The Real China Syndrome

[Winstonm]

It has long been my contention that the real risk to the U.S. national security is its debt and reliance on Foreign Central Banks to pay the bill with trade surplus. Not satisfied to buy into Blackstone, an American company, it now seems that China wants to rattle this "financial saber" to affect our politics, as well.

 

 

http://www.telegraph.co.uk/money/main.jhtm...cnchina107a.xml

[Al_U_Card]

Financially, the credit bubble is set to burst.

 

Like the dirty thirties, those in the know are preparing their coffers to scoop up all of the "bargains" when the smoke clears and company valuations will be one tenth of what they are now.

[42]

Do you think it is 5 to 12 to better sell all shares (of fonds)? Even the Russian and Asian ones?

[Gerben42]

company valuations will be one tenth of what they are now.

Not if you invested into companies that are actually worth what their share price says.

 

I have no clue but it seems ridiculous to me that just because of some banking messup the whole economy would go down the drain. I mean, it's booming everywhere. People will still want to buy their goods and companies are still going to be able to sell their stuff.

 

BTW where does the European Central Bank get their zillions of €? They print them? Why don't they give them to the people who need it rather than the overrich banks?

 

SHORT OVERVIEW:

 

* Bank talks innocent customer into a mortgage he cannot afford

* Customer goes broke

* Bank gets reinbursed with newly printed money

 

What is wrong with this? The bank, after committing a crime (at least here it is to sell someone a loan without checking the creditworthyness), is held alive while the customer is broke. Not my idea of fair.

[42]

Gerben, this busyness isn't fair. We get only a bit of informations, and not always the right and correct ones. They say one thing ("no, we are not involved") and do the opposite (in fact they are). Often money destroys (good) character :)

[Al_U_Card]

Hi guys and gals

 

Look at it this way. Yes, good companies will suffer less but our methods of valuation are based on speculation. This means that the stock price, while generally associated with a price to earnings ratio, will depend on what people feel its value to be.

 

Right now, I have moved my portfolio from 20% instruments 80% stocks to 20% stocks 30% solid companies 50% instruments. This will remain until November or so when the instruments will go back mostly to stocks (mutual funds) to enjoy the run up over the next 4 or five years.

 

Expect the volatility to continue for the next month or so ( the mavens are still able to make gobs of money on the call and put options that can be well timed) and then some time late in September or during October.....duck and cover.

[jtfanclub]

company valuations will be one tenth of what they are now.

Not if you invested into companies that are actually worth what their share price says.

There aren't any companies worth their share value. Being a mere 10 times their liquidation value is considered well-priced. In a panic, it's easy for companies to fall to their liquidation value.

 

I don't think this will happen...however, this is the danger of capitalism, that businesses in for a quick buck won't care about the carnage they release. I think it will be a very, very, very long time until the housing market recovers, however. Which is OK by me, since this whole "buy the biggest house possible for a tax free investment" was ruinous on the face of it. I don't mind if it never returns.

 

Gonna realy suck for the spec builders in my area, though. $250, $300K homes popping up like dandelions in an area where 10 years ago $150K would buy a nice place, and not any area that has been expanding much. It was really stupid to begin with, the sucker mortgages were the only way they were going to sell, and they are probably gone for good. So I expect to go under, and those houses to plummet in value. I guess I'm supposed to feel bad.

[mikeh]

The current situation, in terms of economic power, makes me think of the situation in the 1890's and into the early years of the 20th century.

 

As of, say, 1870, economic and political power was centralized the Old World, with particular emphasis on Great Britain.... but with strengthening competition from Germany.

 

The US was still expanding geographically and demographically: still building the infrastructure that was to empower its industry over the coming generations.

 

Thus GB could, in the early years of the 20th century, still manage to have a 'two fleet' policy in terms of its naval strength: it built the biggest, most powerful and expensive weapons systems the world had ever seen (the Dreadnought and post-Dreadnought battleships rendered all existing line-of-battle ships obsolete overnight) on a scale intended to ensure naval dominance even if the two countries with the next most powerful fleets combined against the UK. It's as if the US maintained an armed forces system able to concurrently take on China and the former Soviet Union, with no allies!

 

GB could only do this due to its economic dominance of world trade and its technical innovations.

 

But the US had a huge internal market, so did not need to compete with the UK. It began developing technical innovations of its own, and these soon overtook those in GB.

 

Of course, WWI, and the delayed entry of the US into that conflict, accelerated the transfer of wealth to the New World, but the process was by then inevitable anyway. WWII finished off any remmants of European competitiveness, as even the victorious British Empire was pushed into near bankruptcy by the financial demands, while the US acted as a lender, and the war effort stimulated, rather than exhausted its economy.

