Chinas Trillion Dollar Debt Problem

#1
http://www.theaustralian.news.com.au/story/0,20867,19067992-36375,00.html

Not surprising really. The fact that there seem's to be no oversight and or enforcement of banks could be a problem for the regime. The US has had a number of bailouts of lending institutions that played fast and loose with banking law and they were very expensive affairs. With $1.18 trillion in bad debts to write off will certainly cause a lack of confidence in the banking system.
 
#2
I have read numerous reports to this same effect.

An export boom can cover up flaws in a country's financial system. These become obvious in a slump. Warren Buffett rightly observed that you can't tell who's swimming naked until the tide recedes.

They've got a corruption problem. A party big shot can put the touch on a bank for a "loan" for some dubious enterprise with poor repayment prospects.

A similar phenomenon is endemic to Japan. The problem borrowers are yakuza gangsters rather than communists. When these men are pressed for payment they register their indignation in a very personal and unmistakable way.
 
#3
When you owe the bank $1,000,000 you have a problem. When you owe the bank $1,000,000,000,000 THEY have a problem.

Wouldn't the US love to have a debt of only 1 Trillion?

And T6, I know know don't have the first damn clue about the ramifiactions of foreign held debt, so why bother starting the thread?
 
#4
"A similar phenomenon is endemic to Japan.' wrote N-W-D.
How true.
Over twenty five years ago I read an artical in the Singapore Strieghts Times saying that Japan would have massive problems over Non Performing Loans. The gist of the artical was that loans where made and the Bank never expected their 'Friends' to repay, the banks small investors, 'The Nobodys' would have to pay off the loan.
Also the level of cash holdings, that Oriental banks where 'allowed' to loan where far far higher then any 'Western' bank with their mature economies would be permitted.
Banks make money through loaning money and recieving intrest, but you can only lend a given %, far lower in the 'west' then the east. Western banks make bad investments but not quite to the degree of their Oriently counterparts.
Finally Orientals/Buddists have a far more fatalistic attitude, They are prone to risk ALL, if it fails well maybe next life time.
john
 
#5
Crabtastic I started the thread because some folks think China is some sort of economic powerhouse, when actually their economy is on very shaky ground.
 
#6
As I understand it this would be the 'second tranche' of NPD that the Chinese have had to deal with. Further I understand that the majority of the banks with NPD are (small) state owned and not the internationally know 'brnads'.

Therefore, it would be in the government interest to allow the banks to fold. They have been mis managed and are not productive. They can negate the negative affects buy selling a fraction of US T-Bond holdings to placate the depositers. Win win win!

- Get rid of useless banks
Provided that they sell some of their US T-Bonds to limit the damage to investors in the banks they could:
- minimise inflationary risks (by not distorting M3)
- reduce GDP from 12 - 8 % and put growth back on target.

Meantime they can continue to focus on developing 4-6 big international banking brands. (which are part owned by western banks) and tend to be regulated from within.

T6, whether the Chinese are an economic powerhouse is not really open to debate. What we all should take away from this is when an imbalance develops (whether it is trade/budget deficits or simply bad debt or speculative asset bubbles) the longer it goes uncorrected the more damaging it is. See the bit in bold, for the chinese it comes down how quick they are willing to resolve these issues and what is an acceptable level of pain for those affected. Equally true for the US, consumer debt and goevrnment debt is getting close to the tolerance level for the money markets. GWB tax cuts and failure to reform SS and Medicare are storing up problems for the long term. (yes i know it is also congress and the senate who have not helped that problem).

p.s. have you staretd ordering pizza's at work yet .....just want to know if I need my tinfoil hat yet. :wink:
 
#7
China and Hong Kong had $870 billion in Foreign Exchange reserves as of last september and certainly much higher right now...

Also the size of your debt isn't an issue as long as the rate of growth of GDP is larger than the real interest rate.... I can proove it if you really want but its very boring.
 
#8
The Chinese could always take Siberia, it is supposedly full of various reserves.
 
#10
Are working on the basis that;

a Billion is a Thousand Million and a Trillion is a Million Million ?

Rather than a billion as a million million.
 
#11
smallbore said:
Are working on the basis that;

a Billion is a Thousand Million and a Trillion is a Million Million ?

Rather than a billion as a million million.
better put that in noughts as my head is spinning !
 
#12
Darth_Doctrinus said:
Just for comparison...

The Chinese debt is $1 trillion...the US debt is here.

People in glass houses....
The link posted by Darth Doctrinus shows only the US federal government debt.

Here's a graphic depiction of the growth of total US credit market debt (federal, municipal, commercial, industrial, and consumer) to 2004: http://www.prudentbear.com/archive_...gory=Credit+Bubble+Bulletin&content_idx=38618

The data is carried forward to fourth quarter of 2005 here: http://www.economagic.com/em-cgi/data.exe/frbz1/fl894104005
This time series says that as of the end of 2005, total US credit market debt reached $ forty trillion two hundred thirty billion.

