China Can’t Sustain Its Debt-Fueled Binge, Moody’s Says
nytimes.com
nytimes.com
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.
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.
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.
It's quite tragic.
We saw the bust in the early 90's.
What appeals to me about Pettis's analysis is it's rooted in a simple quantitative model that rests on accounting identities. When you've got a model that fundamental, it's easier to make strong predictions.
Also, "markets being irrational" is a claim about asset bubbles. What we're discussing here is much larger, and subject to its own laws of dynamics. It's not a bubble, per se -- it's more like a bad loan that keeps getting rolled over and bigger, and no one acknowledges the loan won't be repaid. Someone is going to lose out, but the day you can't cover the interest payments is the day you have to acknowledge the loss.
In the case of China in 2017, the debt is held by banks, who are functionally insolvent if the bad loans (usually to property developers and commercial entities) were called in. Many of these commercial entities (large, state-owned enterprises, or state-adjacent conglomerates) simply have no possible way to service the actual loans, short of rolling over more debt.
This isn't about asset prices, or a bigger fool bidding up the price of, say, housing stock: it's about the ratio of debt to productive capital. And the reason debt ballooned post 2008 is because the regular investment engine (mostly infrastructure and housing) had started to lose steam. The growth in debt in the economy was a rational response to the need to keep growth numbers high.
But deferring the reckoning doesn't make it better. Though it's held in the corporate sector, much of China's debt behaves almost like revolving consumer credit in the US.
(Also: one form of reckoning is flat growth for an extended period of time; Japan's lost decade is entering its third decade now, and systemic debt is still really bad. Pettis holds up Japan as one example of how not to correct the imbalances.)
But I'd hardly describe that as a "reckoning". It sounds more like a predictable "regression to the mean"
China's unprecedented growth is unsustainable; people know this. Case in point: this article.
1) Generally, the nature of a bubble is that nobody knows when it will pop. People knew about the U.S. asset bubble in the mid-2000s for years, but even those not caught up in the bubble mass psychology couldn't accurately predict when it would collapse. The same was true of the dot-com bubble around 2000. You can be right that there is a bubble, but be far wrong about when it ends.
2) There was a stock broker looking for new business. He cold called 512 people (he must have been a quant); half he told to sell X stock, half he told to buy. The next week he called the 256 for whom he'd made the right prediction and did the same again: Half he told to sell, half to buy ... several weeks later he was down to 16 people. He called all of them and said, 'look, I was right 5 times in a row ...'.
Except, what you just described is a scam and not something a registered broker can do.
FTFY
The point is that if enough people make prediction, some of them will right over and over and over - even though it's all random.
Ha, that's a great observation; I hadn't thought of it. On one hand, I'm very uncomfortable with any implied comparison to the most well known practitioner of parables. On the other, many others have used the form. Maybe I'll write all my HN posts in parable form - 'those who have ears to hear' will understand; the others I won't have to deal with. I could use it for business emails too.
Coming up with that many parables might be challenging.
I actually replied to you ask who you were referring to, since I had no idea, but then another comment said who it was so I deleted my reply.
I clearly am never going to be able to use the word "parable" again. I'll say fable from now on, even though fables have animals in them, not humans.
It's a really effective technique for getting a point across to most people if they'll give you the time to listen and you're a good storyteller. It's a bit less effective in highly nerdy spaces but still worth doing.
* Actually a show within the actual show "Square One TV"
The market can stay irrational longer than you can stay solvent.
(Actually asking, I know they've been loosening their financial walls but am not sure what the current controls are)
Chinese equities are something else entirely, closer to a derivative class. And hard to trade in directly (not that I have tried or would ever try -- I'm in index funds).
And the truth is, the banking system is less liquid, and the equities market much smaller, than developed economies. Oh, also, short-selling is illegal, I believe.
So no, there aren't any natural, market-driven checks on this stuff.
Before an econ degree I thought it could all be understood the way we understand, say, a chemical reaction, or some process with rules, laws and order.
But afteran econ degree the thing I realized is that money and economics, it's all about people. Money and debt has no intrinsic value (especially in 2017)--it's just promises and credits people made to each other.
But people are prone to irrationality, cheating, and frankly, their own bullshit. The global financial system in 2017 has not done everything it can to minimize this, either. If anything, they take advantage of it where it profits them.
Source pdf (page 1): https://www.rba.gov.au/publications/bulletin/2017/mar/pdf/bu...
US DOE and IEA oil forecasts are similar.
When the collapse will happen, people will be outraged and will pretend like in Greece that they were betrayed by their politicians, lied to. But this accumulation of debt happens in plain sight, it is just that no one seems to care.
Hard to predict the timig, like it is hard to predict the timing of a market crash. I have heard people calling the end of the current economic cycle for the past 5 years. Some say Trump has delayed a correction that should have happened this year by 2-3 years (if his economic package goes through). Well it's the same with the accumulation of debt. You can live on the credit card as long as your creditors are not concerned about your credit. At one point the sentiment turns and your credit lines get cut. Then it is the end. Greece is there. Italy is close. France and Japan a little further. The US will get there eventually.
[1] https://www.thenation.com/article/goldmans-greek-gambit/
But let's say a majority of voting eligible citizens decided their country needs to dial down debt-fueled growth? Well there's almost nothing they can do, even though popular opinion has changed.
