Signs China is about to Pop

[grip]

Implode might be a better word.

Bernanke is already trying to ease their expectations downward and release some steam before he deflates the markets with policy changes.

 

[specklebang]

So are we agreeing or disagreeing?

The US Government already pays off bonds as they become due. The idea that China can "call in" its US debt is silly, precisely because the debt is paid as it is due.

 

[Khayembii Communique]

So are we agreeing or disagreeing?

I'm agreeing and just reiterating that that entire notion - and the idea that "China owns the US" - is nonsense.

 

[cpwill]

I will bet against the doomsday fearmongering about a "financial melt down of enormous proportion" any day of the week. I do so regularly in my brokerage account and I'm laughing all the way to the bank.

:shrug: we are about to go into China's version of the U.S. 2008 Mortgage Bubble Pop. It could be next week, or it could be 3 months from now (consider the period of time between Bear Stearns and Lehman Bros) Care to take a wager on it?

 

[cpwill]

These economic issues have nothing to do with government policies regarding "freedom" and "liberty". The Chinese are stricter than we are but they also hav a different history and quadruple the population.

When our real estate bubble "popped", what happened? Not much really. The USG printed up a bunch of money and handed it out. Some they got back, some they didn't. We're still here, aren't we?

Well, if you're baseline for "economically significant event" is "comparable to the collapse of Rome and we all go back to barbarism".... yeah, this isn't it.

If China's GDP goes down, what will that mean to us?

It means that every U.S. company that owns investments in China is about to see their holdings devalued, that China is unlikely to be a net purchaser of U.S. securities in the future, and that supply chains dependent upon China may be subject to disruption.

What can they demand?

:shrug: they can demand whatever they like. North Korea, for example, demands that people believe that it's leader can control the weather with his emotions.

That we pay off their bonds (that is if they are due)? Sell the bonds to another country? Inist we print up a bunch of dollar bills and hand them over? It seems meaningless to me. I'm not even sure why they need to sell off anything. They all manipulate their currency now - can't they just do more of that?

I think the effort will definitely continue to be coordinated at the BIS. I just don't see how it's possible to coordinate this kind of a loss.

 

[Kushinator]

:shrug: we are about to go into China's version of the U.S. 2008 Mortgage Bubble Pop. It could be next week, or it could be 3 months from now (consider the period of time between Bear Stearns and Lehman Bros) Care to take a wager on it?

I would!

 

[cpwill]

I would!

well I'm punching above my weight, but alright, what parameters? Given China's market opaqueness and willingness to heavily-handedly intervene.

 

[Kushinator]

well I'm punching above my weight, but alright, what parameters? Given China's market opaqueness and willingness to heavily-handedly intervene.

It was your wager, you propose some parameters and we can negotiate from there

 

[cpwill]

It was your wager, you propose some parameters and we can negotiate from there

I'll keep it simple enough: if in the next calendar year it becomes accepted wisdom that the Chinese mortgage bubble 'has popped', I shall be authorized to alter your signature as I see fit within the borders of the forum rules and general decency for a full month, and you shall make a platinum level donation to DP. If by June 2014 this has not occurred, the reverse shall be true. "accepted wisdom" to be defined in case of a dispute by a panel of three non-involved individuals.

 

[Khayembii Communique]

:shrug: we are about to go into China's version of the U.S. 2008 Mortgage Bubble Pop. It could be next week, or it could be 3 months from now (consider the period of time between Bear Stearns and Lehman Bros) Care to take a wager on it?

The central bank is well aware of the real estate situation, as well as the credit issue. There is not going to be anything like what you are asserting. I would bet you but I don't do Paypal.

 

[cpwill]

The central bank is well aware of the real estate situation, as well as the credit issue. There is not going to be anything like what you are asserting.

well... I know what I am basing my assessment on. what are you basing yours on?

 

[Khayembii Communique]

well... I know what I am basing my assessment on. what are you basing yours on?

Common sense

 

[cpwill]

Common sense

Ah. I will take just about any bet you wish to make, then. Common sense hasn't been part of Chinese Shadow Banking for the better part of a decade.

 

[Kushinator]

I'll keep it simple enough: if in the next calendar year it becomes accepted wisdom that the Chinese mortgage bubble 'has popped', I shall be authorized to alter your signature as I see fit within the borders of the forum rules and general decency for a full month, and you shall make a platinum level donation to DP. If by June 2014 this has not occurred, the reverse shall be true. "accepted wisdom" to be defined in case of a dispute by a panel of three non-involved individuals.