I've read elsewhere that the ratio of total US credit market debt to gross domestic product is over three, the highest ratio since gross domestic product collapsed at the onset of the Great Depression.

There is some truly serious financial fragility in the world and it's not confined to China.
 
#14
Not_Whistlin_Dixie said:
chocolate_frog said:
The Chinese could always take Siberia, it is supposedly full of various reserves.
I suspect that this possibility has already occurred to them and that they intend to act on it in their own good time.
you both been ready far too much tom clancy
 
#15
Jailorinummqasr said:
...

T6, whether the Chinese are an economic powerhouse is not really open to debate. What we all should take away from this is when an imbalance develops (whether it is trade/budget deficits or simply bad debt or speculative asset bubbles) the longer it goes uncorrected the more damaging it is. See the bit in bold, for the chinese it comes down how quick they are willing to resolve these issues and what is an acceptable level of pain for those affected. Equally true for the US, consumer debt and goevrnment debt is getting close to the tolerance level for the money markets. GWB tax cuts and failure to reform SS and Medicare are storing up problems for the long term. (yes i know it is also congress and the senate who have not helped that problem).
The US government debt being out of control is one of those great economic myths. What counts isnt' the actual amount but the amount per % of GDP. The US national debt is well within acceptable range and has fallen by a half a % in the last quarter in spite of the Iraq war. See this comparison chart



of US debt vis-a-vis other nations. This chart shows that if current trends from the last quarter continue the annual budget, which is different from the national debt, is on line for being balanced in two years.

And it's medicare not social security which is the real problem. I spent a month in my civilian job escorting a delegation of chief physicians from the Russian Far East around the US a year ago. One of the insights I learned from hospital, insurance and other government officials was that something like 30% of all medicare costs occur in the final year of life for those over 65. In other words costs are easy to cut but only if we begin to make serious choices on when major medical procedures should be withheld later in life. Not a decision families are willing to face.

Consumer debt isn't just credit card spending on luxury items, it also includes buying a home. A large part of the increased consumer debt is due to home ownership in the US expanding in the last decade--the housing market has been booming--as individuals buy up in quality or purchase second homes for investment purposes. US consumer debt also includes student loans which give the debtor skills to acquire a job that pays more than not having that education. There's even a Keynsian argument to be made that in a time of good employment and growing economy in the US consumer debt plays a positive role in that growth. Consumer debt isn't a cut and dried negative on the economy. The sky may fall, but not all at once and probably not tomorrow.
 
#16
The tax cuts seem to be paying off big time.

WASHINGTON, May 10 (Reuters) - The U.S. government posted a larger-than-expected $118.85 billion federal budget surplus in April on strong government receipts, a Treasury Department report showed on Wednesday.

The April surplus compared with a $57.71 billion surplus in April 2005.

Wall Street economists polled by Reuters were expecting a $90 billion budget surplus for April.

The cumulative deficit for the first seven months of fiscal 2006, which began Oct. 1, was $184.14 billion, below the $236.92 billion deficit in the first seven months of fiscal 2005.

April outlays fell to $196.24 billion from $219.90 billion in April 2005, while receipts were $315.09 billion, up from $277.61 billion in April a year ago.

Receipts for the fiscal year to date were $1.353 trillion, the highest on record for the first seven months of the fiscal year, a Treasury official said.
 
#17
Virgil said:
Jailorinummqasr said:
...

T6, whether the Chinese are an economic powerhouse is not really open to debate. What we all should take away from this is when an imbalance develops (whether it is trade/budget deficits or simply bad debt or speculative asset bubbles) the longer it goes uncorrected the more damaging it is. See the bit in bold, for the chinese it comes down how quick they are willing to resolve these issues and what is an acceptable level of pain for those affected. Equally true for the US, consumer debt and goevrnment debt is getting close to the tolerance level for the money markets. GWB tax cuts and failure to reform SS and Medicare are storing up problems for the long term. (yes i know it is also congress and the senate who have not helped that problem).
The US government debt being out of control is one of those great economic myths. What counts isnt' the actual amount but the amount per % of GDP. The US national debt is well within acceptable range and has fallen by a half a % in the last quarter in spite of the Iraq war. See this comparison chart



of US debt vis-a-vis other nations. This chart shows that if current trends from the last quarter continue the annual budget, which is different from the national debt, is on line for being balanced in two years.

And it's medicare not social security which is the real problem. I spent a month in my civilian job escorting a delegation of chief physicians from the Russian Far East around the US a year ago. One of the insights I learned from hospital, insurance and other government officials was that something like 30% of all medicare costs occur in the final year of life for those over 65. In other words costs are easy to cut but only if we begin to make serious choices on when major medical procedures should be withheld later in life. Not a decision families are willing to face.