In Greece, even with the fraud that went on voters still had to know bad financial choices were being made. Heck, I live in the U.S. and know when politicians are using financialeering to make the books balance better...
This kept German industry competitive, and enhanced exports. This overall made the euro stronger, but not as strong as the deutschmark would have been. Greece suffered from the other end: they became less competitive by being tethered to Germany's economy.
The value of these analyses is they try to plumb the limits of the model; there was a substantial sea change in how China's economy operates ~2008-9, with a shift towards massive debt growth. That's inherently less sustainable, particularly because the rate of debt growth is climbing.
If you mean sound growth, they were right. That has ended and growth is increasingly based on financial tricks that will make things worse in the long term, so I would say the experts turned out to be correct.
Also, even with all the debt, yearly GDP growth is down from the previous 10% to something like 6%, so again the experts were right.
However, on first level principles, money is simply an abstraction; it's a medium for trading your services for other people's services. And if you become more efficient, you can buy more services with the same amount of effort and vice versa. The root cause of this increase in efficiency is technology.
As a developing country, China has lots of easy productivity growth just by adopting current technologies on the technological frontier. Therefore, I think an analysis on how fast China is advancing in various technological areas and their industrial policy would be much more useful than one just at a financial level. Are Chinese companies as a whole becoming more productive and creating new technology?
Pettis does discuss this at length.
From the article, Pettis assumes the following is true:
1) China has overinvested in infrastructure and manufacturing capacity to such an extent
that in the aggregate the cost of additional
public sector investment exceeds the present
value of future increases in productivity generated by
the investment
2) China's long-term sustainable growth rate is substantially below the economy's current GDP growth target
Basically, qualitatively, you're right. Technological improvements can generate growth from scratch. But when you look at the historical data to try to quantify it, you see it's quite modest. Big gains have come from: women entering the workforce, electrification, containerization. The rest is incremental enough it doesn't matter in the same way.
(Part of this is how it's measured; the fact that consumers get much more value for their dollar isn't well captured, but the point remains because it's about debt-servicing, not consumer value.)
Two, the 'average' in China includes huge numbers of the rural poor. They are living in the third world; an office worker in Shanghai is not, but her income's contribution to the average is diluted by rural subsistence farmers.
This does suggest that there is room for growth via urbanization and modernization: if subsistence farmers switched to commercial farming, and the excess labor moved to productive cities, in theory you've got a productivity boom. But China's productivity is predicated on the world's ability to absorb their excess production, which is not actually unlimited. That said, the central government is taking deliberate steps to encourage urbanization (while simultaneously not undertaking some reforms that would help, like overhauling the hukou system).
My Dad used to work as a merchant seaman, I believe he got up to first officer and had passed his captain's exam.
But then the big container ships came along, and they needed a tiny fraction of the captains, officers and seaman they needed previously per tonne and he ended up coming ashore to pursue a different career. His stories from those times are pretty amazing.
China is still pretty much a planned economy, where the government is in control of major state-owned corporations. I wouldn't worry too much about the debts that they owe to the state.
Why not? The state can forgive the debt, but when those resources disappear from the economy then many people will lose out.
My initial reaction is "...and?"
Not because I'm trying to be obstinate or lacking empathy, but because I'm trying to hard visualize a situation (re: China) where those who lose out legitimately can do anything about it.
They can't realistically move, or revolt. They can starve[0], but that's happened in the past and the State really didn't suffer for it.
--- [0] https://en.m.wikipedia.org/wiki/Great_Chinese_Famine
Some can. Those are the ones who matter. No man rules alone--political leaders are only powerful insomuch as they can incentives or coërce others to act for them. A ruling class whose living standards is falling is a ruling class more willing to entertain other leaders.
"Certain types of unemployment are likely to be perceived as more politically costly than others - e.g. because returning to family farms acts as a kind of safety valve, even though a significant fall in living standards, unemployment among migrant workers is likely to be less costly, or because university graduates are presumably more communicative and have higher expectations, their unemployment might be more costly" [1].
[1] http://carnegieendowment.org/chinafinancialmarkets/66221
History isn't in agreement, and time after time, the peasants will starve before the bourgeoisie suffer to a point that they feel enough pain to revolt.
It's economically cheaper for the State to continue to pay for the ruling classes' requisite "hookers and blow" than it is to pay for social programs.
I can't recall a single civilization where the majority of people were "those people". The point is there are enough who demand enough that mortgaging the non-influential majority to pay for "those peoples'" bread (or as you put it, "hookers and blow") will be a short-term patch at best. (Reverse wealth transfers are not uncommon in a regime's dying days. Case in point: Venezuela.)
The bill eventually comes due, but what cost does the population pay in the interim?
I hope that all subjugated and disenfranchised people rise up to remind their governments that they are the reason that those governments ultimately exist, but the cost of that "disobedience" is a heavy burden if they don't succeed.
Another example is the scientific and military grant-making processes. Such grants may fund labs and companies with wealthy owners and managers. But that isn't the intent behind the grants. Furthermore, politicians--as a group--don't existentially fear the defense contractors or contract-lab operators.
