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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

#21

Post by jseliger »

ryandamm wrote: post #15

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…

and there will need to be a reckoning

And yet when I read things like this I also think of the cliché, "Markets can remain irrational longer than you can remain solvent."

People have been waiting decades for Japan's post-boom day of reckoning and we've not seen it.

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

#23

Post by theprop »

ryandamm wrote: post #12
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 t…

Are you seriously suggesting that US government deficits are run to invest in education and infrastructure? Deficits are mostly attributable to military spending. I'm doubtful that killing people in other countries who present absolutely no threat to you is productivity-enhancing.

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

#24

Post by snomad »

ryandamm wrote: post #12
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 t…

> Sustainability is a function of total annual deficit relative to growth in ability to service the debt

And at some point the growth stops, but the policy of expanding generally doesn't.

Reality is, Europe and America are going to have further population declines a la Japan. Shrinking population = shrinking growth.

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

#25

Post by Analemma_ »

jseliger wrote: post #21
ryandamm wrote: post #15

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…

and there will need to be a reckoning And yet when I read things like this I also think of the cliché, "Markets can remain irrational longer than you can remain solvent." People have been waiting decades for Japan's post-boom day of reckoning and we've not seen it.

> People have been waiting decades for Japan's post-boom day of reckoning and we've not seen it.

Japan's "day of reckoning" already came: what they've been in for the last 25+ years is the "post-reckoning" of ZIRP, low growth and low inflation. If the Chinese debt bubble explodes, it's not like the country is going to collapse, the most common prediction is that they'll become "Japan 2.0" where the country is functional but trapped in anemic growth because they won't let zombie businesses fail.

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

#28

Post by kilroy123 »

theprop wrote: post #22
theprop wrote: post #6

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

Argentina went bankrupt at the US's current debt to GDB ratio I believe (~80%).

Argentina is NOT the USA. The size, the resources, the people, the culture, and more importantly of all the regulations regarding businesses. Huge difference.

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

#29

Post by dragonwriter »

theprop wrote: post #23
ryandamm wrote: post #12

Earlier quoted context omitted.

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 t…

Are you seriously suggesting that US government deficits are run to invest in education and infrastructure? Deficits are mostly attributable to military spending. I'm doubtful that killing people in other countries who present absolutely no threat to you is productivity-enhancing.

> Deficits are mostly attributable to military spending.

Post-WWII federal deficits are mostly attributable to declining total effective income tax rates.

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

#30

Post by pmorici »

theprop wrote: post #23
ryandamm wrote: post #12

Earlier quoted context omitted.

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 t…

Are you seriously suggesting that US government deficits are run to invest in education and infrastructure? Deficits are mostly attributable to military spending. I'm doubtful that killing people in other countries who present absolutely no threat to you is productivity-enhancing.

GI bill pays for a lot of education
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