The Coming Debt Bust

[jhungary]

Venezuela? Zimbabwe? Or even we can go back to 1940s of KMT. You cannot compare China to compare with those in this sense because they don't have large trade surplus and foreign currency reserves

You do know Venezuela have a strong oil reserve, right? In fact, I think Venezuela Oil reserve worth a lot more than Chinese Forex Reserve. The reason Venezuela fail is not because they don't have anything to back up, the fail because they don't have a good control of monetary policy and there are no way they can get enough of "guarantee" back to the creditor.

It's the same with China, I don't know how you see it, but here in the west, we saw Chinese Currency as a weak based currency, without much monetary control. That belief was reinforced by Chinese Devalue its currency in 2015 about 9 months ago. You can say whatever you want as a Chinese point of view, but you are not talking about how Chinese is confident to their own currency, it's the world view.

Chinese currency is not exactly that strong? Japan yen is not that strong either. Many country using Yen in trade also have make USD as a guarantor.

I am not talking about Yen now, I was talking about Yen in the 80s, back then it was equal to Euro.

Again the credit of Japanese yen or Chinese yuan to international society is based on their tremendous manufacturing capability, large trade surplus, and huge foreign currency reserves. BTW when US started printing money (QE) after crisis in 2008, the dollar index actually started to increase.

Again, that is because QE is not exactly lending without limits. You keep using QE as an example that does not represent the situation, a fact that even you admit 2 post ago, I don't know why you keep using QE as an example? Can China use QE to deal with any financial problem? Maybe, I don't know, But That does not mean China can lend their currency without limit. QE or not does not answer this question.

 

[windywine]

But you still don't understand how QE and the what the author said about "Unlimited Borrowing" are two different things.




Again, you are addressing the wrong point, China did have quite a lot of breather on Monetary policy, China have and still has the world greatest Foreign Reserve, and that give China a lot of leeway to get in with its reform.

However, did China want a reform is another problem altogether, the question is, would China want to abandon the SOE system and get into real gear in market economy. That's another story, you are betting on Chinese government doing thing right ALL THE TIME and we all know this has not yet happen in this world. But in all, this is not related to what the author said. Which nobody have any economic background will go ahead and say any economy can afford to have unlimited borrowing of its currency. Take a look at Venezuela, this is the closest to what the Author said, where Venezuela tried to borrow as much as their oil reserve allow. Which fell apart dramatically.



The problem is again, Chinese currency is not exactly that strong, many country trade RMB have actually make USD as a guarantor as RMB in order for them to not to lose value over trade. You are talking about 4% use internationally, still, the damage would cause influx to at least Asian economy.

The world already have little confidence to Yuan to begin with, and if China start irresponsible lending and start printing money, the RMB confidence will be completely lost. Imagine what happened to US in 2008 happens in China, it will take quite a long while to recover.

When US started to build up the credit of US dollar to international society, its based on the tremendous manufacturing capability, large trade surplus, and huge currency reserves (gold), which is similar to Japanese Yen and Chinese Yuan.

 

[jhungary]

When US started to build up the credit of US dollar to international society, its based on the tremendous manufacturing capability, large trade surplus, and huge currency reserves (gold), which is similar to Japanese Yen and Chinese Yuan.

Actually, it's only half true.....

The USD is build on debt, the reason why USD reach the status today is because of the debt based and driven economy. Of course, the falling of Gold Standard and Manufacturing Capability helped but you cannot reach that point only just for the two. At some point, you have to shred the manufacturing base economy and change into a financial base economy.

 

[windywine]

I am not talking about Yen now, I was talking about Yen in the 80s, back then it was equal to Euro.

I don't think so. The index of Japanese yen was at its historical high at 2000, not 80s

 

[jhungary]

I don't think so. The index of Japanese yen was at its historical high at 2000, not 80s

What index? Yen was at 10.2 % basket level in 1998, only 4.2% in 2000

Yen reach its strongest position in the 80s, not 2000s.

 

[windywine]

Again, that is because QE is not exactly lending without limits. You keep using QE as an example that does not represent the situation, a fact that even you admit 2 post ago, I don't know why you keep using QE as an example? Can China use QE to deal with any financial problem? Maybe, I don't know, But That does not mean China can lend their currency without limit. QE or not does not answer this question.

Again I didn't say QE is lending without limits. What I said is that China is able to do lending without limits towards those state-owned enterprises. QE by Japan is just an example for you to understand that because even a country without those state-owned enterprises can do printing money

What index? Yen was at 10.2 % basket level in 1998, only 4.2% in 2000

Yen reach its strongest position in the 80s, not 2000s.

4.2%? Yen still have more than 8% now, right?

