekingalpha.com/article/3852886-chinese-debt-problem...

- China exports fall 11.2% in January, imports down 18.8% http://www.cnbc.com/2016/02/14/china-releases-trade-data-for...

- China’s $6.7 trillion bond market is flashing the same danger signs that triggered a tumble in stocks http://www.thestar.com.my/business/business-news/2015/10/10/...

- China Capital Outflows Rise to Estimated $1 Trillion in 2015 http://www.bloomberg.com/news/articles/2016-01-25/china-capi...

- China's Net Capital Outflows Probably Hit $113 Billion In January http://www.actionforex.com/analysis/daily-forex-fundamentals...

- "Chinese banks will lose approximately $3.5 trillion of equity if China's banking system loses 10 percent of assets" (all of its reserve would be gone) http://www.cnbc.com/2016/02/10/kyle-bass-china-banks-may-los...

Re: China's Subprime Crisis Is Here

#23

Post by ktRolster »

greggarious wrote: post #5

Assuming this headline is correct, what effects would that have on the global economy?

Probably small. China's financial system isn't entwined with the US/European system as much (the Fed buys bonds from the ECB, and vice versa). Commodities will be hit the hardest, because China will stop importing them.

Alan S Blinder estimated that a very severe recession in China would affect the US GDP by .2% So that kind of gives you an idea.

Re: China's Subprime Crisis Is Here

#24

Post by tyre »

obblekk wrote: post #18
tyre wrote: post #13

Earlier quoted context omitted.

A few counterpoints. From your original comment > In addition, it doesn't seem like this rate is accelerating (since 2009), but linearly increasing. That is the overall percentage of bad debt increasing linearly, meaning accumulation of bad debt is accelerating faster than growth of "good" debt. This was also the case in the US mortgage crisis. From this comment 1) It would be less of a concern if China had less liqu…

Linearly increasing: True. I misread the axis. It still doesn't seem to have the form of something in a bubble or clearly unsustainable. 1. That's a fair point. But I suspect this has more to do with less developed capital markets in China than systematic weakness. I wonder if local supply of capital will be able to step up in the next American recession. 2. I think many have been successful in lowering their manufac…

Interesting point on (1). I wonder if that could trigger relaxed repatriation taxes for corporations in the US. Bringing a few hundred billion home would be great in a liquidity crisis.

I wasn't thinking of (2) that way, but in that case you're right that southeast asian competition is a bigger factor. If cheap manufacturing leaves, China would need to shift to consumer growth, which American companies thus far haven't really cracked (except Apple to an underwhelming degree.)

An interesting aside on (2) would be if a trade-protectionist president is elected in the US. This would re-prioritize from cheap manufacturing overseas to better jobs at home—triggering or accelerating what you were talking about. The New Yorker had a great piece today on how both Sanders and Trump are of that mindset.[1]

(4) might be a case of six in one hand, half dozen in the other. Turned out that the US government did (indirectly) hold all that mortgage debt when it bailed out the banks. That said, it looks better externally to institute QE to bailout companies who backed bad debt than to print money to pay off your own debt.

Either way, I'm not sure we are or aren't at a crisis yet, but they also haven't fixed some basic structural problems.

[1] http://www.newyorker.com/magazine/2016/02/22/trump-sanders-a...

Re: China's Subprime Crisis Is Here

#25

Post by hackuser »

narrator wrote: post #9

Ahhh the old' China crisis again! The dog that didn't bark. The Charlie Brown football that never got kicked. The constant and unending crisis that is on its way any day now. As I have explained over the years in many previous comments, China's banking system is partially privatized central planning, the government prints it's own money. Thus, when there is a credit crisis the government just recapitalizes the banks…

> the government prints it's own money. Thus, when there is a credit crisis the government just recapitalizes the banks with freshly printed Yuan and sells off the bad loans at a discount.

This has been tried by many governments and has a well-established track record as a disasterous solution. I believe the following is a well-established consensus in economics (though I may misremember some details):

Printing money on this scale doesn't add wealth to the economy, it just vastly increases the number of yuan available to buy each unit of actual value, increasing prices. For example, if you were in a universe of 10 people with $50 each in currency, and one day that increased to $500 each, you wouldn't be any wealthier: You couldn't buy any more; the numbers on the price tags would merely increase by a factor of 10 - inflation.

It creates high inflation, even hyperinflation, which has further consequences for savings (whose value is greatly reduced as prices shoot up - your $10,000 no longer can buy anything), receivables (which lose their value just like savings), people on fixed incomes (your pension's value drops just like savings), investment (what good is an investment that loses value quickly just from inflation?), interest rates, exchange rates, and international trade (when your currency is worthless, and is expected to lose more value tomorrow, few will take it as payment for anything).

Re: China's Subprime Crisis Is Here

#26

Post by audunw »

obblekk wrote: post #7
dh997 wrote: post #4

Earlier quoted context omitted.

Isn't the bigger issues China's structural draconian limits to freer movement of capital, external investment, the imaginary/real value of ghost cities and scale of holding illiquid foreign debt?

One by one: 1. Freer movement of capital. This is a false herring in my opinion. Virtually no countries outside the US/EU offer completely free movement of money. The thing that matters is whether this prevents foreign capital investment (because people are scared of not being able to get their money back). In China, I don't think it does based on the last few decades of foreign investment. 2. External investment. As…

The ghost cities are indeed filling up, at least last time I read about it. You'll probably still have problems with misplaced building sprees when you build at that scale, no matter what. But it doesn't seem like a real crisis

Re: China's Subprime Crisis Is Here

#27

Post by yueq »

The root cause of 08 financial crisis is not simply 'subprime loans' that can't be repaid. It's because of trillions of derivatives that those banks hold, and lack of liquidity when banks are making wrong bet.

China doesn't have many complex financial engineerings as US did in 07/08.

Re: China's Subprime Crisis Is Here

#28

Post by nickgrosvenor »

ktRolster wrote: post #23
greggarious wrote: post #5

Assuming this headline is correct, what effects would that have on the global economy?

Probably small. China's financial system isn't entwined with the US/European system as much (the Fed buys bonds from the ECB, and vice versa). Commodities will be hit the hardest, because China will stop importing them. Alan S Blinder estimated that a very severe recession in China would affect the US GDP by .2% So that kind of gives you an idea.

Famous last words, we live in a global economy now.

Re: China's Subprime Crisis Is Here

#29

Post by slantedview »

yueq wrote: post #27

The root cause of 08 financial crisis is not simply 'subprime loans' that can't be repaid. It's because of trillions of derivatives that those banks hold, and lack of liquidity when banks are making wrong bet. China doesn't have many complex financial engineerings as US did in 07/08.

It was broader than subprime and derivatives even. It was a general real estate (housing) bubble. Home prices became massively inflated and the various investments tied to housing came crashing down. A similar result can be expected in China when the music eventually stops.
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