Before i agree to anything, we should develop some parameters.

First off, what is your definition of a mortgage bubble being popped? Is it a 25% decline, year over year, in the per-square foot price in all real estate? Or, is it a sharp decline in Chinese mortgage origination? Or, is it a 25% decline, year over year, in the per-square foot price in all real estate in conjunction with a sharp decline in Chinese mortgage origination? I have little desire to make a wager that is subject to interpretation.

 

[Cyrylek]

The "China's good times are about to end" has been heard a lot, for literally decades now, and it still hasn't happened. Sure its got problems, it has issues, what country doesn't? But that doesn't mean its economy isn't going to keep growing nor will its government fail.

China had been through such "bad times" in the cursed 20th century that most anything that could possibly happen in the next couple of decades should still count as "good times, considering".

The question is: Does the current "Chinese model" - yet another "third way" between any other randomly chosen "third ways", as practiced by any country in the world, without exception - does this "model" have something special to offer?

The simple answer is: No. Debts are still debts. Liabilities are still liabilities. The boondoggles of "infrastructure projects" are still the same epic waste of resources and human potentials. The wizards who see future clearly and volunteer, selflessly, to guide you toward a vaguely described paradise are still cheap and predictable charlatans.

 

[specklebang]

When our real estate bubble "popped", what happened? Not much really. The USG printed up a bunch of money and handed it out. Some they got back, some they didn't. We're still here, aren't we?
Well, if you're baseline for "economically significant event" is "comparable to the collapse of Rome and we all go back to barbarism".... yeah, this isn't it.
•••That's right. It was an event just as the crash of the telecom bubble was. Certainly many people were affected but it was unfortunate, not catastrophic.

If China's GDP goes down, what will that mean to us?
It means that every U.S. company that owns investments in China is about to see their holdings devalued, that China is unlikely to be a net purchaser of U.S. securities in the future, and that supply chains dependent upon China may be subject to disruption.
•••So what? How much pain should that cause anybody who doesn't own part of these companies? Bad stuff happens all the time. Companies go out of business. Values of investments go down. People die young. Cats throw up. The globe continues to spin. As for supply chain, it seems to me that if business is bad, you'll get your order faster, not slower.

What can they demand?
they can demand whatever they like. North Korea, for example, demands that people believe that it's leader can control the weather with his emotions.

•••Well, yes, anybody can demand anything but you an't always get what you want. Sometimes you just get what you need. (Maybe those could be lyrics...nah...never mind).

That we pay off their bonds (that is if they are due)? Sell the bonds to another country? Inist we print up a bunch of dollar bills and hand them over? It seems meaningless to me. I'm not even sure why they need to sell off anything. They all manipulate their currency now - can't they just do more of that?
I think the effort will definitely continue to be coordinated at the BIS. I just don't see how it's possible to coordinate this kind of a loss.
•••OK, you lost me here. BIS? Anyway, they can't and won't get an early payoff. They have as much to lose as anybody else by disturbing the dollar.

Well, if you're baseline for "economically significant event" is "comparable to the collapse of Rome and we all go back to barbarism".... yeah, this isn't it.



It means that every U.S. company that owns investments in China is about to see their holdings devalued, that China is unlikely to be a net purchaser of U.S. securities in the future, and that supply chains dependent upon China may be subject to disruption.



:shrug: they can demand whatever they like. North Korea, for example, demands that people believe that it's leader can control the weather with his emotions.



I think the effort will definitely continue to be coordinated at the BIS. I just don't see how it's possible to coordinate this kind of a loss.

 

[cpwill]

Before i agree to anything, we should develop some parameters.

First off, what is your definition of a mortgage bubble being popped? Is it a 25% decline, year over year, in the per-square foot price in all real estate? Or, is it a sharp decline in Chinese mortgage origination? Or, is it a 25% decline, year over year, in the per-square foot price in all real estate in conjunction with a sharp decline in Chinese mortgage origination? I have little desire to make a wager that is subject to interpretation.

