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China Can’t Sustain Its Debt-Fueled Binge, Moody’s Says

nytimes.com

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Re: China Can’t Sustain Its Debt-Fueled Binge, Moody’s Says

#11

Post by salesguy222 »

crdoconnor wrote: post #5
salesguy222 wrote: post #2

Slightly off-topic, but in 2011 when Moody's downgraded the US credit rating, we all were saying "well, Moody's is feeling a bit moody". The US continued to struggle in fits and spurts in some industries. But lately, it has been all "risk-on" for most traders. We have been through a few "asian asset bubbles" before. Whether this is the big one is anybody's guess, but sometimes the broken doomsday clock gets the time…

That was S&P. It coincided with the SEC and the Justice Department investigating them for fraudulently overrating mortgage back securities.

https://en.m.wikipedia.org/wiki/United_States_federal_govern...

Moody's downgraded on June 2 2011... or should I say at least "changed outlook to negative"

Re: China Can’t Sustain Its Debt-Fueled Binge, Moody’s Says

#12

Post by ryandamm »

theprop wrote: post #6

What about the US's debt-fueled government? Sustainable?

Sustainability is a function of total annual deficit relative to growth in ability to service the debt. Deficits that lead to productivity-enhancing investments will pay for themselves: education, infrastructure, etc. Deficits that result from cutting taxes will not: the idea that we're on the virtuous part of the Laffer curve has been thoroughly debunked in economic, if not political, circles.

Furthermore, debt in the US is a result of exogenous capital flows, not the other way around. If the US government tightened belts and cut heavily, leading to a fiscal surplus (or even just balanced gov't budget), we would see a growth in private sector debt.

It's one of my favorite hobby-horses, this idea -- because it's counterintuitive until you dive into the balance sheet analysis, then it makes perfect sense. All credit due to Michael Pettis:

http://carnegieendowment.org/chinafinancialmarkets/70042

Re: China Can’t Sustain Its Debt-Fueled Binge, Moody’s Says

#13

Post by Analemma_ »

alexbeloi wrote: post #8
theprop wrote: post #6

What about the US's debt-fueled government? Sustainable?

US debt to GDP ratio is half that of China, not claiming the trend is sustainable but that (at least according to Moody's) China is more at risk of a runaway debt-spend crisis than the US is.

Not only is our debt-to-GDP ratio lower than China's, it's lower than most (not all) countries in Western Europe.

There is so much uninformed hysteria about the US national debt, it's incredibly frustrating and blocking the implementation of better policy.

Re: China Can’t Sustain Its Debt-Fueled Binge, Moody’s Says

#14

Post by Apes »

alexbeloi wrote: post #8
theprop wrote: post #6

What about the US's debt-fueled government? Sustainable?

US debt to GDP ratio is half that of China, not claiming the trend is sustainable but that (at least according to Moody's) China is more at risk of a runaway debt-spend crisis than the US is.

Where did you get this info? Every source I see shows China's Debt/GDP (42.90%) as much lower than the US (104.17%).

Re: China Can’t Sustain Its Debt-Fueled Binge, Moody’s Says

#15

Post by ryandamm »

I think the best model to understand this is Michael Pettis's balance sheet analysis. He covers it extensively, but here's his latest digest of the model:

http://carnegieendowment.org/chinafinancialmarkets/66221

It really makes clear how stark the choices are for China. The debt binge of the last ~10 years has masked the flattening out of productive investment, and there will need to be a reckoning. Hopefully it's a soft landing, but that will depend on politics as much as anything.

Re: China Can’t Sustain Its Debt-Fueled Binge, Moody’s Says

#17

Post by thejohnhenry »

alexbeloi wrote: post #8
theprop wrote: post #6

What about the US's debt-fueled government? Sustainable?

US debt to GDP ratio is half that of China, not claiming the trend is sustainable but that (at least according to Moody's) China is more at risk of a runaway debt-spend crisis than the US is.

US debt to GDP is more than double China's. Where are you getting your data?

Re: China Can’t Sustain Its Debt-Fueled Binge, Moody’s Says

#18

Post by Analemma_ »

Apes wrote: post #14
alexbeloi wrote: post #8

Earlier quoted context omitted.

US debt to GDP ratio is half that of China, not claiming the trend is sustainable but that (at least according to Moody's) China is more at risk of a runaway debt-spend crisis than the US is.

Where did you get this info? Every source I see shows China's Debt/GDP (42.90%) as much lower than the US (104.17%).

The parent is talking about total debt - public, household, and corporate. China's public debt isn't too much but the corporate debt is what has skyrocketed. Many analysts treat Chinese corporate debt as more-or-less equivalent to public debt (and don't do this for the United States), on the assumption that the government will bail out SOEs rather than allow them to fail and create widespread unemployment. That may or may not be true, but that's why they make statements like "China's debt is twice the United States'".

Re: China Can’t Sustain Its Debt-Fueled Binge, Moody’s Says

#19

Post by JumpCrisscross »

Apes wrote: post #14
alexbeloi wrote: post #8

Earlier quoted context omitted.

US debt to GDP ratio is half that of China, not claiming the trend is sustainable but that (at least according to Moody's) China is more at risk of a runaway debt-spend crisis than the US is.

Where did you get this info? Every source I see shows China's Debt/GDP (42.90%) as much lower than the US (104.17%).

China's total debt is about 250% of GDP, compared to over 300% for the United States [1]. It's more useful to observe total debt since lots of debt the Chinese government will ultimately have to assume, in one form (e.g. financially) or another (e.g. political turmoil), is not held on the government balance sheet, e.g. debt issued by its banks or critical employers or regional governments. Most American debt, on the other hand, is issued by relatively-well regulated banks and by the federal government.

[1] https://www.theguardian.com/business/2016/jun/16/chinas-debt...

Re: China Can’t Sustain Its Debt-Fueled Binge, Moody’s Says

#20

Post by flukus »

Analemma_ wrote: post #13
alexbeloi wrote: post #8

Earlier quoted context omitted.

US debt to GDP ratio is half that of China, not claiming the trend is sustainable but that (at least according to Moody's) China is more at risk of a runaway debt-spend crisis than the US is.

Not only is our debt-to-GDP ratio lower than China's, it's lower than most (not all) countries in Western Europe. There is so much uninformed hysteria about the US national debt, it's incredibly frustrating and blocking the implementation of better policy.

> it's lower than most (not all) countries in Western Europe.

Portugal, Italy and Ireland aren't "most of western europe": https://en.wikipedia.org/wiki/List_of_countries_by_public_de...

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