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I'm not sure why they thought everyone should know what that meant. As I looked it up, I came across articles from as far back as 2013 saying that China's colla

I'm not sure why they thought everyone should know what that meant. As I looked it up, I came across articles from as far back as 2013 saying that China's collapse is imminent. Considering that still hasn't been the case, this may not be as imminent as Bloomberg is making it seem.

wpietri 8y ago
Your theory that a large systemic problem is only real if it blows up quickly is puzzling to me. I was working for financial traders at the time of the Orange County crisis in 1994 [1], and even then people were concerned that the rise of complicated financial instruments was concentrating and perhaps even creating risk in ways that were poorly understood. Those concerns got louder during the repeal of the Glass-Steagall Act in 1999 [2], as that removed depression-era regulations that kept banks from a lot of financial speculation. But this all didn't really blow up until the financial crisis of 2007-8. [3] Financial instruments with long time horizons (e.g., mortgages and long-term loans to governments) can be dangerous a long time before the truth comes out. And large organizations like banks and governments may end up exacerbating the problem by smoothing over what they think of as small problems but are really the canaries in the coal mine for major systemic issues. Closer to home, we could look at Theranos, which took a full 15 years to go from founding to criminal charges despite never really working. Enron and Worldcom are two other good examples where booming markets covered up all manner of sins for years before the music stopped. [1] https://www.nytimes.com/1994/12/08/business/orange-county-s-bankruptcy-the-overview-orange-county-crisis-jolts-bond-market.html https://www.nytimes.com/1994/12/08/business/orange-county-s-... [2] https://en.wikipedia.org/wiki/Aftermath_of_the_repeal_of_the_Glass%E2%80%93Steagall_Act https://en.wikipedia.org/wiki/Aftermath_of_the_repeal_of_the... [3] https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008 https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...
- zjaffee 8y ago
  Hell, an even more outlandish example is Bernie Madoff, who ran his Ponzi Scheme starting in the late 1980s which lasted until 2008.
adventured 8y ago
Lots of fringe people were predicting an imminent real estate implosion in 2005-2006 as the market got crazy. The real collapse didn't occur for several years. They were wrong on the timing, which is fairly common, while being right about the cause and ultimate outcome. China of 10 or 15 years ago is not China of today, as it pertains to their debt situation. Going from a 130% debt to GDP ratio, to 300% (or higher if you count shadow debt), puts you in a fiscal place that few nations have ever navigated successfully. Now China is reversing course on deleveraging and proceeding to leverage up further, likely making the situation worse. 300% debt to GDP may be sustainable with 8% real growth. How about at 5.5% growth? 4.8%? How about 450% debt to GDP, at 5.5% GDP growth? There are limits to this sort of approach to propping up an economy with very large sums of debt and slowing growth. How much does their growth drop off if they can no longer continue to expand the debt so dramatically? And when that happens, can they still service their debts well? The question is exactly where the limits are and what the consequences will be as they're hit. That varies from country to country, depending on the unique circumstances, and depending on the type of debt. What you can be certain about with China, and what it's doing, is that it's not good. Even if that immense pile of total debt - which continues to grow rapidly - doesn't implode their economy, it is very likely to stagnate it at a minimum by robbing the economy of the growth capital it needs (diverting it to rather incredible debt interest payment sums, as is the case now). As that debt goes higher, more and more of each incremental dollar of GDP growth is going to maintain it. While all of that is happening: China has large pension funding problems, very high real corporate tax rates that are smothering its economy, a weak social safety net, a shrinking small business market and expanding government-corporate sector that is far less efficient than the private sector, a rapidly aging demographics problem, contracting labor force, and soon to be contracting population. Now juggle all of that with their debt load, before they get rich/affluent at the median, and before they even build out a meaningful social safety net for the bottom billion people (social safety nets & welfare policies being the usual primary cause of large debt accumulation in the developed world).
- zjaffee 8y ago
  Except China can't be measured in the same terms that a Western economy can be. The US can't just decide to forget all of it's debt, in the way China can given they have a command economy with the government playing a role in every business. Communist parties have nationalized entire economies in the past, and to suggest they won't do the same again is ignoring many of the actions that Xi Jinping has taken to bring back Marxist thought into the country. Should the CCP decide to reset all debt, they could likely get away with it through measures that insure a lack of debt collection doesn't cause a dominoeing effect.