 

Now, we are seeing the rise of China, and the impending diminishment, in relative terms, of the US.

 

The only way out for the US is to inflate.... inflate in relation to the chinese yuan.

 

Either the Chinese re-value their currency against the dollar, or the US has to lower its currency via inflation.

 

And those of us who lived, as adults, through the mid 1970s into the late 80's will understand that such a remedy is a disease all of its own.

 

I doubt that China will do anything drastic until at least after the 2008 Olympics, and probably not then either. Huge tho its economy is, it is still smaller than the US and will suffer immensely from a world-wide financial meltdown.

 

But unless something is done to address the underlying issues, preserving the status quo will merely make the eventual collapse that much the worse.

 

So 10 or 20 or 30 years from now, when China thinks it can withstand a global collapse, it will trigger one.. and stand by to buy up all the pieces: which it will be able to afford to do.

 

Now, I concede that this post is based on an almost complete lack of understanding of economic theory :) So I hope I am wrong.. and, anyway, I don't know what ordinary people can do about it anyway.

[Gerben42]

Okay, let's get this global crisis over with before I really have something to lose and then be done with it until I have all my sheep on dry land. Thanks :)

 

Luckily all this "economy" stuff is just statistics. The global economy might be in the dumps but if your personal economy is okay...

[Winstonm]

Treasury yields move inversely to price. There are no set rates. Rates are set at auction. High demand causes higher prices thus lower yields. Lower yield is good for the U.S. as the interest paid on its borrowing is lessened, and interest rates tied to treasuries such as mortgages are held low. Foreign Central Banks have been creating a somewhat artificial demand for treasuries as they pile back their trade surpluses into treasuries.

 

The Foreign Central Banks as a group don't have to dump their holdings to cause a crisis. All they have to do is stop buying new issues. This would cause a huge spike in yields, most likely forcing a slowing U.S. economy into recession.

 

If a country such as China went further and dumped its holdings onto the market, the effects would be devastating and quickly spread globally - the real domino affect.

[mike777]

As usual dazed and confused.

 

What is everyone worried about? Something worse than 87 or 72-73?

If so do not worry.

 

If you think worse than the early 1930's ok you got my attention. :)

Worse than December 1941....ok you got my attention...worse than the Blitz..ok...but lets get more specific if possible....devasting is a big word. :(

[Al_U_Card]

Hey Mike

 

Pearl Harbor? You mean Roosevelt's 9-11?

 

Like Bush, he set the table, withheld the troops and then allowed the attack to happen. So a few ordinary lives are lost....for the greater good....right.

[Winstonm]

If you think worse than the early 1930's ok you got my attention

 

How about an event that would make the 1930's look like "the good old days"?

[mike777]

If you think worse than the early 1930's ok you got my attention

 

How about an event that would make the 1930's look like "the good old days"?

Well here is one guy who is putting his money and his house against....that......if you are selling everything..cool just say so...... :)

 

Again if you are selling everything...that includes your american dollars..cool..just say... :(

 

Again if you are selling all your american dollars and american real estate..cool...just tell us..... :(

[Winstonm]

If you think worse than the early 1930's ok you got my attention

 

How about an event that would make the 1930's look like "the good old days"?

Well here is one guy who is putting his money and his house against....that......if you are selling everthing..cool just say so...... :)

 

Again if you are selling everything...that includes your american dollars..cool..just say... :(

 

Again if you are selling all your american dollars and american real estate..cool...just tell us..... :(

Mike,

 

The post is about China's ability to influence American politics by economic threats. The Chinese call this their "nuclear option". The reality of the consequences of that action to the U.S. are well understood.

 

You may want to read the linked article to get a better perspective on the nature of the Chinese jawboning to use its financial weapon. Their purpose is to influence political decisions, to kill bills in Congress they believe negative to their aims.

 

If a country cannot make laws because of the threat of economic reprisal, who is really in charge?

[mike777]

Dazed and confused

 

If you are claiming China is attempting to act in its own self interest......I agree

If you are claiming our babies should learn chinese...I agree.

If you are claiming we should try and own something..anything at least..chinese..I agree.

 

 

If you claim this may have devasting effects for some..ok....for some...economic change will agree.

If you claim there is some evil in capital markets..per se...ok...agree.....

 

AND YOUR POINT IS?

 

this was all discussed...hmmm a few thousand years ago?

