NEWS Is the pivot to China a bunch of bullshit?

[Griz882]

Hitler didn't attack Russia to resolve a deteriorating domestic political situation. Quite the opposite actually. Nor did Japan attack us, who thought their ruler a god and never would have revolted. Nor did Hussein vs Iran, or Arab countries vs Israel. You're forgetting that key component in the discussion.


Whatever their reasons for claiming war with China has been imminent for the last 30+ years, they have been wrong thus far.

China has no reason to go to war with us. As others mentioned, they are very long term thinkers, unlike our politicians who are incentivised to focus only on the time until their next election. If China is wise, and I think they are, they will simply wait for our debt bomb to explode. There's been much talk of China peaking and such here, but we're staring at a much steeper cliff than they are.

Am I missing something here? Perhaps from an earlier conversation?

Also, from an economic point of view, the U.S. debt bomb is a bit of a myth. It cost the US about $695 billion to service its debt last fiscal year, or just around 2.5% of US GDP. As long as the debt is serviced we’ll be fine, just imagine Great Britain where they still service debt from the Napoleonic Wars!

 

[ChuckMK23]

Am I missing something here? Perhaps from an earlier conversation?

Also, from an economic point of view, the U.S. debt bomb is a bit of a myth. It cost the US about $695 billion to service its debt last fiscal year, or just around 2.5% of US GDP. As long as the debt is serviced we’ll be fine, just imagine Great Britain where they still service debt from the Napoleonic Wars!

+1. The US is a GDP machine right now and all indicators point to an economic expansion the likes of which we have never seen. DOW at 75,000 plus is a conservative outlook. Mexico is about to hit unprecedented growth as is Canada. And, surprise, China wants and needs western markets more than ever. US debt is a nothing-burger that politicians get to hot each other with like a raw wet fish. US debt is a AAA holding for people in India, Dubai, Zurich, Berlin, Oslo, Buenos Ares. The cool kids hold US debt all day long and want more. That's not changing.

 

[Mirage]

I wouldn’t call a country who created their own demographic time bomb or picks fight with its biggest export market a “wise” country.

I don’t think you fully appreciate the challenges that China is facing right now. The housing situation allow is potentially an order of magnitude beyond what we experienced in 2008. Particularly because of domestic investment mechanics and PRC regulations on private equity.

I very well may be wrong, as you're right that I don't fully understand all the challenges China is facing. But their national debt to GDP is only 80% (compared to our 123%), and a federal bailout on their part is all that would seem necessary to bail out Evergrande and whomever else. One advantage to their 1 party system is that they are much better equipped to handle their debt burden and prevent such high spending from becoming the disaster ours is shaping up to be.

My comment that "we're staring at a much steeper cliff than they are" has more to do with my view of our impending crisis than my view on theirs... I just generally don't think the Chinese problems are as dramatic or seemingly unsolvable as ours is.

Am I missing something here? Perhaps from an earlier conversation?

Also, from an economic point of view, the U.S. debt bomb is a bit of a myth. It cost the US about $695 billion to service its debt last fiscal year, or just around 2.5% of US GDP. As long as the debt is serviced we’ll be fine, just imagine Great Britain where they still service debt from the Napoleonic Wars!

After Jamie Dimon warns of market ‘rebellion’ against $34 trillion national debt, Fed’s Jerome Powell says it’s past time for an ‘adult conversation’ about unsustainable fiscal policy

Powell, who said he normally doesn’t comment on politics, criticized lawmakers for “effectively borrowing from future generations” with their “unsustainable” policies.

finance.yahoo.com

Couldn't disagree more. That's like saying if you just make the minimum payment on a credit card payment but increase the overall balance by over-spending each month then you're good. Sure, the bank is happy for awhile... until they realize you're not good for the outstanding balance. We spent $695 billion last year, we'll spend $900 plus billion this year, and more each year. How anyone can think such simple math is a myth is beyond me.

