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China's goal is to eliminate social upheaval, mostly centered on the concept of full employment. Without it, the country risks social upheaval. Their second go

by MR4D 8y ago

China's goal is to eliminate social upheaval, mostly centered on the concept of full employment. Without it, the country risks social upheaval. Their second goal is a growing economy, so that the people can be richer, on the thinking that richer people have more to lose, and less like to cause social upheaval. The end result of this is that China will continue to contort itself to satisfy its goal. Just like the Thanksgiving Turkey, this works great...right up until it doesn't. What I hope HN people are doing in the background is contemplating what happens on that Day of Reckoning, and how it impacts them and their lives. If that day happened tomorrow, commodity prices would drop across the board. Oil would drop, as would gas, coal, grains, livestock. That would be great (unless you are employed in those industries). Then, real estate prices will drop, as the Chinese trying to get money out of the country won't be able to (it likely will be devalued, and possibly near worthless). Vancouver, and Canadian real estate in general will have price collapses. This will cause Canadian bank failures, and dry up credit in Canada. Meanwhile, companies with significant exposure in China will see their stock drop. Cash flow will be reduced, and for some, significantly. Assets may have to be marked-down to lower book values. Further, the companies that depend on the aforementioned firms will endure hardships of product logistics - manufacturing, inventory, and quality control will all go a little haywire. Firms that can move their supply chains out of China quickly will do so, helping various other countries. But countries that have significant percentages of their GDP devoted to raw materials production (such as Africa, the Arabian peninsula, Russia, and Australia) will go into recession, and some into depression. That will result in a drying up of global capital (probably quickly, as bankers run faster than most when they hear canaries chirp), and global shipping. I could go on, but you get the idea. So much of our lives (wherever we live) depend on supply chains that either run through China, or are significantly affected by China (like concrete and steel), that we are all going to be effected, and economically speaking, it won't be pretty for the world.

yeahitslikethat 8y ago
What's the time line on this getting started? What's the best strategy for investing? Asset allocation? To be specific Near term: < 6 months Short term: 6 Mos - 2 yrs Midterm: 2 years - 5 yrs Long term: 5 years or more what you're predicting here is in line with mine, but yours is way more well thought out ... and globally catastrophic. Where can money be spent right now as an investment?
- gscott 8y ago
  This may never happen 1. China is converting as much of there funny money Yuan into Gold as possible. This helps bolster the idea that China can pay their debts. https://bloom.bg/2I5TYME https://bloom.bg/2I5TYME 2. China monetary policy is run through banks. When a bank is to far insolvent they will make bad banks and put all of the insolvent loans into those. https://reut.rs/2WvG2zb https://reut.rs/2WvG2zb 3. When China has enough gold to give external investors confidence they can sell off half of their Treasury holdings, create the good / bad banks, and re-engineer the economy. Leaving foreigners on the hook. https://bit.ly/2H7zdxf https://bit.ly/2H7zdxf, https://bit.ly/2vOA1li https://bit.ly/2vOA1li, https://s.nikkei.com/2WgZRuD https://s.nikkei.com/2WgZRuD 4. The world wants cheap stuff. While foreigners will be unhappy they lost their investments they will keep buying from China and China will have a soft-landing from this upheaval. 5. China won't at that point be able to afford to buy any treasury bonds. The US Treasury will be forced to print money and inflation will go up along with various problems. This will force investors back into China because the US doesn't look like it is any better off then China is. It is a lot like someone who declares bankruptcy being able to get credit again pretty quickly. 6. To make sure productive members of China's society work China could make less productive members into caregivers helping to relieve some societal stress. 7. China's government owns part of a lot of private and public companies along with China Utilities. They can raise money by privatization like France has done. https://on.ft.com/2lN2x1F https://on.ft.com/2lN2x1F
  - MR4D 8y ago
    Some responses: #1, China is going to have to buy a lot more gold. They only have about 1/4 as much gold as we do. And if they buy too fast, they'll push up the price, which hurts their currency. Not saying you're wrong, but there are limits here. https://moneyweek.com/499249/how-much-gold-does-china-have-a-lot-more-than-you-think/ https://moneyweek.com/499249/how-much-gold-does-china-have-a... #2 - many ways to deal with this, but it has to be in balance #3 - I don't understand your - can you elaborate? #4 - not at the cost of seeing their economies whither up and disappear. An aging demographic curve in most countries is already going to do damage - giving the rest of the country away won't help. We're already seeing increased protectionism around the world in different forms (e.g. the US with tariffs, the EU with regulations, etc.) One example is here: https://www.nwitimes.com/business/local/arcelormittal-idling-steel-mills-in-europe/article_e635ff12-b2d1-5380-b67c-18db0cdc099d.html https://www.nwitimes.com/business/local/arcelormittal-idling... 5 - Not all bad things are created equal. Check out this and read the text next to the graph titled, "China Population Growth": http://worldpopulationreview.com/countries/china-population/ http://worldpopulationreview.com/countries/china-population/ 6 - this doesn't work with an aging population. The demographic curve hurts (see #5 above)
voldacar 8y ago
Thanks for posting this, it was well written and seems rational. One potential domino you left out is what happens if the Chinese economy crashes and they can no longer buy US debt, if this happened and the US had to start inflating their currency it seems like that would be the worst possible scenario, globally speaking
- MR4D 8y ago
  I don't think it will be an issue, for two reasons: #1 - They only own about 5% of US government debt anyway (about as much as Japan) [0] [1] #2 - They actually own less than they did a few years ago [1][2]. This tells me that their buying has become somewhat inconsequential already. [0] - https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124 https://www.thebalance.com/who-owns-the-u-s-national-debt-33... [1] - https://money.cnn.com/2015/04/15/news/economy/japan-china-us-debt-treasury/ https://money.cnn.com/2015/04/15/news/economy/japan-china-us... [2] - https://www.thebalance.com/u-s-debt-to-china-how-much-does-it-own-3306355 https://www.thebalance.com/u-s-debt-to-china-how-much-does-i... EDIT - I meant to also say thank you!
- DeonPenny 8y ago
  No one has a real worry about this cause the world needs more dollars because of the debts they'll owe to china. The debt to china is very much not a fear.