Now consider Venezuela. Babies are starving [3]. Yet bondholders get paid. Why is the government more afraid of its bondholders than citizens? If it's because the government fears the bondholders' reactions, e.g. military insurrection, more than popular revolt then it's a desperate maneuver.
[1] https://en.wikipedia.org/wiki/2008_Bank_Bailout
[2] https://en.wikipedia.org/wiki/Emergency_Economic_Stabilizati...
[3] https://www.nytimes.com/2016/05/16/world/americas/dying-infa...
High rates of growth in developing countries, with the rate slowing as they 'catch-up' to more developed countries, is also what the bog-standard macro-growth model (Solow-Swan) predicts.[0] To simplify, developing countries will have lots of labour inputs and relatively few capital inputs. Therefore the marginal factor productivity of each capital input will be high. Eventually, as the economy reaches capital saturation, the marginal productivity of capital will decline and the economy will settle into a low 'steady-state' growth level, where real growth is largely the product of technological advances.
This is why I've always been puzzled by economic commentators who assume China will continue to enjoy 7-9% GDP growth rates forever. Although I'm not suggesting that there's "nothing to see here" in this particular case. China does indeed have a bubble (and massive oversupply) in its residential property market, mostly due to the stimulus deployed just after the GFC. It could make one hell of a pop.
[0] https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model#Condi...
This is a theory based on NeoClassical economics which modern Behavior Economics finds that the models of NeoClassical economics fail in nearly every situation [2].
The Solow-Swan model has no rigor, predictions, or testable results to justifying its usage nor faith in its system. Science is a quantitative game, yet economics isn't?
[1] https://academic.oup.com/qje/article-abstract/70/1/65/190377...
- This is just a simplified description of probably the simplest macro-economic growth model you'll learn if you study economics. It's basically the model you learn in Macro 101. I didn't really want to write a super-long post going through all the extensions of the base model (not to mention the more complicated micro-economically founded concepts, models and theories you'd learn if you study developmental economics) as one of the predictions of the simple model that I thought relevant, that economies experience slower rates of growth as they reach capital saturation, is empirically supported.
- It's not intended to accurately reflect all aspects of a actual economy. No model is. If a model did this, it wouldn't be a model. We would probably just call it 'the economy'. It's just a simplified model from which a number of more complex extensions have been made, but I didn't feel were worth going into.
- It doesn't purport to make realistic assumptions, and no-one with any sense would think that to be the case. In addition to what you've pointed out, it also assumes the economy only produces a single good, has no government, no international trade, and constant returns to scale. All of these are almost certainly incorrect to varying degrees. Despite these simplifying assumptions, that does not mean the model is useless, or that it does not make any testable predictions. No-one in their right mind would think these assumptions are correct.
I'm honestly not sure what level of realism you expect an economic model to have. Just because a model is strictly wrong (as all models are; hence the name: model), does not mean it isn't useful. You mention empirical results from behavioural economics, which strongly suggest the neoclassical assumption of perfect actor rationality is incorrect. Again, this is just a simplifying assumption under which models can still yield accurate predictions in the large. Is Newton's law of gravitation completely correct? No, and it's been superseded by general relativity. However, is it still useful? Yes.
I can't really think of any economists (and this is certainly true for those I work with), let alone any people in general, who would believe any of these assumptions accurately reflect reality. There are a whole bunch of others too, like the implicit assumption that the labour-capital split of income remains constant. This is also almost certainly not correct as well.
It, and its extensions which account for 'human capital' (which has a multiplicative effect when combined with physical capital) which the simplified model just rolls into the solow residual (i.e. total factor productivity), do make a number of testable predictions, some of which have actually been tested in cross-country econometric studies. For example, here's a paper that examines a number of extended models, and among other things, examines the evidence for absolute vs conditional convergence (http://www2.stat.unibo.it/brasili/file/2009-2010/COSDI/chap1..., see pages 48 & 49).
You can literally just look at the model equation, do some simple algebra to turn one of the independent variables into the sole dependent variable and, presto, you have a prediction. Here are a few:
- An economy will converge to a balanced-growth equilibrium, regardless of its starting point. At this point, the growth of output per worker is determined solely by the rate of technological progress.
- At equilibrium, the capital/output ratio depends only on savings, growth, and depreciation rates.
- Countries with higher savings rates will accumulate capital at a faster rate (if all other relevant features of these economies are the same, which they aren't).
- If productivity is the same across countries (which it isn't), then countries with less capital per worker will have a higher marginal productivity of capital and provide a higher return on capital investment. Consequently, in a world of open market economies and global financial capital (which does not exist, and probably can't), investment will flow from rich countries to poor countries, until capital/worker and income/worker equalise across countries.
All that said, if you are able to produce a model that makes no incorrect assumptions, accurately accounts for bounded rationality, and all its predictions in every real world scenario are accurate, you'll win a nobel prize (and will also become filthy rich by investing according to this super-model's predictions).
Given us economist have simply just been 'doing it wrong' this whole time, because we foolishly didn't realise SF computer programmers held a much deeper understanding of macroeconomics, I'm really excited to being a first-hand witness to, what will be, a quantum leap in our understanding of macroeconomic dynamics and development economics.
I'll try to make sure to list every relevant caveat (the above is only a partial list, at best, for this particular model btw), before daring to discuss an unscientific subject like economics (which I apparently know nothing about).