 

[jhungary]

Again I didn't say QE is lending without limits. What I said is that China is able to do lending without limits towards those state-owned enterprises. QE by Japan is just an example for you to understand that because even a country without those state-owned enterprises can do printing money

Again, how exactly, can you show me one economic principle support your point where China is able to lend without limits to SOEs?

Currency goes down with more money print, Chinese can adjust that different by selling their forex to other currency to balance the different, but you only have about 3 trillions USD forex, how can you lend more than 3 trillions dollars?

That is the basic economy principle.

4.2%? Yen still have more than 8% now, right?

Yes, if we live in 1995 now.

 

[windywine]

Again, how exactly, can you show me one economic principle support your point where China is able to lend without limits to SOEs?

Currency goes down with more money print, Chinese can adjust that different by selling their forex to other currency to balance the different, but you only have about 3 trillions USD forex, how can you lend more than 3 trillions dollars?

Currency goes down with more money print? No. Currency went up when China printed 4 trillions RMB back to 2010-2013

 

[jhungary]

Currency goes down with more money print? No. Currency went up when China printed 4 trillions RMB back to 2010-2013

.Currency value goes DOWN when you print more money. Basic supply and demand principle. You have more Supply on RMB, the demand goes down, and the value goes down with the demand.

This is a very basic economic principle...........Just exactly how much you know about economy?

 

[windywine]

Again, how exactly, can you show me one economic principle support your point where China is able to lend without limits to SOEs?

Currency goes down with more money print, Chinese can adjust that different by selling their forex to other currency to balance the different, but you only have about 3 trillions USD forex, how can you lend more than 3 trillions dollars?

I think you are confused in domestic and international credits of currencies. When a country has a huge trade surplus and manufacturing capability, its credit of currency is based on the size of world market.

.Currency value goes DOWN when you print more money. Basic supply and demand principle. You have more Supply on RMB, the demand goes down, and the value goes down with the demand.

This is a very basic economic principle...........Just exactly how much you know about economy?

That 's the reason why Japan made QEs with an aim to push Yen down as you talked here, however it couldn't make it

 

[jhungary]

I think you are confused in domestic and international credits of currencies. When a country has a huge trade surplus and manufacturing capability, its credit of currency is based on the size of world market.


That 's the reason why Japan made QEs with an aim to push Yen down as you talked here, however it couldn't make it

lol, no, the credit of a currency does not based on size of world market, otherwise, RMB would be stronger than the USD (Which is not) and Euro will be about the same as USD (again, is not)

I am not going to reply to you anymore. You have not been addressing my issue and all you point is what you believe and were not backed up by any fact or historical principle. You simply think China can do this, then China can do this without giving any evidence to support your theory, instead, you keep talking about QE, which is not even the same topic we are talking about..

So, have a nice day.

 

[windywine]

lol, no, the credit of a currency does not based on size of world market, otherwise, RMB would be stronger than the USD (Which is not) and Euro will be about the same as USD (again, is not)

I am not going to reply to you anymore. You have not been addressing my issue and all you point is what you believe and were not backed up by any fact or historical principle. You simply think China can do this, then China can do this without giving any evidence to support your theory, instead, you keep talking about QE, which is not even the same topic we are talking about..

So, have a nice day.

Again, China just started to build up the credit of Yuan worldwide. And meanwhile Chins still uses US dollars in its large portion of trade.

ol, no, the credit of a currency does not based on size of world market, otherwise, RMB would be stronger than the USD (Which is not) and Euro will be about the same as USD (again, is not)

I gave you examples of Japan and China: when they QEed, either Yen or Yuan increased in value compared with US dollars. Why is that? Because of their manufacturing capability, leading to a large trade share and trade surplus, the international creditors or other countries are confident in Yen and Yuan.

Importantly, China market is not a free market where government has tight barrier to control the influx and outflow of currency. So in such a case, China government is able to control the amount of RMB outside while even prints unlimited amount RMB domestically.

So, have a nice day.

You too man. Have a nice day.

 

[Tiqiu]

I am not talking about Yen now, I was talking about Yen in the 80s, back then it was equal to Euro.

Mind me asking from where did you get this?

 

[windywine]

I am not going to reply to you anymore. You have not been addressing my issue and all you point is what you believe and were not backed up by any fact or historical principle. You simply think China can do this, then China can do this without giving any evidence to support your theory, instead, you keep talking about QE, which is not even the same topic we are talking about..

Since the percentage of RMB used in trade is far below the percentage of Made in China in world market, I believe there would be a large space for RMB to increase in value unless China government decides to loose the valve of RMB outflow.

 

[jhungary]

Mind me asking from where did you get this?

Get what from?