Thread: US default a greater risk than Evergrande meltdown

Debt crisis engulfing Chinese real estate giant is distracting market attention from the bigger financial threat emanating from the US


Brinksmanship over the US debt ceiling is bringing back traumatic memories Beijing would prefer to keep buried. An earlier debt-limit skirmish in August 2011 cost America its AAA rating from Standard & Poor’s. That came as Republican lawmakers pushed the world’s biggest economy to the brink of default.

The fiasco left China, then the biggest holder of US Treasury debt, cold. At the time, the Chinese government condemned the “short-sighted” wrangling in Washington and urged lawmakers to act more responsibly.

A 2011 editorial by the official Xinhua news agency said Beijing had “every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets. International supervision over the issue of US dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country.”

That plea made then-premier Wen Jiabao seem borderline clairvoyant. Back in 2009, Wen issued a remarkably rare public plea to US officials to be more reliable stewards of Beijing’s vast dollar holdings – and to protect the value of the more than $1 trillion of Chinese state wealth sitting in Treasuries at the time.

As Wen said back then: “We have made a huge amount of loans to the United States. Of course, we are concerned about the safety of our assets. To be honest, I am a little bit worried.” He urged Washington “to honor its words, stay a credible nation and ensure the safety of Chinese assets.”



Two years later, S&P rendered a dire judgment on that credibility, yanking away Washington’s AAA status. Now, a decade later, it’s time for Wen’s successor, Li Keqiang, to worry about Beijing’s $1 trillion-plus exposure, as Donald Trump’s party again holds America’s credit ratings hostage.


America’s debt Armageddon

Trump wasn’t in the political picture back in 2011. His 2017 to 2021 presidency, though, gave Xi and Li exponentially more reasons to worry about the safety of Chinese savings. Trump’s trade war came on top of his frequent tirades about China “killing” American workers with an undervalued exchange rate.

By the time he turned the keys over to Joe Biden in January, the US government was on course to a $30 trillion debt burden. That’s twice the size of China’s annual gross domestic product (GDP).

During his time in office, Trump’s inner circle mulled canceling portions of the debt the US owed Beijing. Trump also considered a dollar-to-yuan devaluation of the kind Vietnam or Argentina might suddenly announce.

Such considerations were hardly out of the blue. In May 2016, six months before he was elected, Trump, a serial bankruptcy offender as a businessman, floated the idea of reneging on US debt in a CNBC interview.

“I would borrow, knowing that if the economy crashed, you could make a deal,” Trump said. “And if the economy was good, it was good. So, therefore, you can’t lose.”

Yet China could indeed lose if the Republican Party over which Trump still holds great sway imperils America’s credit rating anew. Ditto for Japan, which has since topped China as the top holder of US government debt –$1.3 trillion to Beijing’s $1.1 trillion.

Moody’s Analytics economist Mark Zandi speaks for many when he says, “It’s complete craziness to even contemplate the idea of not paying our debt on time. It would be financial Armageddon.”

US default a greater risk than Evergrande meltdown - Asia Times



With trumptard republicans on the other side, how looneytoons might this get?
And why is this farce repeated so often? '11th hour deals'- so far. Ridiculous.

...nonsense: US politicians regularly engage in brinkmanship when budgets are involved particularly when cameras are present. The dust will settle before the US defaults because neither party wants to be blamed for late Social Security checks...

But really- must this circus be repeated every four years or so? I mean we are talking about the worlds largest debt market, the worlds largest economy (still), and the worlds de facto Reserve currency here. It is hardly comforting, and the repubs are just getting more looney.

For better or worse, it's become standard procedure.

Ironic the Chinese are so concerned when their debt is 271% of gdp and the US is 127%.

No surprise here. Just more Sabang whataboutism. The debt ceiling will always get raised in the end, as neither party would want to be blamed for causing a default.

Evergrande is on the other hand the tip of an iceberg. The Chinese economy is a house of cards built on real estate speculation. The building has to stop at some point, and then what?

Originally Posted by bsnub

Evergrande is on the other hand the tip of an iceberg.

...and that, I believe, is why Emperor Xi is unwilling to leave the country to attend conferences: daggers at the ready behind the throne...

More chinky propaganda shit.

Same old.

Stop fumbling around for irrelevant data and post some meaningful information hoohoo.

Mr. Shithole is an incompetent buffoon.

China's debt problem

China’s debt has risen dramatically in the past decade, largely the result of credit fed to state-owned enterprises in the wake of the global financial crisis. To some, the debt mountain represents a threat to China’s stability and even the world’s economic health, while others argue such fears are overdone as most of the country’s debt is state owned and therefore, they say, manageable.

How bad is it?

China’s debt is more than 250 percent of GDP, higher than the United States. It remains lower than Japan, the world’s most indebted leading economy, but some experts say the concern is that China’s debt has surged at the sort of pace that usually leads to a financial bust and economic slump.

China's debt problem

Reports of Chinas economic demise are, as always, premature. This is no financial meltdown, but I do believe the ripple effect will slow overall GDP growth- because the property sector has been a significant driver of domestic growth. So the good news Haters is that China may not yet be the worlds largest economy by the end of this decade.