EDIT: Oh fuck it. I quit.
Internet message boards (yes, even HN's) are not kind to actual expertise.
> Internet message boards (yes, even HN's) are not kind to actual expertise
Would you elaborate on this, in particular what you mean by buried? I'm assuming you're referring to 'spangry's responses. Given the nature of threading and where 'spangry chose to respond, I don't see how it could be anywhere other that where it is. As of the posting of this comment, both of 'spangry's responses are the highest of its siblings. Are you thinking of a different model of threading or highlighting highly-upvoted comments?
As for why it's "hilarious" (okay, overstatemetn) -- it's not really a critique of how comments work -- more just that this is sort of an off-topic subject matter for the audience, and spangry is trying to reply to a comment.
If I were spangry, I would've replied to the post itself. I think HN commenters are pretty thoughtful, and his detailed post probably would've risen to the top, and enhanced the overall conversation.
So the right way to read my snark is more as a commentary on the fact that economics is a technical subject, but most technical readers at this site are technical in different ways. I would assume the top comment (and attendant conversation) would be spot-on for the latest framework or software technology, though.
China's government debt situation isn't bad.[1] Government debt / GDP is less than half that of the US. Japan is much worse off, with the world's highest Government debt to GDP ratio.
What's really likely to hit China is the same thing that's hitting the rest of the developed world - it just doesn't take all that many people to make all the stuff. This is a killer for an export economy. This hit in Japan 20 years ago, in the US 10 years ago, and is starting to hit in China.
The biggest suggestion of trouble is that so many wealthy Chinese are trying hard to get assets out of the country. This fuels the Vancouver and London real estate booms, and in a lesser way, Bitcoin.
[1] http://www.tradingeconomics.com/country-list/government-debt...
Without the perception that moral hazard exists, this credit binge is really dangerous.
Not covered in the article I linked in particular, but his main idea is that China has had investment-fueled growth that's no longer sustainable; the foundation for all advanced, post-industrial economies is a robust consumer sector. China's is stunted at best. That's the motivation for transfers, not a productivity argument.
He's complaining that China's individual savings rate is too high?
"Use it up. Wear it out. Make it last. Or do without." - U.S. Government, WWII.
Maybe I'm misunderstanding what he's saying, but isn't what he describes true of any export-driven economy? And, doesn't it ignore the fact that a large portion of the country is still pre-industrial and is easy pickings for GDP growth? It should be not terribly difficult to grow GDP via moving these people to an industrial standard of living based on domestic consumption, albeit not nearly as easily as in an export-driven economy where your customers are holding your hand along the path. And, does it not also ignore the possibility of moving up the value chain as their technological prowess increases? China is producing some pretty sophisticated technology on their own these days, and they have no shortage of engineers (although the quality may not be world class, I have no idea).
This isn't to say his theory is wrong, it just doesn't seem terribly useful. But I think I must be missing something?
So yes, grandparent's point is correct, that there's room for consumer-led GDP growth. But the mechanism for how to get there is not easy. (And it's something Pettis has written about extensively.)
Sure, it may not be "easy", but is it hard?
No, they really don't have any political will to do anything about the SEOs. That is why their debt is still ballooning in an unsustainable manner. Just as Japan didn't, and the Japanese economy is still held back by keeping failing business afloat. The entrenched elite is just too strong, in both Japan and China.
China may overcome the issues in a way Japan didn't, but the things you list apart from the political will (that they emphatically doesn't have) is plain irrelevant.
He's pessimistic in the longrun, but it seems like China may be able to keep the ball in the air for the next few years.
Worth a read: http://carnegieendowment.org/chinafinancialmarkets/68708?lan...
10-20 years ago I can remember the analyses arguing China can only continue to grow with liberalization, even outright requirements for democracy. Perhaps these pronouncements are still being made.
I've come to believe that what's really useful to people isn't "democracy" or "freedom" rather rather stability. That means political and economic stability.
One thing I find fascinating is China's ghost cities. I remember reading some report that said housing for 64M+ was sitting vacant, largely unaffordable to locals. Now one can argue that such work is stimulating the economy by providing employment.
But here's another view. As much as we might (rightly) deride Trump, there are the (very) occasional nuggets of truth. Some might say even racist clocks are right twice a day [1]. Whatever the case, the specific issue is infrastructure.
Infrastructure in the US is crumbling. What's more, a lot of infrastructure exists now that would be completely uneconomic to build now. Look at the Second Avenue Subway in NYC that apparently somehow cost $17B+ to basically go 50 blocks. What's more, a lot of this infrastructure has not and is not being maintained.
So why is this unaffordable to build now? I suspect the answer is that labour is simply too expensive as is real estate.
So what if China is simply building infrastructure now while it's relatively cheap to do so? Obviously once built infrastructure depreciates but inflation also works in your favour (assuming positive inflation).
Now I don't know if that is the Chinese government's thinking but I find it an interesting thought.
[1] https://forums.penny-arcade.com/discussion/133477/new-patv-e...
As it is likely for someone to mention the Ghost cities, I recommend this video https://www.youtube.com/watch?v=AyBBQ-wF87M&list=PLxh5xkC0W-...
