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China's Subprime Crisis Is Here

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Re: China's Subprime Crisis Is Here

#101

Post by chvid »

rosser wrote: post #48
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 can do things at a scale the West in general, and the US in particular can't even fathom. I was in Tibet with some friends in October. At one point, our tour bus was detoured, because the bridge on our scheduled route wasn't big enough for it, so we drove a couple hours out of our way, and just happened to pass a 10MW solar plant. In the middle of Nowhere, Tibet. A thing we wouldn't even have seen if we hadn't…

"But they're completely backwards and corrupt, and have no idea what they're doing."

What do you mean by that?

(Your story seem to tell quite the opposite.)

Re: China's Subprime Crisis Is Here

#102

Post by vehementi »

rosser wrote: post #48
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 can do things at a scale the West in general, and the US in particular can't even fathom. I was in Tibet with some friends in October. At one point, our tour bus was detoured, because the bridge on our scheduled route wasn't big enough for it, so we drove a couple hours out of our way, and just happened to pass a 10MW solar plant. In the middle of Nowhere, Tibet. A thing we wouldn't even have seen if we hadn't…

They "can" do those things because they're a tyrannical government that can do whatever it wants without answering to the people. They will be able to implement self-driving cars at a huge scale because they can just say "fucking do it" and outlaw human-driven cars and there's nothing anyone can do about it. Such amazing scale!

Re: China's Subprime Crisis Is Here

#103

Post by legulere »

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…

Also China had a positive current account balance of 347 billion dollars in 2015, while the US ran on deficit each year since 1989 and had one of 460 billion dollars in 2015.

https://www.cia.gov/library/publications/the-world-factbook/...

Re: China's Subprime Crisis Is Here

#104

Post by roddux »

chvid wrote: post #101
rosser wrote: post #48

Earlier quoted context omitted.

China can do things at a scale the West in general, and the US in particular can't even fathom. I was in Tibet with some friends in October. At one point, our tour bus was detoured, because the bridge on our scheduled route wasn't big enough for it, so we drove a couple hours out of our way, and just happened to pass a 10MW solar plant. In the middle of Nowhere, Tibet. A thing we wouldn't even have seen if we hadn't…

"But they're completely backwards and corrupt, and have no idea what they're doing." What do you mean by that? (Your story seem to tell quite the opposite.)

I believe it was sarcasm making fun of a commonly held view.

Re: China's Subprime Crisis Is Here

#105

Post by ww520 »

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…

Inflation doesn't happen here. Bad debts actually take money out of the system. Recapitalizing the banks just add back the destroyed money.

Modern monetary policies don't "print" money anymore. Debt creation and destruction are used as the primary mean to create and destroy money. Below is a very simplified version of money creation, skipping many other aspects.

The banks lend their deposit out to the public and money is created out of the thin air and starts to circulate in the system. The banks are regulated by the central bank to maintain a certain reserve ratio on the deposit so there is a maximum level that can be lent out and that becomes the limit on the money supply. When loans are paid back, the money is destroyed but the returned money can be lent out again thus the money supply is not changed.

Central banks can influence the money supply by setting the interest rate. Lowering rate causes more loans to be made thus expanding the money supply, conversely for raising rate.

Now when a loan has gone bad, there is no money paid back to the bank. The bank is short of that amount of money. It still has to maintain the reserve ratio and can't lend that much out again. The money is gone; essentially it has been destroyed from the system.

So a bad loan actually shrinks the money in circulation, lowering the money supply. Too many bad loans would cause a credit crunch - the banks simply can't get the loan money back to re-lend them out and thus there's not enough money to go around.

Here's where the central banks step in. They recapitalize the banks (fancy word to create money out of the thin air), by either giving created money to the banks to write off the bad loans, or in the U.S. case in 2008 the Fed buying the bad debts from the banks with new money it created out of the thin air. In either case the banks get money for getting rid off the bad debts and can lend again, re-balancing the money taken out of the system due to bad debts. Thus the money supply is back to normal and life goes on.