Consumer debt isn't just credit card spending on luxury items, it also includes buying a home. A large part of the increased consumer debt is due to home ownership in the US expanding in the last decade--the housing market has been booming--as individuals buy up in quality or purchase second homes for investment purposes. US consumer debt also includes student loans which give the debtor skills to acquire a job that pays more than not having that education. There's even a Keynsian argument to be made that in a time of good employment and growing economy in the US consumer debt plays a positive role in that growth. Consumer debt isn't a cut and dried negative on the economy. The sky may fall, but not all at once and probably not tomorrow.

Fair point and well made but...

a) The housing market is slowing
b) US consumer spending has been funded until now by remorgaging property...there is almost no room for getting consumption from property
c) The US is experiencing twin deficits and this is what makes it more intresting...Current account, Trade Balance a Fical Deficits...

You have to question is this really sustainable... Debt spirals out of control if real interest rates rise above GDP growth
So where is growth going to come from... consumers have no room to manoveur, enterprise spending is too small to make up for it, Government deficits are becoming unsustainable not because it is too big in some way but because it is funded by East Asian & Middle Eastern Central Banks, China will depeg eventually and the dollar is going to fall dramatically (as it has been doing for the last several weeks)...Japan & China are putting up intrest rates so you simply won't have the buyers in T-Bills anymore. You are going to have to pay larger and larger interest on a debt with a falling currency so your debt will become not larger but unservicable....

So once you have lost fiscal expansion and consumer spending it does indeed become a problem.
You are going to have to deal with it one way or another and consumers are going to realise that taxes will be raised and hence consumption will start falling as well as people save for higher taxes.
 
#18
tomahawk6 said:
Crabtastic I started the thread because some folks think China is some sort of economic powerhouse, when actually their economy is on very shaky ground.
It's hardly a recent revelation or news to me. I'm just wondering why you bring up the subject when, judging from your previous form and inability to perform any kind of higher cognitive function, it's quite transparent that you have no idea what any of it actually means.

Yes, China's finances are in sh1t state, but it's not in anybody's economic interest to let the place go down the tubes. Therefore its a fairly safe bet that concessions and allowances will be made for the CCP's irresponsibilty- the least of these being the relaxing of mandated reforms to the Chinese banking system that were preconditions for WTO membership that could, in the worse case scenario, bring about the complete collapse of the current regime. At the end of the day, the West is too concerned with the prospect of making money from 1.2 billion or so Chinese and will continue to plough money in to what they perceive to be the next big thing, despite the fact that the in the past 20yrs or so, the Chinese have hosed almost every major investor they've dealt with.

I know you're probably not one for "the book learnin'" but I'd highly recommend the book "The China Dream" by Joe Studwell of the Economist Intelligence Unit.
 
#19
For the first eleven months of fiscal year 2006 (starts Oct 1, 2005), the [USA] National Debt has increased $582.3 Billion to $8.515 Trillion. This new record increase eclipses the previous record of $567.7 Billion set in fiscal 2004 for the comparable period.

On an annual basis, the all time record increase in the National Debt was $595.8 Billion, set in fiscal 2004. That record will probably be broken next month.


"Fiscal 2006: Record YTD Increase in National Debt" 3 September 2006
http://calculatedrisk.blogspot.com/

How do we reconcile record-breaking growth in the US national debt with assertions of a first quarter '06 surplus in the Reuters article Tomahawk6 quoted?

Self-serving definitional sloppiness on the part of the authors of the US Treasury report cited in that Reuters article.

The author of my above-linked article points out, for example, that, among other things, the Treasury, in compilation of the "Unified Budget," treats the assets of insolvent private pension plans taken over by the Pension Benefit Guaranty Corporation as "revenue." He says:

Maybe we will get lucky in '07 and GM will go bankrupt, reducing the Unified budget deficit for fiscal 2007. Talk about a perverse result! But this example shows why looking at the Unified Budget is insufficient when trying to understand the fiscal difficulties of the United States..
 
#20
Speaking as an informed businessman who has lived in China for over four years, employs Chinese, makes money here and who has never been 'hosed down'(?) the vast majority of China's banks bad debts a legacy of the move away from Communism, are controllable (those that are not are already being traded by Western Debt specialists). The serious problem is the vast amount of foriegn exchange held by Central Government (mainly US T bonds) and the LACK of debt held by individual Chinese. On adverage a Chinese Citizen SAVES 25% of their annual salary, massive attempts by Central Government to create a consumer society by getting people to go on holiday or just buy some glittery stuff they want but don't need, is lurching forward.

Chinese and Asians in general are much more careful with their money than Brits or Yanks - who average something like $15000 debt each.
 

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