I was going strictly with the public knowledge angle - what you are suggesting assumes that A) the entire real estate market is the same, which isn't true, the bubbles are (mostly) in the industrialized areas and B) the GoC won't step in and freeze prices (which it may very well do, faced with potential large-scale riots on its' hands). So if there is no decline in housing prices to match, what would occur is that annual sales at the nominal prices would stop in real terms - and the worst of the bubbles isn't even in private housing - it's in government projects. The Railway SOE alone has to roll over hundreds of billions worth in Debt $U.S., and it has to do so on an increasingly short-term basis, leaving it incredibly vulnerable to interest rate spikes.

Perhaps we should look at a real devaluation of Chinese GDP, along with a sharp decline in new lending and an increase in failed debtors - though the GDP shouldn't come from government numbers. Not even government officials in China trust those (they watch electricity usage instead). You tell me, in a ponzi scheme where people have been borrowing increasing amounts to pay off debt, and then hit the limit of their ability to borrow, what does that look like in this kind of a scenario?

 

[cpwill]

When our real estate bubble "popped", what happened? Not much really. The USG printed up a bunch of money and handed it out. Some they got back, some they didn't. We're still here, aren't we?
Well, if you're baseline for "economically significant event" is "comparable to the collapse of Rome and we all go back to barbarism".... yeah, this isn't it.
•••That's right. It was an event just as the crash of the telecom bubble was. Certainly many people were affected but it was unfortunate, not catastrophic.

Well this will be catastrophic for much of China, but less so for the rest of us.

If China's GDP goes down, what will that mean to us?
It means that every U.S. company that owns investments in China is about to see their holdings devalued, that China is unlikely to be a net purchaser of U.S. securities in the future, and that supply chains dependent upon China may be subject to disruption.
•••So what? How much pain should that cause anybody who doesn't own part of these companies? Bad stuff happens all the time. Companies go out of business. Values of investments go down. People die young. Cats throw up. The globe continues to spin. As for supply chain, it seems to me that if business is bad, you'll get your order faster, not slower.

:shrug: again, if you're baseline for this is "well if the world isn't ending then it doesn't count", then yeah, this doesn't count. But writing down large losses across US industries exposed to China will likely result in job-losses here in the states on top of a falling stock market (you're a retiree?) that is no longer acting as an inverse friend to the bond market. No, it won't kill you. Neither (for example) would having someone take a chainsaw, hack off your legs, and then cauterize the stumps kill you. But you might kind of sort of consider it "significant".

What can they demand?
they can demand whatever they like. North Korea, for example, demands that people believe that it's leader can control the weather with his emotions.

•••Well, yes, anybody can demand anything but you an't always get what you want. Sometimes you just get what you need. (Maybe those could be lyrics...nah...never mind).

That we pay off their bonds (that is if they are due)? Sell the bonds to another country? Inist we print up a bunch of dollar bills and hand them over? It seems meaningless to me. I'm not even sure why they need to sell off anything. They all manipulate their currency now - can't they just do more of that?

If they move to buy back their own currency through selling dollars and dollar-denominated assets, then us deciding to meet that by printing up more dollars would be a.... bad decision. Especially since China will probably drag Japan (the infamous bug-in-search-of-a-windshield) with it, meaning that the two largest foreign holders of our debt will go from being purchasers to sellers at roughly the same time.

Weimar Germany..... is not a risk. But double-digit inflation is not impossible. Again, I think you said you were retired?

I think the effort will definitely continue to be coordinated at the BIS. I just don't see how it's possible to coordinate this kind of a loss.
•••OK, you lost me here. BIS? Anyway, they can't and won't get an early payoff. They have as much to lose as anybody else by disturbing the dollar.

:mrgreen: the Bank for International Settlements. If Glenn Beck had known about these guys he never would have messed around with Soros. It's the Central Bank.... of Central Bankers. Who are also the people who run it. The 18 board members are the heads of the central banks of the largest 18 economies. And they are beholden to... well... no one. The bank is in Switzerland, but immune to most of Swiss Law - employees pay no taxes (to anyone). There are 140 customers, and its' profits (oh yes, by the way, interesting side note, the central bank that is owned and run by the people who control the monetary supply for basically the world is run on a for profit basis) last year were about $1.17 BILLION. :mrgreen: They are the coolest thing I have ever heard about in real life. The only thing I can compare it to is the discovery of what our Novel Explosive MK-153 SMAW rounds did to people.