[Foxx]

You mean like our babies had to learn Hebrew in the '50's, Russian in the '60's, Arabic in the '70's and Japanese in the '80's?

 

Give me a break.

 

We have to worry about all this stuff for what reason? Here's what I say. Nuke 'em.

 

That's right. Nuke 'em, nuke Iraq, nuke Syria, nuke France, nuke Pakistan........... NUKE 'EM ALL!

 

 

 

Now, I concede that this post is based on an almost complete lack of understanding of..... everything :(

[Gerben42]

It is important to teach them at least one foreign language anyway, preferably two. Why not Chinese?

[jtfanclub]

If a country cannot make laws because of the threat of economic reprisal, who is really in charge?

If you owe the bank a dollar, they own you.

If you owe the bank a million dollars, you own them.

 

Suppose that the dollar crashed, such that milk and gas were both $30 a gallon, but houses and domestic cars stayed their current prices. In northern climes, you're literally paying more for heat for a year than you are for the mortgage. Imports are impossibly expensive. Wages are double what they used to be, but it still gets swallowed up by essentials. Ten dollars will get you a Euro.

 

Who do you think that would hurt more?

 

Americans would be hungry, carpooling would become very common, house-pooling (getting as many people to live in one house as you can to conserve electricty, heat, & A/C) even moreso. Luxurious would be difficult, unemployment would be high (25%-33%), but actual starvation would be a rare event. Life would be tough, but we'd handle it.

 

It would be much worse for China. Trillions in bonds would lose 90% of their value. Europe would close shop, and stop taking imports from outside the EU. China's industry is driven by exports, and suddenly they wouldn't have any. Worst of all, from the viewpoint of the leaders, the folks in Shanghai wouldn't appreciate the sudden loss of wealth, and would revolt. China would likely fall into civil war. The boys in Shanghai ignore the boys in Beijing as long as they're making lots of money. If Beijing threatens that, it's over. The Chinese government is the lady riding the tiger. Works great, until the tiger gets hungry.

 

No, Beijing can't risk doing something stupid that will ruin both economies. And Shanghai doesn't care what we do, as long as they keep raking in the cash hand over fist. Hillary's stunt won't affect that.

[Winstonm]

Mutually Assured Economic Destruction?

[Gerben42]

Why do you think Europe would also close its borders?

[Al_U_Card]

Hey Gerben

 

As you can see from Mike's post, headinthesanditis is common for the old guard. They refuse to recognize the new situation as that is not a pleasant alternative.

 

Europe would not "close" its borders, but americans would not be able to pay for european goods and services. No more tourists either (except those 3 or 4 hundred thousand fabulously wealthy elitists that were in absolute control of the country). Effectively, europe would only deal with its economically viable partners left standing. The EU will be the next (economic) superpower as long as it acts sensibly over the next few years.

[Al_U_Card]

Mutually Assured Economic Destruction?

How 'bout

 

Societies Commonly Agreed Restructuring Economically ?

[pbleighton]

China will pass the U.S. as an economic power fairly soon, at least as measured by GDP.

 

The post is about China's ability to influence American politics by economic threats. The Chinese call this their "nuclear option". The reality of the consequences of that action to the U.S. are well understood.

 

You may want to read the linked article to get a better perspective on the nature of the Chinese jawboning to use its financial weapon. Their purpose is to influence political decisions, to kill bills in Congress they believe negative to their aims.

 

If a country cannot make laws because of the threat of economic reprisal, who is really in charge?

 

China doesn't want an economic war. They are a huge exporter, one of the biggest beneficiaries of a stable world economy.

 

Of course they try to influence other countries. All countries do.

 

BFD.

 

Peter

[mike777]

China will pass the U.S. as an economic power fairly soon, at least as measured by GDP.

 

The post is about China's ability to influence American politics by economic threats. The Chinese call this their "nuclear option". The reality of the consequences of that action to the U.S. are well understood.

 

You may want to read the linked article to get a better perspective on the nature of the Chinese jawboning to use its financial weapon. Their purpose is to influence political decisions, to kill bills in Congress they believe negative to their aims.

 

If a country cannot make laws because of the threat of economic reprisal, who is really in charge?

 

China doesn't want an economic war. They are a huge exporter, one of the biggest beneficiaries of a stable world economy.

 

Of course they try to influence other countries. All countries do.

 

BFD.

 

Peter

If by fairly soon you mean in the next 50-100 years this indeed would be big news. I think next on the list is Germany at about number 4?

 

Of course I think Roland's Denmark just claimed the North Pole which has trillions in oil and gas, so they may beat us all now that they own Santa Claus.