Some will fill up, like Pudong did, I get Tianjin's new financial district will also. But those in areas with little economic hope in the near term (Ordos and dying coal), they really aren't going to happen before the buildings become substantially rundown (given Chinese concrete overbuilding to make use of unskilled migrant labor, these buildings require a lot of maintenance and will look decrepit sooner rather than later).
This video more or less shows the insanity of trying to grow at a fixed rate (say being an "emerging market" at 6% per year) for an indefinite timespan.
http://news.xinhuanet.com/english/2017-05/24/c_136311925.htm
https://www.rt.com/business/387089-china-high-speed-trains/
They are continuing to maglev trains too:
https://www.nextbigfuture.com/2017/05/more-high-speed-rail-a...
Hopefully, it will encourage other countries to widely adopt the technology.
Someone else can chime in with more depth, but basically the US government has been good about not borrowing too much from itself. I just hope we can stay rational as a country and this continues.
also, the US government has borrowed a whole hell of a lot of money from outside sources (e.g. corporations, US investors, and foreign governments from Japan to China to Saudi Arabia to European nations)
I think we need numbers because I don't know what you mean when you say, "a whole hell of a lot of money." It looks like the citizens hold 70% of the debt. And keep in mind, these countries come to us to put their money in treasury bonds. They buy bonds that don't pay a very spectacular rate either (2.28% for 10 year bond). I'd caution against the rhetoric that we are broke, or people don't want to lend to us. It's often pushed by people who want to reduce federal spending (usually spending cuts on healthcare and welfare for the less fortunate).
As for who buys government bonds from the US Treasury, I just wanted to emphasize that the Fed is not the only buyer.
The often repeated notion that, "to a great extent, we owe this money to ourselves," is not necessarily comforting. Most American citizens have very little, if any, savings. The "ourselves" in that notion is heavily weighted to a relatively small number of wealthy US citizens. It's fair to question whether their interests align with the interests of the average US citizen.
That can be a good thing. We separate the three branches, specifically not to have direct accountability to a single branch. And we buffer power changes over many election cycles. Otherwise one branch, say the executive, could just fire a judge or investigator when they broke the law.
> The often repeated notion that, "to a great extent, we owe this money to ourselves," is not necessarily comforting.
I wasn't repeating that notion. In my mind, going bankrupt is not a good thing in either case.
> Most American citizens have very little, if any, savings. The "ourselves" in that notion is heavily weighted to a relatively small number of wealthy US citizens.
I guess you could say, if you're wealthy you have more to lose, but poor people might lose their life if the US goes bankrupt whereas wealthy families would probably survive, though with a smaller balance sheet. So it matter to both poor and wealthy alike if we are reckless and go bankrupt, probably more so if you're poor. And I agree, we should be questioning if wealthy interests are putting themselves or the country first, because we don't have much use for those who aren't improving citizen's welfare.
The central banks, obviously. Many of them not being beholden to a nation but to private individuals.
That said, if you're holding the wealth, it's not too hard to keep the shop running (people happy) so long as you don't get bored, reckless and feckless.
Basically what I'm saying is, we can elect a government that serves our own interest if we cared to.
If it does get ugly, and the government/military turns on its citizens then the US as we know it will be dead or on life support. Probably, in such a scenario, people won't go quietly into that night.
In theory, I'm still waiting to see it in practice. The Bernie Sanders situation from last election was a decent illustration of how legitimate the election process is, and they took care of him before the gloves even came off. (Trump was far trickier but as it turns out he's more of the same, if not worse.)
Not to also mention that government's and militaries need people to supply it, and if their suppliers are now on the list of enemy combatants then such governments and militaries won't have the same leverage/power as those that are not combating it suppliers.
Example? The largest countries' central banks are accountable to their governments.
We're saying the same thing. Most central banks, e.g. the Federal Reserve, were created by law. The Congress giveth and the Congress taketh away. In any case, the comment I was replying to seemed to imply central banks are privately owned. That's what I was refuting.
I think the comment was implying that their policies, not being entirely democratically accountable - the effectiveness of these instruments themselves being arguable - are very likely going to be swayed by private interests.
I know there exists a revolving door b/w FDR and major Wall Street banks, but I'm not sure about other countries. I'd not be surprised if this were the case everywhere.
Edit:
'Princes of Yen' is a documentary that I found did a good job of illustrating the dangers of having such high powered unaccountable cabals (without all the BS that is typical in this genre).
The Chinese are in a similar boat. About 60% of their debt is domestic. Their inflating debt, however, is in part what is driving the gap between the two, and they are ramping up foreign debt faster as a result.
Politicians and their funders hope everyone is hoodwinked into forgiving the debt or just taxing everyone more to make up for the stolen^W borrowed money.
Where is the money in the social security trust fund kept. I had assumed it was in treasury bonds and therefore lent to the US Government general funds to be spent at the will of congress. Is the Social Security Administration actually holding VOO or physical gold?
So ... does that answer the question? I'm not sure. I'm used to thinking about how much money the US government owes to outsiders.
But, this "state owned enterprise" and "state owned bank" thing -- how do you make sense of that? The government, which also controls and creates the currency, has loaned its own enterprises a bunch of money. So what if they default? Does it matter?
How do you even think about that?