 

[Kushinator]

I was going strictly with the public knowledge angle....

A deflation in Chinese real estate is not a matter of public knowledge; it is determined by change in prices. That the PBoC would step in and inject liquidity or the government will guarantee loans to prevent a potential real estate crisis only weakens your position.

A wager should never be subject to interpretation. You want to have your cake and eat it too; not going to fly.

 

[specklebang]

I understand your point but you could ask the same questions about the US. When we needed money, we printed or borrowed. We had a terrible real estate bubble and while there were short term disturbances, we still function and even grow a little bit.

Interest rate spikes...we're in the same trap. We're all living in a ponzi of our own device. The advantage of government ponzis is that it is the investor that can create money out of thin air, not possible for any individual or group.

I was going strictly with the public knowledge angle - what you are suggesting assumes that A) the entire real estate market is the same, which isn't true, the bubbles are (mostly) in the industrialized areas and B) the GoC won't step in and freeze prices (which it may very well do, faced with potential large-scale riots on its' hands). So if there is no decline in housing prices to match, what would occur is that annual sales at the nominal prices would stop in real terms - and the worst of the bubbles isn't even in private housing - it's in government projects. The Railway SOE alone has to roll over hundreds of billions worth in Debt $U.S., and it has to do so on an increasingly short-term basis, leaving it incredibly vulnerable to interest rate spikes.

Perhaps we should look at a real devaluation of Chinese GDP, along with a sharp decline in new lending and an increase in failed debtors - though the GDP shouldn't come from government numbers. Not even government officials in China trust those (they watch electricity usage instead). You tell me, in a ponzi scheme where people have been borrowing increasing amounts to pay off debt, and then hit the limit of their ability to borrow, what does that look like in this kind of a scenario?

 

[specklebang]

]Well this will be catastrophic for much of China, but less so for the rest of us.
again, if you're baseline for this is "well if the world isn't ending then it doesn't count", then yeah, this doesn't count. But writing down large losses across US industries exposed to China will likely result in job-losses here in the states on top of a falling stock market (you're a retiree?) that is no longer acting as an inverse friend to the bond market. No, it won't kill you. Neither (for example) would having someone take a chainsaw, hack off your legs, and then cauterize the stumps kill you. But you might kind of sort of consider it "significant".
••The world isn't ending so it doesn't entirely count. Your analogy is a bit strong though. Yes, I'm a retiree. I have no stocks or bonds. So, I am trying to see this through neutral eyes. All I can do is try.


If they move to buy back their own currency through selling dollars and dollar-denominated assets, then us deciding to meet that by printing up more dollars would be a.... bad decision. Especially since China will probably drag Japan (the infamous bug-in-search-of-a-windshield) with it, meaning that the two largest foreign holders of our debt will go from being purchasers to sellers at roughly the same time. Weimar Germany..... is not a risk. But double-digit inflation is not impossible. Again, I think you said you were retired?
•••Sure. It's a bad idea and we are doing it right now through endless debt expansion. I'm amazed we don't have inflation (although I think we actually do) of extreme proportions. Thats the trouble with fiat currencies. You don't know when to stop. Since overall incomes are falling, maybe thats enough to hold back inflation. If a cr become $800K, absolutely nobody will buy one. But I watched cars go from $3K to $25K since I moved back the the US almost 40 years ago.

BTW, as a retiree, nothing would benefit me more than an interest rate spike. My Father bought CDs at 22% many years ago. I'm getting 1%. So, selfishly, go spike, go. But I'm really not trying to make my wishes all about myself.

the Bank for International Settlements[/url]. If Glenn Beck had known about these guys he never would have messed around with Soros. It's the Central Bank.... of Central Bankers. Who are also the people who run it. The 18 board members are the heads of the central banks of the largest 18 economies. And they are beholden to... well... no one. The bank is in Switzerland, but immune to most of Swiss Law - employees pay no taxes (to anyone). There are 140 customers, and its' profits (oh yes, by the way, interesting side note, the central bank that is owned and run by the people who control the monetary supply for basically the world is run on a for profit basis) last year were about $1.17 BILLION. :mrgreen: They are the coolest thing I have ever heard about in real life. The only thing I can compare it to is the discovery of what our Novel Explosive MK-153 SMAW rounds did to people.

Interesting.