 

[Griz882]

I very well may be wrong, as you're right that I don't fully understand all the challenges China is facing. But their national debt to GDP is only 80% (compared to our 123%), and a federal bailout on their part is all that would seem necessary to bail out Evergrande and whomever else. One advantage to their 1 party system is that they are much better equipped to handle their debt burden and prevent such high spending from becoming the disaster ours is shaping up to be.

My comment that "we're staring at a much steeper cliff than they are" has more to do with my view of our impending crisis than my view on theirs... I just generally don't think the Chinese problems are as dramatic or seemingly unsolvable as ours is.

After Jamie Dimon warns of market ‘rebellion’ against $34 trillion national debt, Fed’s Jerome Powell says it’s past time for an ‘adult conversation’ about unsustainable fiscal policy

Powell, who said he normally doesn’t comment on politics, criticized lawmakers for “effectively borrowing from future generations” with their “unsustainable” policies.

finance.yahoo.com

Couldn't disagree more. That's like saying if you just make the minimum payment on a credit card payment but increase the overall balance by over-spending each month then you're good. Sure, the bank is happy for awhile... until they realize you're not good for the outstanding balance. We spent $695 billion last year, we'll spend $900 plus billion this year, and more each year. How anyone can think such simple math is a myth is beyond me.

Primarily because national debt isn’t remotely like a credit card. In the article you utilize Powell isn’t upset about the actual debt, he is concerned about the lack of a plan to service more of the debt.

 

[Mirage]

Primarily because national debt isn’t remotely like a credit card. In the article you utilize Powell isn’t upset about the actual debt, he is concerned about the lack of a plan to service more of the debt.

Powell is quoted as criticizing lawmakers for "effectively borrowing from future generations" with their "unsustainable policies". Where are you getting that he's not upset about the levels of debt? It's not just Powell either, though his decision to finally comment is striking. Jamie Dimon and Ray Dalio, among others, are also quoted as saying we are borrowing far too much and the path we are on is completely unsustainable.

In what way does our interest payments being greater than our defense spending, with a forecast from the CBO that it will be double that figure in a few short years, not scare you? The increase in interest payments each year alone, regardless of other spending increases, creates a debt spiral where we have to borrow more just to service the debt. The only way out will be dramatic cuts to our budget, which will not only kill growth, it will cause our GDP to shrink, further exacerbating the problem. Not to mention the drama that will unfold when we are forced to cut things like Medicaid and SS.

Using math, please convince me I'm wrong, because I really hope I am.

 

[Hotdogs]

I very well may be wrong, as you're right that I don't fully understand all the challenges China is facing. But their national debt to GDP is only 80% (compared to our 123%), and a federal bailout on their part is all that would seem necessary to bail out Evergrande and whomever else. One advantage to their 1 party system is that they are much better equipped to handle their debt burden and prevent such high spending from becoming the disaster ours is shaping up to be.

My comment that "we're staring at a much steeper cliff than they are" has more to do with my view of our impending crisis than my view on theirs... I just generally don't think the Chinese problems are as dramatic or seemingly unsolvable as ours is.

Comparing our economies is apples and oranges when it comes to pure statistics. I’m not an expert on it either, but there are large differences in internal and external factors to manage said debt. Not to mention the industries that make up our economies.

Only around 30-40% of Chinese GDP (Depending on which economist you cite) comes from domestic spending. The rest of it is FDI and PRC government spending. Due to a regulatory crackdown, FDI is plummeting and there are very little international capital markets that are willing to finance Chinese Government debt. So the Chinese now have to rely on domestic spending to stabilize their economy (which is not enough, and now you’re seeing deflationary pressures). Now it is seeing roughly half of its populations equity go up in smoke in the property market. The PRC doesn’t allow overseas investment from its private citizens due to capital flight concerns nor does the average Chinese citizen trust its own domestic stock market.

So basically the Chinese government has very little options to finance their debt, no one willing to invest as much as previously, and not enough domestic demand to generate growth….aaaand a large demographic time bomb to boot. So they’ll end up printing money and attracting what foreign investment they can. It’ll probably be a long and slow degradation.

