China's Subprime Crisis Is Here • Hacker News Board

Re: China's Subprime Crisis Is Here

#141

Post by AJ007 » Wed, Feb 17, 2016, 1:57 PM UTC

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…

It only seems like that because journalists like to write the same things as every other journalist. For almost 20 years I read stories about how China would surpass the United States in both economic and military power.

There are a lot of underlying facts to China's investment driven growth cycle that can be explained in math and global trade balances. Their reserves can be spent very fast. GDP growth doesn't matter so much if it's being spent on infrastructure that won't be maintained and will fall apart. In the past year or two, a giant piece of the GDP growth may have been from financial tricks as insolvent companies try to shift money around, offering high interest rates in the process (continous economic growth for a really long time mean no recession to shake out the leveraged companies which are surviving by finance alone, or outright scams.)

In the very long term, I think what will matter is the messed up demographics (shrinking population off balanced by too many males) and lack of diversity.

Japan had a similar death of growth situation after their investment driven model ran out of steam and their demographics shrunk. The big difference being their population was nearly all living a first world lifestyle by that time. China's isn't.

China can still be an important country. They can make a ton of stuff. They can wield outsized military influence globally thanks to nuclear weapons.

Re: China's Subprime Crisis Is Here

#142

Post by diogenescynic » Wed, Feb 17, 2016, 2:16 PM UTC

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…

>Bass, whose Hayman Capital Management LP has a multibillion-dollar bet that the yuan and Hong Kong dollar will fall, told clients in a letter that his firm estimates that China’s liquid foreign reserves are $2.2 trillion at most. That compares with the $3.23 trillion reported by the People’s Bank of China, the central bank, for the end of January.

>Bass said in his letter that some of China’s reserves already are tied up in institutions such as policy banks and one of its sovereign-wealth funds.

>“The view that China has years of reserves to burn through is misinformed,” Bass wrote. “China’s back is completely up against the wall today, which is one of the primary reasons why the government is hypersensitive to any comments regarding its reserve levels or a hard landing.”

http://www.marketwatch.com/story/kyle-bass-warns-chinas-fore...

Re: China's Subprime Crisis Is Here

#143

Post by slv77 » Wed, Feb 17, 2016, 2:25 PM UTC

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…

Couple of points...

- There has been no economy that has been able to grow debt as fast as China has without accumulating a large amount of bad debt. This is just as true for the US in the 1920's, Japan in the 1980's, Greece, Spain, Iceland, Portugal, Brazil, Mexico, etc.

- China has grown debt to GDP at a breathtaking pace.

- Savings and debt are opposite sides of the same coin. Once a loan goes bad the debtor's promise to provide economic value is broken. At this point somebody has to bear the loss through a reduction in future consumption, there is no free lunch.

- There are choices in how those costs are allocated. For example they can be through the bankruptcy courts, inflation, reduced interest in savings, taxes and reduced social services (by taking it on the government balance sheet) and external default.

- How those losses are allocated are politically sensitive. They can and often lead to revolution and war.

- Savy investors are aware of these trade offs and will attempt to position themselves to avoid losses.

- The central bank has its own balance sheet which aren't just numbers on that can be written off. A central bank which bought bad debt and then wrote it off would be insolvent and would require recapitalization itself.

- Giving money is the prerogative of government. A central bank who gives money in the guise of a loan would quickly find themselves in conflict with the government. That is why the US had both TARP and QE.

- Even if the government gave permission for the central bank to montetize the bad debt Savvy investors would know that monetization of bad debt would lead to inflation. Investors would respond by hoarding commodities, capital flight and leveraging assets (which is happening now). This is happening now (capital flight, accelerating debt growth, hoarding of gold)

Re: China's Subprime Crisis Is Here

#144

Post by StreamBright » Wed, Feb 17, 2016, 2:36 PM UTC

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…

Not to mentioned they dedication to green energy.

http://grist.org/climate-energy/china-is-totally-crushing-th...

Re: China's Subprime Crisis Is Here

#145

Post by StreamBright » Wed, Feb 17, 2016, 2:39 PM UTC

carboncopy wrote: post #64

jcoffland wrote: post #60

Earlier quoted context omitted.

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

No, I read it right. It's American public debt they hold. They don't have 1 trillion dollars in cash sitting in a vault. They are holding U.S. Treasury bonds. And again, I don't understand why having 1 trillion dollars in a reserve bank is a useful measure of economic power. The Chinese economy has a GDP of $10tn compared with the U.S. economy of $17tn. That is an example of a meaningful metric of power. ^^^ the pare…

I think it is more like economic long term insurance than power.

Re: China's Subprime Crisis Is Here

#146

Post by vkou » Wed, Feb 17, 2016, 2:44 PM UTC

puranjay wrote: post #134

saiya-jin wrote: post #117

Earlier quoted context omitted.

well, and now let's look what their "competitor" (west) have done during those hundreds of years of presence there... Yes Chinese are not saints but pure capitalists, I see no evil in their actions. On the other hand, white man's actions there were evil on quite a few occasions

What's more evil: China following unethical economic practices to lift hundreds of millions out of poverty, or China following the rule book and letting hundreds of millions languish in poverty? From where I stand, China NOT being pure capitalists for the good of their citizens is more evil. It's well and good when a developed country talks about ethics and capitalism - they have the luxury to. But when a country whe…

What kind of poverty is going to be left after the investments are done and the resources are extracted?

Should the people living there leave, like they are leaving Alberta and North Dakota now? Is your country going to take them?

Re: China's Subprime Crisis Is Here

#147

Post by cylinder » Wed, Feb 17, 2016, 3:20 PM UTC

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…

Another thing is Americans have very little understanding of their own history; particularly how America went through the same type of tumult as China in its early economic development. Financial crises were the norm (and still are) and it was a wild place with loads of corruption and vast ungoverned / autonomous regions.

Yes, soon China will have a financial crisis. It will have to undergo restructuring and debt forgiveness. It isn't going to evaporate from the earth.

As an interesting side note, the US has the largest shadow banking sector (as % of all financial assets) in the world: https://www.imf.org/external/pubs/ft/gfsr/2014/02/pdf/c2.pdf

Re: China's Subprime Crisis Is Here

#148

Post by vkou » Wed, Feb 17, 2016, 3:27 PM UTC

mathattack wrote: post #130

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…

Originally I was going to question your math - I thought your trillion was off by three zeroes. Then I did the math myself and realized that you're right. :-) If you count US mortgage debt that they hold, the number may be even higher. A couple quick comments: 1 - We'll feel the economic threat of China when they have a crisis. The world was less interconnected in the 90s, yet troubles in Mexico, Thailand and Russia…

> (If anything, it should be 3X)

More then half of china lives in very poor farming villages - and the government intends for them to continue living that way.

The fair comparison you want to be making is the American urban vs Chinese urban population (Which is now close to the total population of America).

Re: China's Subprime Crisis Is Here

#149

Post by coliveira » Wed, Feb 17, 2016, 3:29 PM UTC

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…

The biggest economic lie is the idea that somehow the US owns China something because of treasury bonds. When you sell bonds you are making a financial exchange at a particular interest rate. It is a trade where each side is getting what they need. And a treasury bond is very favorable for a country that issues bonds as the USA, because the US controls the value of the currency. In other words, in this case the US has far more control over the financial transaction.

Re: China's Subprime Crisis Is Here

#150

Post by cubano » Wed, Feb 17, 2016, 3:33 PM UTC

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.

Sure...we would just print more money and pay them back.

QE programs have been propping up Wall Street for years now, and it would be just more of the same.