Thanks for the intelligent exchange of conversation.

I gotta go do retired people stuff now but look forward to continuing our conversation.
:2wave:

Well this will be catastrophic for much of China, but less so for the rest of us.



:shrug: again, if you're baseline for this is "well if the world isn't ending then it doesn't count", then yeah, this doesn't count. But writing down large losses across US industries exposed to China will likely result in job-losses here in the states on top of a falling stock market (you're a retiree?) that is no longer acting as an inverse friend to the bond market. No, it won't kill you. Neither (for example) would having someone take a chainsaw, hack off your legs, and then cauterize the stumps kill you. But you might kind of sort of consider it "significant".



If they move to buy back their own currency through selling dollars and dollar-denominated assets, then us deciding to meet that by printing up more dollars would be a.... bad decision. Especially since China will probably drag Japan (the infamous bug-in-search-of-a-windshield) with it, meaning that the two largest foreign holders of our debt will go from being purchasers to sellers at roughly the same time.

Weimar Germany..... is not a risk. But double-digit inflation is not impossible. Again, I think you said you were retired?



:mrgreen: the Bank for International Settlements. If Glenn Beck had known about these guys he never would have messed around with Soros. It's the Central Bank.... of Central Bankers. Who are also the people who run it. The 18 board members are the heads of the central banks of the largest 18 economies. And they are beholden to... well... no one. The bank is in Switzerland, but immune to most of Swiss Law - employees pay no taxes (to anyone). There are 140 customers, and its' profits (oh yes, by the way, interesting side note, the central bank that is owned and run by the people who control the monetary supply for basically the world is run on a for profit basis) last year were about $1.17 BILLION. :mrgreen: They are the coolest thing I have ever heard about in real life. The only thing I can compare it to is the discovery of what our Novel Explosive MK-153 SMAW rounds did to people.

 

[cpwill]

A deflation in Chinese real estate is not a matter of public knowledge; it is determined by change in prices. That the PBoC would step in and inject liquidity or the government will guarantee loans to prevent a potential real estate crisis only weakens your position.

A wager should never be subject to interpretation. You want to have your cake and eat it too; not going to fly.

:shrug: i have no problem establishing a metric for a benchmark - I just would want to make sure it isn't something that the PRC isn't likely to step in to keep from occurring (such as a sharp drop in prices that wipes out the savings of the middle class).

If you're willing to put in two caveats (1. if the government has to step in to protect property prices it counts as a drop and 2. if prices drop in real terms because the government inflates the money supply counts as a drop) - I'm willing to base it on property prices.

 

[Kushinator]

:shrug: i have no problem establishing a metric for a benchmark - I just would want to make sure it isn't something that the PRC isn't likely to step in

You cannot have it both ways. If the PRC steps in and prevents it from occurring... it doesn't occur.

If you're willing to put in two caveats (1. if the government has to step in to protect property prices it counts as a drop and 2. if prices drop in real terms because the government inflates the money supply counts as a drop) - I'm willing to base it on property prices.

That is not how it works. Either the prices fall or they do not.

 

[cpwill]

You cannot have it both ways. If the PRC steps in and prevents it from occurring... it doesn't occur.

sort of. at that point we would see nominal prize freezes combined with real price / demand drops. So people would find ways around the sale restrictions the same way they currently seek out ways around the buying restrictions (the Chinese government basically admits its' nation has a housing bubble, and is trying to stop the bubble from growing any further), and mortgage origination (as you point out) would be reduced. Although this can also be mitigated by attempting to move around a prize-freeze. So if I have an apartment in Shanghai worth (say) $200,000, and I can't sell it for that, so I sell "part of the apartment" (defined as all of it minus a broom closet which I allow the purchaser to use) for $115K, then I have avoided selling "the apartment" for less than the price that the government says I must.... except in reality I'm out $85K.

That is not how it works. Either the prices fall or they do not.

If the government has to step in to stop prices from falling, then the value of the property has fallen in real terms, which is why it is having to be propped up at an artificial level.

 

[Kushinator]

If the government has to step in to stop prices from falling, then the value of the property has fallen in real terms, which is why it is having to be propped up at an artificial level.

They will not freeze prices. If anything, there will be a liquidity injection and/or capital injection to failing banks. You are redefining your position (moving goal posts).

Care to wager whether or not they will freeze prices?