The payments to the organization might come in the form of goats, chickens, timber, or even IOUs!
If the organization had used the debt to make a bunker instead of an electric system. The citizens may not be so interested in hanging out and using (paying) for the bunker, so all the IOU holders would be out of luck.
In other words, if the IOUs to the contractors aren't eventually repaid. People won't accept IOUs from the organization (bank) anymore.
When and if the enterprises default, the banks will go under. This means that Chinese people will lose money (or the government will try to be fiscally prudent to recover money lost in bad investments, which will mean that Chinese people will lose money).
Money owed by a government owned bank to a government owned enterprise is a real debt, which if defaulted upon will have a lot of real effects.
Anything Moody's says must be taken into context given their history of taking money to lie to and cheat investors. Their executives should have gone to prison and the company should have been liquidated a long timo ago.
https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the...
Sorry, but until I see strong evidence to suggest otherwise, I'm going to assume the Chinese government knows better of how to grow an economy than its international critics.
https://www.moodys.com/research/Moodys-downgrades-Chinas-rat...
https://www.theguardian.com/business/2017/jan/14/moodys-864m...
[1] https://en.wikipedia.org/wiki/Japanese_asset_price_bubble
[2] https://en.wikipedia.org/wiki/Lost_Decade_(Japan)
[3] https://en.wikipedia.org/wiki/Subprime_mortgage_crisis
[4] https://en.wikipedia.org/wiki/United_States_housing_bubble
There might be some kind of tipping point where the amount of people who do not believe their ratings triggers a downward spiral in confidence?
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 right.
Moody's downgraded on June 2 2011... or should I say at least "changed outlook to negative"
If they do, this sets the basis of the play and outcome.
Yes, elites are escaping what they can of their personal assets -- and eventually, if necessary, themselves or their next generation.
As I stop to think about it, that could actually prove to be something of a safety valve, from China's perspective.
Anyway, with the Great Firewall and a thousand other things: It's not exactly as if they haven't been (at all) preparing for this.
[1] http://i1.itc.cn/20140702/2be8_38e3d3f0_51f7_95e6_f762_a7064...
There is so much uninformed hysteria about the US national debt, it's incredibly frustrating and blocking the implementation of better policy.
Portugal, Italy and Ireland aren't "most of western europe": https://en.wikipedia.org/wiki/List_of_countries_by_public_de...
https://www.theguardian.com/business/2016/jun/16/chinas-debt...
I'd say this certainly gives a lot of political leeway in China, compared to having the opposite in place. I wonder if all the major US companies that were bailed out, that their debt should be considered public debt seeing there is already a precedent in place. But something tells me I doubt moodys will have a word on that.
[1] https://www.theguardian.com/business/2016/jun/16/chinas-debt...
1. I made that statement without checking my facts
2. I recalled from the news today that China had a debt to gdp ratio of about 250% (this is total debt to gdp, including debt held by consumers and corporations)
3. I compared it to a number in my head of US debt to gdp ratio being about 100% (this turns out to be about government debt to gdp).
At the very least, the thing I intended to say is wrong or an unequal comparison at best.
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:
Post-WWII federal deficits are mostly attributable to declining total effective income tax rates.
Social Security is the bulk of payroll taxes, and most of the increase in payroll taxes, and remains self-funded (though that would cease to be the case if the trust fund was to be exhausted and full benefits maintained.) So it makes sense to exclude that.
But payroll tax also includes Medicare taxes (the payroll tax portion, not the additional income tax portion on certain income not subject to payroll a tax imposed under the ACA) as amuch smaller component, and while Medicare Part A is self-funded, Parts B and D have significant general revenue contributions as well. But Medicare payroll tax hasn't changed significantly (and the share of GDP subject to it has dropped as returns move out of labor and into capital), so if you kept it in but split out Social Security for the reason above, it wouldn't change the declining trend shown by income taxes (except to enhance it).
So, again, the federal deficit is driven by declining federal income tax share.
Remember that the volunteer army was formed after Vietnam and all the objections to the draft (mostly by better-off, educated Americans...)...
It's just my opinion. Otherwise we are back to Middle Age.
http://www.politifact.com/truth-o-meter/statements/2015/aug/...
Fake news is when a media source that claims to report an accurate account of events deliberately peddles stories they know (or can safely assume) are false. Random images floating around the internet are not fake news.
I'm happy to debate the nuance of the term fake news, but I think it's ironic that you presume to glibly assert your own definition of fake news right after exclaiming that one cannot do so (unless you're suggesting that CNN and myself, in particular, are forbidden from doing so).
Anyway, fake news is not simply "articles that are factually incorrect", otherwise every misreported fact or journalistic error could be classified as fake news which any intellectually honest person will admit is not what is intended to be described by the term fake news. Further, something cannot be fake news if it is not "news". Random images floating around the internet is not news. People posting memes and rumors on social media is not news. Honestly, even partisan bias and selective reporting by news organizations is not "fake news", and the terms "bias and selective reporting" accurately convey those qualities. Fake news is a loaded pejorative that carries the baggage of the 2016-2017 zeitgeist, so if you're going to use it at all, stick to the definition that common sense would have given us prior to 2016: reporting of current events that is deliberately presented as true when the authors know it is false.
edit: these comments are mostly made out of frustration with news today. Maybe I'm old, i know that i'm older than the median here now. News was different as a kid. There's always been biases, but less subtle. And 'news' used to be the gold standard in editing and investigating. Now, I see error prone articles that seem to have no editing at all, and swings toward propoganda on both sides. Maybe it's a reflection of our own ignorance and biases. But to me, it's the great fall of media, debasing the term 'news'
This is the correct answer. Surely there must be a blog out there that deconstructs "news" articles from highly respected sources pointing out what people think is news is actually propaganda....anyone?
