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China's Subprime Crisis Is Here

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Re: China's Subprime Crisis Is Here

#51

Post by narrator »

hackuser wrote: post #25
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…

I see you have a theory. So do the guys who write all these China crisis articles, but the empirical evidence proves them wrong and they don't care. They just write another article every six months. I'm sure I'll be back here in another six months arguing the flaws in the antiquated quantity theory of money.

Briefly, the problem is that you are only looking at the supply of money and not the demand. If China increases the money supply 2x and goods and services output increases 4x there will not be inflation and this has been roughly the case during China's economic expansion. A country like Venezuela or Zimbabwe that has falling output will have hyperinflation if they tried the same thing.

Re: China's Subprime Crisis Is Here

#52

Post by venomsnake »

jcoffland wrote: post #42
fasteddie wrote: post #39

Earlier quoted context omitted.

US treasuries are at historically low rates -- if China dumped 'em all it probably wouldn't move the needle that much. And the reason they hold so many is not as some control play against the US -- its because it was the best way to devalue their currency enough to support exports.

How it looks depends a lot on your bias. The fact remains that China can soak up $1T of US liquidity.

$1T is a joke for US economy. The fed pumped how many more than that with QE programs?

Re: China's Subprime Crisis Is Here

#53

Post by apeconmyth »

jcoffland wrote: post #33

The American media seems to jump at any opportunity to dismiss China as an economic threat. It makes us feel more secure but leads to a public informed only about one side of China's story. Namely the part our ego can handle. China has regularly surpassed the US in number of cars sold since 2009. China also holds more US debt than any other country. Another way to put that is the US government owes China over 1 trill…

After years of jumping at any opportunity to build up China as an economic threat.

Re: China's Subprime Crisis Is Here

#54

Post by rahimnathwani »

fasteddie wrote: post #39
jcoffland wrote: post #33

The American media seems to jump at any opportunity to dismiss China as an economic threat. It makes us feel more secure but leads to a public informed only about one side of China's story. Namely the part our ego can handle. China has regularly surpassed the US in number of cars sold since 2009. China also holds more US debt than any other country. Another way to put that is the US government owes China over 1 trill…

US treasuries are at historically low rates -- if China dumped 'em all it probably wouldn't move the needle that much. And the reason they hold so many is not as some control play against the US -- its because it was the best way to devalue their currency enough to support exports.

"US treasuries are at historically low rates -- if China dumped 'em all it probably wouldn't move the needle that much."

Rates (i.e. yield) and price have an inverse relationship. If China were to sell their bonds, this should reduce the price of bonds (i.e. increase their yield). So, regardless of what we think about the likelihood of this happening, or the magnitude of the impact, 'historically low rates' do not provide any backstop.

Re: China's Subprime Crisis Is Here

#55

Post by jcoffland »

abduhl wrote: post #49
jcoffland wrote: post #42

Earlier quoted context omitted.

How it looks depends a lot on your bias. The fact remains that China can soak up $1T of US liquidity.

I'm not very familiar with this issue but could you please explain how China can soak up $1T of LIQUIDITY when most of this $1T is, as I understand it, in bonds. Wouldn't this debt being in bonds mean that 1) there is a schedule of payments that have already been accounted for in the budget and 2) that they cannot "call in" the debt? Certainly China could refuse to buy additional bonds that we put out which may impac…

China can sell US bonds to buyers for slightly less than the US government. This would actually create more liquidity in the US bond market but effectively reduce the US government's ability to finance more debt. The US government would have to sell bonds even cheaper to finance more debt. Whether this would have a big effect would depend on a lot of other factors but it's a significant playing card in the Chinese hand.

Re: China's Subprime Crisis Is Here

#56

Post by foxhedgehog »

One factor not discussed in this article is the demographic headwinds that China is heading into. Their one child policy is only now resulting in greatly distorted working age ratios, which means that their non-working elderly population is increasing faster than the population of workers to support them. With a safety net in place that relies heavily on existing familial structures rather than government programs, there are reasons to be concerned about declining aggregate demand over the next several years, precisely as China is trying hardest to transition from export-led growth to a larger, domestically-focused economy.

Re: China's Subprime Crisis Is Here

#57

Post by jcoffland »

mmanfrin wrote: post #41
jcoffland wrote: post #33

The American media seems to jump at any opportunity to dismiss China as an economic threat. It makes us feel more secure but leads to a public informed only about one side of China's story. Namely the part our ego can handle. China has regularly surpassed the US in number of cars sold since 2009. China also holds more US debt than any other country. Another way to put that is the US government owes China over 1 trill…

China also holds more US debt than any other country ... except the US and domestic sources, which hold 2/3rds of all our debt. In other words, domestic sources hold over 9x the debt that China does.

It's pretty typical for institutions to buy their own government's bonds.

Re: China's Subprime Crisis Is Here

#58

Post by foxhedgehog »

fasteddie wrote: post #39
jcoffland wrote: post #33

The American media seems to jump at any opportunity to dismiss China as an economic threat. It makes us feel more secure but leads to a public informed only about one side of China's story. Namely the part our ego can handle. China has regularly surpassed the US in number of cars sold since 2009. China also holds more US debt than any other country. Another way to put that is the US government owes China over 1 trill…

US treasuries are at historically low rates -- if China dumped 'em all it probably wouldn't move the needle that much. And the reason they hold so many is not as some control play against the US -- its because it was the best way to devalue their currency enough to support exports.

The research that I did on this for my grad school project with the GAO suggested that there was generally enough liquidity in the secondary bond market to absorb even a mass sale from China over the time period required to do so.

Re: China's Subprime Crisis Is Here

#59

Post by foxhedgehog »

jcoffland wrote: post #55
abduhl wrote: post #49

Earlier quoted context omitted.

I'm not very familiar with this issue but could you please explain how China can soak up $1T of LIQUIDITY when most of this $1T is, as I understand it, in bonds. Wouldn't this debt being in bonds mean that 1) there is a schedule of payments that have already been accounted for in the budget and 2) that they cannot "call in" the debt? Certainly China could refuse to buy additional bonds that we put out which may impac…

China can sell US bonds to buyers for slightly less than the US government. This would actually create more liquidity in the US bond market but effectively reduce the US government's ability to finance more debt. The US government would have to sell bonds even cheaper to finance more debt. Whether this would have a big effect would depend on a lot of other factors but it's a significant playing card in the Chinese ha…

Replied above, but the secondary bond market is liquid enough to absorb this event over the time period required.

Re: China's Subprime Crisis Is Here

#60

Post by jcoffland »

carboncopy wrote: post #46
jcoffland wrote: post #33

The American media seems to jump at any opportunity to dismiss China as an economic threat. It makes us feel more secure but leads to a public informed only about one side of China's story. Namely the part our ego can handle. China has regularly surpassed the US in number of cars sold since 2009. China also holds more US debt than any other country. Another way to put that is the US government owes China over 1 trill…

Those are strange metrics of success you chose: number of cars produced annually, amount of public debt held. I'd have gone with GDP, military strength, set of advantageous alliances, or some other measure of economic, military, or political power.

You read it wrong. It's cash in hand not public debt they have more of.
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