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http://www.straitstimes.com/BreakingNews/Money/Story/STIStory_678361.html

BEIJING - A CHINESE ratings house has accused the United States of defaulting on its massive debt, state media said on Friday, a day after Beijing urged Washington to put its fiscal house in order.

'In our opinion, the United States has already been defaulting,' Guan Jianzhong, president of Dagong Global Credit Rating Co Ltd, the only Chinese agency that gives sovereign ratings, was quoted by the Global Times saying.

Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies - eroding the wealth of creditors including China, Mr Guan said.

Mr Guan did not immediately respond to AFP requests for comment. The US government will run out of room to spend more on August 2 unless Congress bumps up the borrowing limit beyond US$14.29 trillion (S$17.57 trillion) - but Republicans are refusing to support such a move until a deficit cutting deal is reached.

The trade war is starting to get hot. China appears to be squirming...

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The trade war is starting to get hot. China appears to be squirming...

They do have a point.. but I'm not sure how they ever thought they were going to get paid back. :huh:

If they don't want US debt they should sell their holdings and immediately plough any revenue from exports into assets.. let someone else catch the falling knife.

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China is new to this game in way, once they understand that cleaning up isnt as good as they thought, and keeping there currency low will come back and bit them.They have no option to take a hit, they thought they had the upper hand but they are realising that they dont, if they sell they'll lose out on so much wealth, the only option left is to start to reduce their T bills buying and slowly sell for decades if they are ever going to see any of it.

if i were a US company and had any investments in china i'll start pulling out.

Edited by crash2006

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They do have a point.. but I'm not sure how they ever thought they were going to get paid back. :huh:

If they don't want US debt they should sell their holdings and immediately plough any revenue from exports into assets.. let someone else catch the falling knife.

They didn't. It was a deliberate merchantalist strategy to break the US economically. Of course it will come at a not insignificant financial cost in the immediate term, but when the dust has settled who'll be left with all the cards?

The Chinese have a wealth of wise sayings, so it shouldn't be a surprise that they know that in order to make a good omelette you need to break a few eggs.

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They didn't. It was a deliberate merchantalist strategy to break the US economically. Of course it will come at a not insignificant financial cost in the immediate term, but when the dust has settled who'll be left with all the cards?

The Chinese have a wealth of wise sayings, so it shouldn't be a surprise that they know that in order to make a good omelette you need to break a few eggs.

and people thought the cold war was over... the problem they have now is that to many wealthy and people with power kinda like money and the wests way of living.

Edited by crash2006

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China is new to this game in way, once they understand that cleaning up isnt as good as they thought, and keeping there currency low will come back and bit them.They have no option to take a hit, they thought they had the upper hand but they are realising that they dont, if they sell they'll lose out on so much wealth, the only option left is to start to reduce their T bills buying and slowly sell for decades if they are ever going to see any of it.

if i were a US company and had any investments in china i'll start pulling out.

Cant be done if they want to continue to pour cheap tat in to the US. Talk about Catch 22.

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and people thought the cold war was over... the problem they have now is that to many wealthy and people with power kinda like money and the wests way of living.

The US won the cold war by bankrupting Russia. Ironically, they did this by borrowing massive amounts of money.... the debt now coming back and bankrupting them too.

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The US won the cold war by bankrupting Russia. Ironically, they did this by borrowing massive amounts of money.... the debt now coming back and bankrupting them too.

Yep the US ultimately destroyed itself. The long term result is that they both lost.

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China is new to this game in way, once they understand that cleaning up isnt as good as they thought, and keeping there currency low will come back and bit them.They have no option to take a hit, they thought they had the upper hand but they are realising that they dont, if they sell they'll lose out on so much wealth, the only option left is to start to reduce their T bills buying and slowly sell for decades if they are ever going to see any of it.

if i were a US company and had any investments in china i'll start pulling out.

Selling for decades implies that this is going to be a very very long depression.

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http://www.straitstimes.com/BreakingNews/Money/Story/STIStory_678361.html

The trade war is starting to get hot. China appears to be squirming...

China is the USA's bitch.

It's like lending all your dinner money to the playground bully then expecting him to pay it back with interest.

The Chinese are heading for far bigger problems that the US IMHO.

:blink:

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The US won the cold war by bankrupting Russia. Ironically, they did this by borrowing massive amounts of money.... the debt now coming back and bankrupting them too.