That's a pretty disingenuous response. Obviously, "all news" is not deliberate fabrication presented as truth, and to suggest as much is worthless cynical hyperbole or willful ignorance or both.
For example, if I load up CNN.com right now, the tag-line for the front-page story reads "Another blow to Trump's travel ban". Clicking through to the article yields the headline "Appeals court upholds block on Trump's travel ban". You can read the article here:
http://www.cnn.com/2017/05/25/politics/4th-circuit-travel-ba....
This is not fake news. The 4th Circuit court really did uphold the block on Trump's travel ban. Here is an excerpt FTA:
> Judge Paul Niemeyer, one of the three dissenters, said the majority "looks past the face" of the executive order. The approach "adopts a new rule of law that uses campaign statements to recast the plain, unambiguous, and religiously neutral text," Niemeyer, a George W. Bush appointee, wrote. "Opening the door to the use of campaign statements to inform the text of later executive orders has no rational limits."
I will reiterate: this is not fake news, Judge Paul Niemeyer really is a 4th circuit judge and those really are his words. Do you understand what I'm saying here? This is a thing that happened in the real world, it is not a fabrication created by CNN to defame Trump, this is reporting of a noteworthy current event that merits news coverage. A critic of CNN might claim "CNN always reports negative stories about Trump". Fine. Selective reporting meets the definition of bias, but bias, once again, is not fake news.
We can perform the same exercise with Fox News. The front-page tag-line reads "TWISTED TREACHERY - ISIS tricked US into bombing building where 100 innocents held captive". Clicking through to the article yields the headline "ISIS rigged explosives to home where 100 civilians died in US-led airstrike, military says". You can read the article here:
http://www.foxnews.com/world/2017/05/25/isis-rigged-explosiv....
This is not fake news. The military really did report that ISIS tricked them into bombing civilians. Here is an excerpt FTA:
> An investigation into the March bombing found that the terror groups rigged a house with over 1,000 pounds of explosives, put civilians in the basement, and employed two ISIS snipers on the roof to bait the U.S.-led coalition to attack. U.S. Air Force Brig. Gen. Matthew Isler, the investigating officer for US Central Command, told Pentagon reporters that the bomb used by the American jet, a GBU-38 (500-lb bomb), would not have caused the type of damage associated with the destruction of the building.
I will reiterate: this is not fake news, Air Force Brig. Gen Matthew Isler really is a U.S. Air Force Brigadier General, and those really are his words. Am I making myself crystal clear? This is a thing that happened in the real world, even if civilians are not in a position to corroborate the findings of a military investigation, this is the official report from the military and not a fabrication created by Fox to excuse or justify the U.S. bombing of civilians. A critic of Fox might claim "Fox News always defends the military, even when they kill innocent civilians". Fine. Publishing stories with a tone favorable to one's predefined narrative meets the definition of bias, but bias, once again, is not fake news.
You see what I'm getting at here?
> Let's call a spade a spade, and admit that all factually incorrect articles, infographics, and stories are what they are...fake news.
Simply posting something on the internet does not make it news and you are actually contributing to the "debasing of the term news" that you complain about by refusing to acknowledge the distinction between memes posted to facebook, factual errors in reporting, institutional bias, and deliberate fabrications with no basis in reality. I mean, you're argument is literally "all news is fake". If more people would abandon your cynical defeatist attitude that encourages labeling literally everything as fake news and actually judged individual stories based on their own merit, political discourse in the USA would be a lot more productive.
I'm open to it being in some other category of fake, but then we need a label for it.
I agree with you. I think "deliberately misleading", "factually inaccurate", even "complete bullshit" are applicable, I just disagree with the overloading of the term "fake news" to describe all manner of falsehood. The word fake followed by the word news in an english sentence is supposed to mean something very specific and when the term is blithely abused to suit the egos of warring partisans it diminishes society's ability to hold the influential news media organizations responsible for accuracy in reporting. In today's world everything is fake news to somebody and that wasn't true in 2014.
https://www.nationalpriorities.org/budget-basics/federal-bud...
In the US, we're doing a bad job of making our deficits count. That will be bad in the medium and long term. In the short term, any spending is mildly stimulative. (Though spending that doesn't create future growth is essentially what creates the situation China is in: you're creating future debt-servicing obligation without creating debt-servicing capacity -- so you're making yourself poorer.)
I was just making a point about economics. I'll spare you my political opinions about the utility of US deficits, or the direction we're going, but based on your tone I imagine we might agree quite a bit more than you think.
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.
We have two americas. Wealthy white people and the rest. The rest have a high birth rate.
Japan has very little immigration. Europe and America are obviously grappling with these issues politically, but it's pretty clear from the economic numbers that immigration is important for growth if you don't have stable population growth. (Japan and parts of Europe are in decline, as would the US be if not for immigration, I believe.)