wpietri 8y ago

Your theory that a large systemic problem is only real if it blows up quickly is puzzling to me. I was working for financial traders at the time of the Orange County crisis in 1994 [1], and even then people were concerned that the rise of complicated financial instruments was concentrating and perhaps even creating risk in ways that were poorly understood. Those concerns got louder during the repeal of the Glass-Steagall Act in 1999 [2], as that removed depression-era regulations that kept banks from a lot of financial speculation. But this all didn't really blow up until the financial crisis of 2007-8. [3] Financial instruments with long time horizons (e.g., mortgages and long-term loans to governments) can be dangerous a long time before the truth comes out. And large organizations like banks and governments may end up exacerbating the problem by smoothing over what they think of as small problems but are really the canaries in the coal mine for major systemic issues. Closer to home, we could look at Theranos, which took a full 15 years to go from founding to criminal charges despite never really working. Enron and Worldcom are two other good examples where booming markets covered up all manner of sins for years before the music stopped. [1] https://www.nytimes.com/1994/12/08/business/orange-county-s-bankruptcy-the-overview-orange-county-crisis-jolts-bond-market.html https://www.nytimes.com/1994/12/08/business/orange-county-s-... [2] https://en.wikipedia.org/wiki/Aftermath_of_the_repeal_of_the_Glass%E2%80%93Steagall_Act https://en.wikipedia.org/wiki/Aftermath_of_the_repeal_of_the... [3] https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008 https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...

zjaffee 8y ago
Hell, an even more outlandish example is Bernie Madoff, who ran his Ponzi Scheme starting in the late 1980s which lasted until 2008.

adventured 8y ago

Lots of fringe people were predicting an imminent real estate implosion in 2005-2006 as the market got crazy. The real collapse didn't occur for several years. They were wrong on the timing, which is fairly common, while being right about the cause and ultimate outcome. China of 10 or 15 years ago is not China of today, as it pertains to their debt situation. Going from a 130% debt to GDP ratio, to 300% (or higher if you count shadow debt), puts you in a fiscal place that few nations have ever navigated successfully. Now China is reversing course on deleveraging and proceeding to leverage up further, likely making the situation worse. 300% debt to GDP may be sustainable with 8% real growth. How about at 5.5% growth? 4.8%? How about 450% debt to GDP, at 5.5% GDP growth? There are limits to this sort of approach to propping up an economy with very large sums of debt and slowing growth. How much does their growth drop off if they can no longer continue to expand the debt so dramatically? And when that happens, can they still service their debts well? The question is exactly where the limits are and what the consequences will be as they're hit. That varies from country to country, depending on the unique circumstances, and depending on the type of debt. What you can be certain about with China, and what it's doing, is that it's not good. Even if that immense pile of total debt - which continues to grow rapidly - doesn't implode their economy, it is very likely to stagnate it at a minimum by robbing the economy of the growth capital it needs (diverting it to rather incredible debt interest payment sums, as is the case now). As that debt goes higher, more and more of each incremental dollar of GDP growth is going to maintain it. While all of that is happening: China has large pension funding problems, very high real corporate tax rates that are smothering its economy, a weak social safety net, a shrinking small business market and expanding government-corporate sector that is far less efficient than the private sector, a rapidly aging demographics problem, contracting labor force, and soon to be contracting population. Now juggle all of that with their debt load, before they get rich/affluent at the median, and before they even build out a meaningful social safety net for the bottom billion people (social safety nets & welfare policies being the usual primary cause of large debt accumulation in the developed world).

zjaffee 8y ago
Except China can't be measured in the same terms that a Western economy can be. The US can't just decide to forget all of it's debt, in the way China can given they have a command economy with the government playing a role in every business. Communist parties have nationalized entire economies in the past, and to suggest they won't do the same again is ignoring many of the actions that Xi Jinping has taken to bring back Marxist thought into the country. Should the CCP decide to reset all debt, they could likely get away with it through measures that insure a lack of debt collection doesn't cause a dominoeing effect.