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China's Subprime Crisis Is Here

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Re: China's Subprime Crisis Is Here

#161

Post by Retric »

jcoffland wrote: post #66
foxhedgehog wrote: post #58

Earlier quoted context omitted.

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.

That may be true in the current environment, or in that which you measured in your study, but might be totally different in a struggling economy. Say they decide to have a massive sell of at a strategic moment. Combined with other factors it could have a larger effect. The value of one play matters in checkers but in chess it's the combined value of your moves that win the game.

Fed can buy all the bonds it feels like so there is no way to 'flood' the market with T-Bills. Net result would be China selling off it's reserves at a huge discount which would be good for the US.

Re: China's Subprime Crisis Is Here

#162

Post by skybrian »

wobbleblob wrote: post #96
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.

> 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. Can you explain how that devalues a currency? Isn't a simpler explanation that the reason they hold so many is because US government bonds were and still are the safest way to invest your money?

China exports a lot to the US, and exporters get paid in dollars. To use that money in China, they need to exchange it, increasing demand for yuan. There aren't enough imports into China to counterbalance this. Buying treasury bonds instead means they don't need to exchange the money and can keep on exporting. It also happens to be a very safe investment.

You could worry that someday the Chinese might want to cash in on this investment, but increasing US exports to China isn't actually a problem. Increased demand for US exports would improve the US economy.

People like to try to figure out which side is exploiting the other, but both sides are largely getting what they want out of this deal.

Re: China's Subprime Crisis Is Here

#163

Post by mathattack »

vkou wrote: post #148
mathattack wrote: post #130

Earlier quoted context omitted.

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).

True. It's very tough to make apples to apples comparisons across countries and cultures.

Re: China's Subprime Crisis Is Here

#164

Post by jqm »

melted wrote: post #15

FWIW, George Friedman (of STRATFOR) predicted this, except he believed the implosion of China would be on a truly catastrophic scale. So they could still be at the edge of a much deeper hole. See: The Next 100 Years: A Forecast for the 21st Century https://www.amazon.com/dp/0767923057

He also predicted Mexico and Poland would become world powers soon. Although there are some interesting insights, I take his predictions with a whole shaker of salt.

Re: China's Subprime Crisis Is Here

#165

Post by dangjc »

oliwarner wrote: post #82
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…

That's a neighbour so there's an obvious local power advantage. It's not unimpressive though and I completely agree about there being a scale and general surplus of engineering prowess that the rest of us just can't comprehend. What is perhaps more alarming is their development of Africa. I passed through a few African countries last year and China was everywhere . They're in the up-and-coming metropolises like Addis…

Interestingly, this is a voluntary form of colonialism. An external power comes in, builds a bit of infrastructure, and massively exploits natural resources, with minimal improvement for the local people. Macroeconomically, it also lets them recycle their huge current account surpluses. But this is done without the hassle and expense of a military invasion. The Chinese have it down.

Re: China's Subprime Crisis Is Here

#166

Post by idanoeman »

karmacondon wrote: post #133
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's interesting that all of the numbers in your post seem to be significant, but really aren't. The US "owes" China a trillion USD because the Chinese, investing on a national scale, need a safe investment that can support trillions and trillions of yuans. And in that regard right now, the US is the only game in town. China's GDP growth is high, but that's because they're starting from a GDP that's much lower than t…

Why would growth be "logarithmic"? Growth is exponential, with rates that yes, probably decrease over time. It's not logarithmic.

Re: China's Subprime Crisis Is Here

#167

Post by BookmarkSaver »

idanoeman wrote: post #166
karmacondon wrote: post #133

Earlier quoted context omitted.

It's interesting that all of the numbers in your post seem to be significant, but really aren't. The US "owes" China a trillion USD because the Chinese, investing on a national scale, need a safe investment that can support trillions and trillions of yuans. And in that regard right now, the US is the only game in town. China's GDP growth is high, but that's because they're starting from a GDP that's much lower than t…

Why would growth be "logarithmic"? Growth is exponential, with rates that yes, probably decrease over time. It's not logarithmic.

Are you serious? As they start reaching the upper levels of wealth the ability to keep catching up decreases dramatically. When they are an impoverished country and a wealthy partner throws money at and around them, they will start catching up fast because that amount of wealth is massive compared to what they had.

Re: China's Subprime Crisis Is Here

#168

Post by hackuser »

lmm wrote: post #93
hackuser wrote: post #32

Earlier quoted context omitted.

I've heard others say that, but I don't understand: Other than the 2008 recession, which was a much worse one than its predecessors, what is any worse than earlier periods? If you are thinking of 9/11, before that we had the Cold War, against an enemy many orders of magnitude more dangerous and damaging. I almost think that conservatives who sell crisis, to justify all sorts of things from civil liberties restriction…

Those of us who grew up in the '90s naturally compare to that. No Cold War, "the end of history", little in the way of foreign wars (and a remarkably successful one in Serbia where it felt like we were the good guys and were successful with it), an economy so successful that the Clinton administration was having to make plans for what would happen if the Treasury stopped issuing bonds, what felt like a hopeful techno…

It's amazing that one small organization and one isolated, small event (in terms of world history; it wasn't the fall of Rome or WWI) changed so much.

I would argue that our reacttion is what changed us, not what they did.

Re: China's Subprime Crisis Is Here

#169

Post by hackuser »

seehafer wrote: post #79
hackuser wrote: post #32

Earlier quoted context omitted.

I've heard others say that, but I don't understand: Other than the 2008 recession, which was a much worse one than its predecessors, what is any worse than earlier periods? If you are thinking of 9/11, before that we had the Cold War, against an enemy many orders of magnitude more dangerous and damaging. I almost think that conservatives who sell crisis, to justify all sorts of things from civil liberties restriction…

> but how else can you characterize voting, multiple times, to not only shut down the whole government but actually trying to make it default on its debt? A last ditch effort to try to bring some sanity to a budgeting process so broken that the the national debt has doubled since Obama became President.

> sanity

Defaulting isn't sanity and would make our economic and fiscal problems far, far worse.

Re: China's Subprime Crisis Is Here

#170

Post by cvwright »

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…

Interesting interpretation. I hadn't thought about it that way. Instead, I got a very different impression from the article -- more that this is the next big scare for the global economic system. Like the US subprime mortgage crisis in the previous decade, or the Russian/Asian debt crisis that sank Long Term Capital Management in the late 90's.
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