by MR4D 8y ago

yeahitslikethat 8y ago

What's the time line on this getting started? What's the best strategy for investing? Asset allocation? To be specific Near term: < 6 months Short term: 6 Mos - 2 yrs Midterm: 2 years - 5 yrs Long term: 5 years or more what you're predicting here is in line with mine, but yours is way more well thought out ... and globally catastrophic. Where can money be spent right now as an investment?

gscott 8y ago
This may never happen 1. China is converting as much of there funny money Yuan into Gold as possible. This helps bolster the idea that China can pay their debts. https://bloom.bg/2I5TYME https://bloom.bg/2I5TYME 2. China monetary policy is run through banks. When a bank is to far insolvent they will make bad banks and put all of the insolvent loans into those. https://reut.rs/2WvG2zb https://reut.rs/2WvG2zb 3. When China has enough gold to give external investors confidence they can sell off half of their Treasury holdings, create the good / bad banks, and re-engineer the economy. Leaving foreigners on the hook. https://bit.ly/2H7zdxf https://bit.ly/2H7zdxf, https://bit.ly/2vOA1li https://bit.ly/2vOA1li, https://s.nikkei.com/2WgZRuD https://s.nikkei.com/2WgZRuD 4. The world wants cheap stuff. While foreigners will be unhappy they lost their investments they will keep buying from China and China will have a soft-landing from this upheaval. 5. China won't at that point be able to afford to buy any treasury bonds. The US Treasury will be forced to print money and inflation will go up along with various problems. This will force investors back into China because the US doesn't look like it is any better off then China is. It is a lot like someone who declares bankruptcy being able to get credit again pretty quickly. 6. To make sure productive members of China's society work China could make less productive members into caregivers helping to relieve some societal stress. 7. China's government owns part of a lot of private and public companies along with China Utilities. They can raise money by privatization like France has done. https://on.ft.com/2lN2x1F https://on.ft.com/2lN2x1F
- MR4D 8y ago
  Some responses: #1, China is going to have to buy a lot more gold. They only have about 1/4 as much gold as we do. And if they buy too fast, they'll push up the price, which hurts their currency. Not saying you're wrong, but there are limits here. https://moneyweek.com/499249/how-much-gold-does-china-have-a-lot-more-than-you-think/ https://moneyweek.com/499249/how-much-gold-does-china-have-a... #2 - many ways to deal with this, but it has to be in balance #3 - I don't understand your - can you elaborate? #4 - not at the cost of seeing their economies whither up and disappear. An aging demographic curve in most countries is already going to do damage - giving the rest of the country away won't help. We're already seeing increased protectionism around the world in different forms (e.g. the US with tariffs, the EU with regulations, etc.) One example is here: https://www.nwitimes.com/business/local/arcelormittal-idling-steel-mills-in-europe/article_e635ff12-b2d1-5380-b67c-18db0cdc099d.html https://www.nwitimes.com/business/local/arcelormittal-idling... 5 - Not all bad things are created equal. Check out this and read the text next to the graph titled, "China Population Growth": http://worldpopulationreview.com/countries/china-population/ http://worldpopulationreview.com/countries/china-population/ 6 - this doesn't work with an aging population. The demographic curve hurts (see #5 above)

voldacar 8y ago

Thanks for posting this, it was well written and seems rational. One potential domino you left out is what happens if the Chinese economy crashes and they can no longer buy US debt, if this happened and the US had to start inflating their currency it seems like that would be the worst possible scenario, globally speaking

MR4D 8y ago
I don't think it will be an issue, for two reasons: #1 - They only own about 5% of US government debt anyway (about as much as Japan) [0] [1] #2 - They actually own less than they did a few years ago [1][2]. This tells me that their buying has become somewhat inconsequential already. [0] - https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124 https://www.thebalance.com/who-owns-the-u-s-national-debt-33... [1] - https://money.cnn.com/2015/04/15/news/economy/japan-china-us-debt-treasury/ https://money.cnn.com/2015/04/15/news/economy/japan-china-us... [2] - https://www.thebalance.com/u-s-debt-to-china-how-much-does-it-own-3306355 https://www.thebalance.com/u-s-debt-to-china-how-much-does-i... EDIT - I meant to also say thank you!
DeonPenny 8y ago
No one has a real worry about this cause the world needs more dollars because of the debts they'll owe to china. The debt to china is very much not a fear.