How can a country that can feed itself and has vast reserves of natural resources ever go bankrupt?

If they defaulted and went isolationist for a couple of decades who would suffer?

The USA or the rest of the World.

:blink:

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China is the USA's bitch.

It's like lending all your dinner money to the playground bully then expecting him to pay it back with interest.

The Chinese are heading for far bigger problems that the US IMHO.

:blink:

The Chinese have already had their first bailout.

Roughly $500bn, but everything is OK.

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The US won the cold war by bankrupting Russia. Ironically, they did this by borrowing massive amounts of money.... the debt now coming back and bankrupting them too.

No, it was done by bankrupting others Europe and others paid for that, 70 oil, 80s recession.

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China is new to this game in way, once they understand that cleaning up isnt as good as they thought, and keeping there currency low will come back and bit them.They have no option to take a hit, they thought they had the upper hand but they are realising that they dont, if they sell they'll lose out on so much wealth, the only option left is to start to reduce their T bills buying and slowly sell for decades if they are ever going to see any of it.

if i were a US company and had any investments in china i'll start pulling out.

THe problem is they only say they have so many T bills. While theoretically in double entry accounting the fed has one side. China represents the other side. Thus it all should in theory balance out so what the US has on its ledgers is what china holds.

The thing is it is much like Fort Knox nobody has seen the gold for half a century, they say no its there alright you have to trust us. Its there you want to have a look? No you can't A similar problem exists with China in that they could well have gotten rid of a lot of it! Infrastructure projects EVERYWHERE for instance. Unthinkable ones like the north south water project. Which has cost 100bn so far.

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The Chinese have already had their first bailout.

Roughly $500bn, but everything is OK.

but read the article! The loans made were for local infrastructure. You know roads, powerstations water systems etc.

Compare and constrast to the UK and USA where bail outs are for people who paid too much for their homes.

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The Chinese aren't the only ones at it, German firm Feri are the first Western outfit to downgrade

http://www.scribd.com/doc/57438211/Feri-Downgrades-US-Gov-Debt-AAA-to-AA

Homburg, 8 June 2011 - The Bad Homburg Feri EuroRating & Research AG downgraded the first credit rating agency's credit rating for the United States from AAA to AA. Feri analysts justify the downgrade by the continuing deterioration of the creditworthiness of the country due to high public debt, inadequate fiscal measures, and weaker growth prospects.

"The U.S. government has fought the effects of the financial market crisis primarily by an increase in government debt. We do not see that there is sufficient attention being paid to other measures, "said Dr. Tobias Schmidt, CEO of Feri Rating & Research AG. "Our rating system shows a deterioration in economic health, so the downgrading of the credit ratings of U.S. is warranted."

For the third consecutive year the deficit of the United States is in double digit percentages relative to gross domestic product (GDP). "Deficits of such magnitude are not a sustainable fiscal policy. We would reconsider the rating when the U.S. government creates a long-term sustainable budget," said Schmidt.

Feri Rating is listed on the Federal Financial Supervisory Authority (BaFin) as an EU credit rating agency approved and created with more than 20 years experience in sovereign ratings. Every month, the Feri analysts evaluate sovereign credit ratings from the perspective of a foreign investor based on the ability and willingness of countries to repay their debts. The credit ratings have eleven possible gradations between "AAA" (best credit) and "Default".

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http://www.straitstimes.com/BreakingNews/Money/Story/STIStory_678361.html

The trade war is starting to get hot. China appears to be squirming...

They need the US and us to keep buying their tattersall.

I try not to buy Mecho in Chine gear but its hard work. Fender amps seem to be avoiding China and come from mexico and the axes are still all made in the US (at least the better ones), I stick to Canon/Sigma camera gear as that is almost all Japanese, Panasonic stuff seems to come from EE, plenty of cotton shite made in India and Bangladesh so it is possible.

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China is the USA's bitch.

It's like lending all your dinner money to the playground bully then expecting him to pay it back with interest.

The Chinese are heading for far bigger problems that the US IMHO.

:blink:

thats a ridiculous argument. the US dollar isnt just used for international trade - its used domestically as a currency in america as well you know.

you trash your own currency you also trash your own economy.

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but read the article! The loans made were for local infrastructure. You know roads, powerstations water systems etc.

Compare and constrast to the UK and USA where bail outs are for people who paid too much for their homes.

http://ftalphaville.ft.com/blog/2010/04/07/196651/the-chinese-siv/

Meet China’s Local Government Investment/Financing Vehicles (LGIVs/LGFVs).