Unless of course the US government defaults on it's debt obligations, in which case we're all in the shit.

Originally Posted by sabang

I do believe the ripple effect will slow overall GDP growth- because the property sector has been a significant driver of domestic growth.

That's the understatement of the century.

Originally Posted by Norton

Stuff most intelligent folks grow out of around the age of 10.

Sabang has grown into it. As he has grown older he has grown more senile. And his love for the CCP unashamedly grows.

Originally Posted by harrybarracuda

irrelevant data

That's your function.

Ancient history, try 64 AD next time, oh NaGastan didn't have any bankers then.

It's not 2017 now 'arry

Originally Posted by sabang

So the good news Haters is that China may not yet be the worlds largest economy by the end of this decade.

China GDP per capita PPP | 2021 Data | 2022 Forecast | 1990-2020 Historical | Chart

Jinping’s China stops with a grinding halt


China has come to a grinding halt. The rusty red engine of Communism has broken down. The coaches behind are beginning to derail. The Chinese economy has started unwinding. And the worst is yet to come. The China bulls have a lot to answer, and so do those who did not shift their production and manufacturing facilities out of the Communist nation when the time was ripe last year. As the Covid-19 pandemic took grip over the whole world and manufacturers sought to dissociate from China, there were some who shied away from doing the same. Now, the sinking Chinese ship is taking down these China doves as well, and the unwinding of the Chinese economy is having a global impact.
Aluminium Prices Go Over the Roof

China is reeling under an intense power crisis. Industries are not being allowed to function in the Communist nation, as the CCP regime resorts to unprecedented industrial power rationing. So, China – which is a major global exporter of Aluminium, finds itself in the unique position of not manufacturing any Aluminium. This is creating a supply deficit of the base metal around the world, leading to a price spike which was last seen only during the 2008 recession.

Jinping’s China stops with a grinding halt

Thank fuck they've got all that Aussie coal they're "boycotting"....

*snigger*

Originally Posted by OhOh

. . . blah blah. . . .

Just out of interest, where is Trading Economics located?

When everyone starts selling off USD I'll start worrying. The fact is very few currencies are worth the paper they're written on. The USD will always hold sway over other currencies such as the RMB whilst it remains the preferred international currency of the world.

Originally Posted by Hugh Cow

The fact is very few currencies are worth the paper they're written on

...as long as fiat currencies are viewed as stores of value and are necessary for financial/trading transactions, they are worth the paper they're written on...if that sentiment should change, you wind up with the Zimbabwean currency or the Venezuelan Bolivar...

The plain fact is, whenever a financial crisis of any magnitude erupts- even if it involves the USA!- the USD goes up. It's called a 'flight to quality' in the investment biz.
Also, by definition, the safest bond investment in the world is the good old US Treasury bond- backed by the "full faith and credit" of the US government.
Which is all the more reason why I find this repetitive circus and partisan brinkmanship every time the US increases it's debt limit a bit tiresome.
It's true- the cornerstone of international trades and settlements is the USD and the financial system set up, or sponsored by the US. Don't play with fire.
No doubt, an "11th hour deal" will be arrived at as always. But yawwwn. And it only adds impetus to those parties that want to set up a competing international monetary system- which is absolutely not in the USA's best interest if it values hegemony. But it may just be in the worlds best interest.

Originally Posted by sabang

And it only adds impetus to those parties that want to set up a competing international monetary system

...the only potential I see for an international currency replacing the USD is Bitcoin (et al.) and similar digital currencies once they are subject to government regulations...the Chinese, of course, don't want anything to do with a currency they can't (yet) clandestinely manipulate...so, we're back to the USD...

Dollar days are here again....nothing to see here...good ships all around...

I think there is another Evergrande thread, I can't find it. The point is that US default is a potential risk while Evergrande is an established monster failure with continuing impact on the Chinese economy:

Evergrande: Crisis-hit Chinese property giant reveals $81bn loss.

Crisis-hit Chinese property giant Evergrande has revealed that in 2021 and 2022 it lost a combined 581.9bn yuan ($81.1bn; £62bn).

The firm, which defaulted on its debts in late-2021, reported its long overdue earnings to investors in Hong Kong.

Evergrande has been struggling with an estimated $300bn (£229bn) of debts.

The huge losses highlight how much the developer was rocked in recent years by the property market crisis in the world's second largest economy.

In filings to the Hong Kong Stock Exchange late on Monday, the company said it lost 476bn yuan in 2021 and 105.9bn yuan last year.

That came as revenue more than halved over the two-year period.

Evergrande said the losses were due to a number of reasons, including the falling value of properties and other assets as well as higher borrowing costs.

Shares in the firm, which was once China's top-selling property developer, have been suspended from trading since March last year.

China's real estate industry was rocked when new rules to control the amount big real estate firms could borrow were introduced in 2020.

The following year, Evergrande missed a crucial deadline and failed to repay interest on around $1.2bn of international loans.

Its financial problems have rippled through the country's property industry, with a series of other developers defaulting on their debts and leaving unfinished building projects across the country.

Earlier this year, Evergrande laid out plans to restructure around $20bn in overseas debt.

Evergrande: Crisis-hit Chinese property giant reveals $81bn loss - BBC News