Yes.
http://cepr.net/blogs/beat-the-press/national-income-account...
(Probably: Pettis assumes his readership already knows these things; I'm definitely not as savvy as his intended reader I think.)
[1] http://www.abc.net.au/news/2017-01-14/moodys-agrees-settleme...
This could also be state propoganda, the modern US being what it is.
Maybe because the question of whether they are dishonest and incompetent is a less interesting ad hominem (ad companis ?) than the question of whether China can or cannot sustain its debt-fueled binge.
Not really. If the question is about the popularity of a sentiment, then of course the interestingness of the sentiment is relevant.
But as with every argument, it's the quality of the argument that is important, not the arguer. The only way that the trustworthiness of the source is important is if you are unable to evaluate their argument based on other factors and were planning merely to trust them or key information they relied on based on their perceived authority which I agree would be a bad idea.
I find it very ironic that Moody is pointing a finger at China's "debt-fueled binge" when plenty of federal debt issues are staring us right in the face here in the US.
The 8 years of Obama doubled a national debt that had taken about 230 years to accumulate. No regime in the history of America has even come close to that debt figure, and current US obligations looking forward cha-ching in ar around $200T more, far more then we can ever hope to afford.
China, being a one-party communist rule, probably has a much better chance of fixing its issues then we do due to the lack of any political infighting. It's leaders can do whatever they need to fix budget shortfalls, irregardless of having to worry about reelections.
It's obviously bad to have out-of-control debt, but it's worth expressing national debt as % of GDP for two reasons: (a) the GDP of a nation is an engine to be used for repayment and (b) it accounts better for inflation (in periods that the nation is off the gold standard). In that context, the Obama years did not put us back up to the record (WWII).
Here are some visualizations (I assume the data is correct, I'm not affiliated with this site): http://metrocosm.com/history-of-us-taxes/
[1] http://www.bbc.com/news/business-31115174
Should I trust what S&P is saying given their track records like this?
They defended their ratings on terrible debt at the time by basically saying that no one should rely on them.
On the plus side, tier 1 cities are going to cool off (real estate price wise) if a lot of Chinese money gets burned up instead of outflowed.
A closer tale about experts being wrong, and persistently so is the tale of the Japan Bonds' "widowmaker" trade: apparently, a lot of smart people have been wrong about this:
http://www.businessinsider.com/hedge-funds-feeling-confident...
"A comprehensive assessment by international experts on the health risks associated with the Fukushima Daiichi nuclear power plant (NPP) disaster in Japan has concluded that, for the general population inside and outside of Japan, the predicted risks are low and no observable increases in cancer rates above baseline rates are anticipated."
http://www.who.int/mediacentre/news/releases/2013/fukushima_...
That aside, are we to believe that no one's medical conditions were made more severe by the stress and displacement caused by this disaster? And no one died as a result? Something of the scale of Fukushima can't be so easily dismissed by this kind of cursory analysis of radiation related health risks.
As s/he summarizes, more people died as a result of running away from the disaster than would have died if they'd stayed put.
I don't think there's room for many independent experts in such a space that can call a spade a spade.
(And government officials in Japan were caught again and again to downplay the incident to save safe).
Fukushima caused half as many people as Chernobyl to evacuate.
No one died as a direct result of Fukushima, as opposed to 2 immediate + 28 cleanup deaths from Chernobyl.
Fukushima definitely deserves to be taken seriously, and it belongs in the same class as Chernobyl, but at the other end of that class.
Or, we could be reasonable about these things, and understand that power generation at an industrial scale will kill people.
https://www.theguardian.com/world/2017/mar/10/japan-fukushim...
https://www.theguardian.com/world/2014/sep/10/fukushima-nucl...
I pray that nothing similar happens to you or that you have to suffer the indignity of people glibly dismissing your misfortune.
The linked article headline "Fukushima is a triumph for nuke power: Build more reactors now!"
> A survey computed that of some 300,000 evacuees, approximately 1,600 deaths related to the evacuation conditions, such as living in temporary housing and hospital closures that had occurred as of August 2013, a number comparable to the 1,599 deaths directly caused by the earthquake and tsunami in the Prefecture.
Contrast that with the actual death that occurred/will occur due to radiation:
> In 2013, WHO reported that area residents who were evacuated were exposed to so little radiation that radiation induced health impacts were likely to be below detectable levels. (...) According to a linear no-threshold model (LNT model), the accident would most likely cause 130 cancer deaths.
In other words, if the Japanese government had told everyone that this was a minor incident and everyone should stay at home, it's likely that less people would have died as a result. Of course, hindsight is 20/20, and even with perfect information it would have been political suicide anyway.
Such is the danger of nuclear power. The world's second worst nuclear disaster was literally less dangerous than running away from it.
> residents who evacuated were exposed to so little radiation
It does not say anything about residents who did not evacuate. How can we know how many cancer deaths would have happened if nobody had evacuated, and whether that would be less than the amount that died due to poor evacuation procedures?
(There are ways to limit radiation exposure even if you're in the middle of a lightly contaminated region. I think delivering clean food would have been easier than trying to accommodate 300k additional refugees after tsunami.)