Compared with the U.S… we have a much more diverse economy, high domestic demand (~70% of GDP), relatively pristine debt servicing record, ability to leverage huge domestic and foreign capital markets, and stable private equity for domestic markets (Not to mention the private and public regulatory framework for risk management, as much as people hate the SEC).

…and concur on all the Debt to GDP comments here, GDP growth and servicing needs to be congruent with government income from taxes and levees.

 

[Spekkio]

China has no reason to go to war with us. As others mentioned, they are very long term thinkers, unlike our politicians who are incentivised to focus only on the time until their next election. If China is wise, and I think they are, they will simply wait for our debt bomb to explode. There's been much talk of China peaking and such here, but we're staring at a much steeper cliff than they are.

No, China isn't going to war with us.

The issue is if they violate international treaties and test our resolve to enforce them. Also see: Saddam Hussein.

In what way does our interest payments being greater than our defense spending, with a forecast from the CBO that it will be double that figure in a few short years, not scare you? The increase in interest payments each year alone, regardless of other spending increases, creates a debt spiral where we have to borrow more just to service the debt. The only way out will be dramatic cuts to our budget, which will not only kill growth, it will cause our GDP to shrink, further exacerbating the problem. Not to mention the drama that will unfold when we are forced to cut things like Medicaid and SS.

I have $100 worth of US debt in my pocket. I have another $150k worth in various investment accounts. Businesses use U.S. debt instruments to expand their operations. US debt isn't at all like personal financial debt or even corporate debt.

If the US stopped selling debt instruments, we would be in big trouble. There's a happy medium and we are a bit on the "ehh, that's too much" side, which is why the federal reserve has been employing a QT strategy and will probably continue to do so as long as the economy doesn't come crashing down ala 2008.

The big thing that kind of got us here is we had a GOP president who passed a relatively large tax reform bill that cut taxes for most Americans, followed by a shortened term and a Democrat who instituted a $1T omnibus bill that is giving over $600B in corporate subsidies for eco-friendly initiatives. You can have one or the other, but not both.

A central fiscal policy debate during the next administration will be a repeal / extension of the Trump tax cuts. Weird that no one is talking about this in a campaign season.

 

[Griz882]

Powell is quoted as criticizing lawmakers for "effectively borrowing from future generations" with their "unsustainable policies". Where are you getting that he's not upset about the levels of debt? It's not just Powell either, though his decision to finally comment is striking. Jamie Dimon and Ray Dalio, among others, are also quoted as saying we are borrowing far too much and the path we are on is completely unsustainable.

In what way does our interest payments being greater than our defense spending, with a forecast from the CBO that it will be double that figure in a few short years, not scare you? The increase in interest payments each year alone, regardless of other spending increases, creates a debt spiral where we have to borrow more just to service the debt. The only way out will be dramatic cuts to our budget, which will not only kill growth, it will cause our GDP to shrink, further exacerbating the problem. Not to mention the drama that will unfold when we are forced to cut things like Medicaid and SS.

Using math, please convince me I'm wrong, because I really hope I am.

As is typical in our online conversations you read what I write, but you don’t necessarily comprehend - which may be a function of online conversations. @Spekkio more or less covered the “math” above so I’ll approach it another way. But, first, BLUF…I do NOT support nor am I calling for more and more debt. I believe we should have, as noted, a centrist economic policy to address our national debt but avoid silly concepts like a “balanced budget” or “zero debt.”

Now, that said, what do you imagine will happen if the “debt bomb” were to go off? Would Norway (their debt to GDP ratio is far superior to ours) invade? Would we all have to turn to cannibalism? Will China come in and say “Give me all your stuff to cover your debt!”? No…the answer to all of this is no. The economy will suffer, government programs will change, and taxes will go up. My grandfather lived through it…his grandfather lived through it, twice! I am not saying it would be fun, I am saying that the United States of America is not going to disappear over debt and will almost certainly tackle the issue (again) within my lifetime. Indeed, in the entire history of nation-state epoch I can’t think of a single country that has disappeared over national debt although certain governments have disappeared over debt such as the Weimar Republic and the Soviet Union…but Germany and Russia are still around.