Independent Strategy came up with one of the most headline-worthy characterisations of the vehicles, dubbing them China’s own brand of SIV-like structures. This was the quote:

LGFVs are conduits, like the Special Investment Vehicles (SIVs) were for western banks, used by local government to borrow and spend on infrastructure and other projects (like real estate).

Local Chinese governments share relatively meagre incomes from the country’s central tax pot, yet they’re charged with some pretty huge infrastructure and stimulus projects. What’s more they’re unable to run deficits, or get bank loans, or issue bonds without special central authority permission.

Enter the LGFV. Using these conduits, local governments are able to finance their projects in a rather roundabout way, borrowing money from banks in exchange for some collateral –often local land.

......

In the meantime though, here’s where Wu says the subprime stuff comes in:

Reckless lending to borrowers with sub-prime credit worthiness; excessive borrowing in a low rate environment with interest-only initial payments; making assumptions based on ever-rising property prices – sound familiar? We believe that the LGFV issue shares some similarities with the US sub-prime crisis. Luckily China’s excessive credit growth lasted for a relatively short period & regulators have started to contain the issue by securing payment sources to existing loans, curbing new loans & nullifying government guarantees. In the mid term, local government bonds, ABS & infrastructure REITs could also help buy some time . . .

Investors’ key concern is whether minority shareholders could end up paying for it. In our view, China would try everything to prevent a GITIC type default, which could damage its credibility for decades. Nonetheless, the system risk is high and banks may have to share some pain. Market could discount the risks, and the upward pre-rating potential for the sector may be limited until better clarity on the issue. That said, we do not expect the risk to materialize in the short term, until we see key triggers of a major credit event or clear leading indicators.

.....

Back to Independent Strategy:

This LGFV edifice will not survive credit tightening, because it is a Ponzi-type pyramid built upon borrowing more to service existing borrowings. However, timing the day of reckoning is complicated by the fact that China’s credit bubble is domesticated, because it is built on debts owned and borrowed at home. The LGFV scheme is credit borrowed and lent between state entities or, in the case of banks, between semi-state entities.

So the authorities can fudge and fiddle as they did when a similar, but smaller and foreign-financed, ITIC (investment trust) credit bubble collapsed in the mid-1990s. LGFV bad debts will be surgically removed together with collateral to state-owned Asset Management Corporations where they will linger unresolved for a goodly time (old debts still there today).

This is a nice rosy scenario, which will undoubtedly be pedalled under the “we believe in the China story mantra” by all those institutions with an interest in doing so. And there’s no doubt that ultimately the Chinese will try and navigate this course.

But we can’t share such optimism about the outcome. That’s because the problem is economically huge. LGFVs are not going to be borrowing and spending any more. And if infrastructure investment drove 90% of 2009 GDP growth and 70-80% of this was down to insolvent LGFVs, where will the growth in credit and GDP come from now?

From FT Alpha.

The problem in China I think is far more complex than local govts simply investing in "infrastructure". Also what sort of build quality has been used?

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http://www.telegraph.co.uk/finance/china-business/7851504/Chinas-chief-auditor-warns-mounting-local-government-debt-a-risk-to-economy.html

Mr Liu said the ratio of debt to disposable revenues at some local governments was over 100pc and in the highest case it was 365pc.

He said the audited debts of 18 of China's 22 provinces, together with 16 cities and 36 counties amounted to 2.79 trillion yuan (£279bn) in 2009.

Several observers believe the situation is far worse. The China Daily newspaper, which is run by the government, suggested that the total sum could add up to between 6 trillion and 11 trillion yuan (£590bn-£1.08 trillion).

Victor Shih, a professor at Northwestern University in the United States, believes the sum in 2009 was 11.4 trillion yuan, equivalent to 71pc of China's nominal GDP.

Mr Shih has warned that local governments have also succeeded in rapidly funnelling large amounts of debt off their balance sheet and into public-private investment vehicles.

China's banking regulator said outstanding loans from banks to local government financing vehicles was 7.38 trillion yuan at the end of 2009, rising 70pc year-on-year.

Mr Shih, who researched more than 8,000 of these "local investment companies", said that orders to ramp up spending on infrastructure after the financial crisis could leave China with widespread debt problems.

Still I'm sure none of this matters....

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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