The bad debts held by the central banks are simply some numbers on some papers, whose value are questionable. Someday it might be decided that they are worthless and, puff, they are gone.

The Chinese central bank is basically using the same mechanisms to deal with bad debts.

Re: China's Subprime Crisis Is Here

#106

Post by narrator »

ww520 wrote: post #105
hackuser wrote: post #25

Earlier quoted context omitted.

> 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…

Inflation doesn't happen here. Bad debts actually take money out of the system. Recapitalizing the banks just add back the destroyed money. Modern monetary policies don't "print" money anymore. Debt creation and destruction are used as the primary mean to create and destroy money. Below is a very simplified version of money creation, skipping many other aspects. The banks lend their deposit out to the public and mone…

Bravo, someone who gets it. The subtle difference with China is when the bailout happens, the government doesn't go into debt to do it and stick the taxpayer with the eventual interest bearing burden of the bailout. Instead, they print the money. This creates moral hazard. I think China's political system is better at dealing with banker moral hazard than ours is unfortunately.

Re: China's Subprime Crisis Is Here

#107

Post by ww520 »

narrator wrote: post #106
ww520 wrote: post #105

Earlier quoted context omitted.

Inflation doesn't happen here. Bad debts actually take money out of the system. Recapitalizing the banks just add back the destroyed money. Modern monetary policies don't "print" money anymore. Debt creation and destruction are used as the primary mean to create and destroy money. Below is a very simplified version of money creation, skipping many other aspects. The banks lend their deposit out to the public and mone…

Bravo, someone who gets it. The subtle difference with China is when the bailout happens, the government doesn't go into debt to do it and stick the taxpayer with the eventual interest bearing burden of the bailout. Instead, they print the money. This creates moral hazard. I think China's political system is better at dealing with banker moral hazard than ours is unfortunately.

Well, their bankers making the bad loans and the people failed to repay the loans might go the jail or got executed when illegal lending involved. Here bonuses are reduced.

Re: China's Subprime Crisis Is Here

#108

Post by foxhedgehog »

jcoffland wrote: post #90
foxhedgehog wrote: post #68

Earlier quoted context omitted.

Won't let me respond to the comment below this one, but China doesn't determine the volume of the secondary market for UST. It's mostly in New York and in London.

Right but that market's volume changes over time and China gets to choose, with in some limits, when to sell off their bonds. This gives them potentially much more leverage than a static view of the situation might imply.

Yes but they would have to sell it on a secondary market. Those only exist in New York and in London, and what our research found was that the liquidity in those markets was enough to handle a selloff. The short version is that the Chinese are limited by the markets that they are able to sell these instruments, and not vice-versa.

Re: China's Subprime Crisis Is Here

#109

Post by foxhedgehog »

ktRolster wrote: post #86
jcoffland wrote: post #35

Earlier quoted context omitted.

China holds more US treasury bonds than any other country. How are we not intertwined?

The US holds vastly more US treasury bonds than any other country. But look at the data: http://ticdata.treasury.gov/Publish/mfh.txt China holds about the same amount as Japan, and if you count Europe as a region, then Europe holds more than either of them. Furthermore it doesn't really matter: it's not like they can 'call the debt.' China has to wait for their bonds to mature just like everyone else. Really it's rat…

Just piping in to say that this is correct.

Re: China's Subprime Crisis Is Here

#110

Post by seanmcdirmid »

jcoffland wrote: post #40
obblekk wrote: post #12

Earlier quoted context omitted.

I think the bigger issue is that China faces labor competition on the lower end of the unskilled market from South East Asia and India and is trying to enter the lower end of the skilled labor market but finding out that the Americans, Europeans, and Israelis are fairly competitive. I'm generalizing and neither list of countries is exhaustive.

China is miles ahead of South East Asia and much of India. Chinese tourists go to places like Vietnam and are seen as wealthy and sophisticated by the locals. From the Western perspective it may seem like China, SEA and India are on a level playing field but that is far from the truth.

Bangkok is a much more cosmopolitan city than Beijing or even Shanghai. I get the feeling that Thailand is a bit richer than China per capita. That's about it though.
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