 

[taxi1]

Now, that said, what do you imagine will happen if the “debt bomb” were to go off?

The future

 

[Griz882]

The future

View attachment 39888

So…AWs after the fall?

 

[Mirage]

Spekkio and you are both avoiding the actual question.

What Is the National Debt Costing Us?

Programs that millions of Americans depend on and care about may be feeling a squeeze from interest costs on our high and rising national debt.

www.pgpf.org

How is it sustainable for us to be paying $870 billion this year on interest, twice that a decade from now, with no end to the ballooning in sight? And those are extremely conservative estimates that assume no recession, no wars, low interest rates, continued GDP growth, etc. Mathematically, how does that not end in either hyperinflation a la the Weimar Republic, or extremely dramatic cuts to the budget to get to a surplus for awhile and pay out down?

Saying, "well, people are still buying the debt" doesn't mean anything in the long run. To steal Jamie Dimon's analogy, it's like driving towards a cliff and saying, "well, we haven't fallen off yet!"

 

[Griz882]

Spekkio and you are both avoiding the actual question.

What Is the National Debt Costing Us?

Programs that millions of Americans depend on and care about may be feeling a squeeze from interest costs on our high and rising national debt.

www.pgpf.org

How is it sustainable for us to be paying $870 billion this year on interest, twice that a decade from now, with no end to the ballooning in sight? And those are extremely conservative estimates that assume no recession, no wars, low interest rates, continued GDP growth, etc. Mathematically, how does that not end in either hyperinflation a la the Weimar Republic, or extremely dramatic cuts to the budget to get to a surplus for awhile and pay out down?

Saying, "well, people are still buying the debt" doesn't mean anything in the long run. To steal Jamie Simon's analogy, it's like driving towards a cliff and saying, "well, we haven't fallen off yet!"

I am not avoiding the actual question I actually answered it. You are one avoiding the question. Tell us WHAT DO YOU IMGINE WILL HAPPEN WHEN THIS DEBT BOMB GOES OFF?

 

[Mirage]

I am not avoiding the actual question I actually answered it. You are one avoiding the question. Tell us WHAT DO YOU IMGINE WILL HAPPEN WHEN THIS DEBT BOMB GOES OFF?

Griz... come on man. You have not explained the math at all, and neither has Spekkio, who just said people are still buying the debt.

I explained what I think will happen when the debt bomb goes off. I said, "how does that not end in either hyperinflation a la the Weimar Republic, or extremely dramatic cuts to the budget to get to a surplus for awhile and pay it down?" That is what I think will happen. Both of those things spell a lot of doom for the world, as central as our economy and government is to it all. Chill out and lets have a rational conversation.

 

[Flash]

The future

View attachment 39888

I mean, it wouldn't be all bad...

 

[Flash]

Hitler didn't attack Russia to resolve a deteriorating domestic political situation. Quite the opposite actually. Nor did Japan attack us, who thought their ruler a god and never would have revolted. Nor did Hussein vs Iran, or Arab countries vs Israel. You're forgetting that key component in the discussion.

It was that component that I had in mind when I listed all of those conflicts. While opposition to the Nazis wasn't significant to threaten the regime at the time, it was because of domestic issues that Hitler went to war. Japan was backed into a corner with the oil embargo, of their own doing, Hussein wanted more oil to secure his power in Iraq where his rule was always one successful coup away from ending. Finally, both Nasser and Sadat went to war in large part to direct the attention of their restive populace towards an external threat.

While not as clear-cut as Argentina, domestic considerations and/or unrest played a significant part in the decision to go to war with all the instances I listed.

Whatever their reasons for claiming war with China has been imminent for the last 30+ years, they have been wrong thus far.

I have not seen a single credible analyst, leader or commentator claim that conflict is imminent, just that the threat of one is increasing. I am sure you can find a few folks out there that have claimed as much but they likely have about as much credibility as Ward Carroll has nowadays.