China puts the world economy on notice.

Northalives

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China and Japan own more than i/3 of America's $6.2 trillion Foreign debt with China owning $1.18 trillion and Japan $1.03 trillion.

Because of Donald Trumps moronic "trade war" with China, the Chinese yesterday showed what can happen if the United States of America persist in trying to undermine the world economic structure through the imposition of tariffs.

China flexed a bit of it's economic muscle by devaluing the Yuan and making China's exports cheaper and sending Wall Street and other stock exchanges plummeting. China can maintain this position for quite a while and even drop it's currency even further and if Trump and his inept "advisors" don't heed this warning, another massive depression awaits the world.

In my opinion, this is a calculated manoeuvre aimed at wedging Trump and forcing him to either back down from his idiotic stance or, if he doesn't, the American economy will plummet, as will the rest of the worlds' and the Chinese are "banking" on this creating a massive backlash from the American electorate against Trump and thereby, making him unelectable and practically ensuring a return the world economic structures pre-Trump. This manoeuvre will also show the rest of the world who the actual superpower in economic terms really is and the importance of "toeing the accepted economic line".
 

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Mofra

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The irony is they didn't deliberately devalue to yuan - they merely rolled back some of the mechanisms keeping it artificially high.

China's retaliatory measures won't be aimed at the broader US economy, just the central swing states crucial to Trump's victory last election.
 

HairyO

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China and Japan own more than i/3 of America's $6.2 trillion Foreign debt with China owning $1.18 trillion and Japan $1.03 trillion.

Because of Donald Trumps moronic "trade war" with China, the Chinese yesterday showed what can happen if the United States of America persist in trying to undermine the world economic structure through the imposition of tariffs.

China flexed a bit of it's economic muscle by devaluing the Yuan and making China's exports cheaper and sending Wall Street and other stock exchanges plummeting. China can maintain this position for quite a while and even drop it's currency even further and if Trump and his inept "advisors" don't heed this warning, another massive depression awaits the world.

In my opinion, this is a calculated manoeuvre aimed at wedging Trump and forcing him to either back down from his idiotic stance or, if he doesn't, the American economy will plummet, as will the rest of the worlds' and the Chinese are "banking" on this creating a massive backlash from the American electorate against Trump and thereby, making him unelectable and practically ensuring a return the world economic structures pre-Trump. This manoeuvre will also show the rest of the world who the actual superpower in economic terms really is and the importance of "toeing the accepted economic line".
Makes it easier for the US to pay down that debt.

But I guess there is only ever 1 side to a story.
 

Northalives

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Makes it easier for the US to pay down that debt.

But I guess there is only ever 1 side to a story.
How is it going to pay down debt? The United States is being propped up by China and when it develops to the point where the Communist Government of China deems it is secure and able to sustain itself, it will abandon the US altogether. That could be 5 years, 10 years whenever but don't fool yourself into believing that the US is somehow going to benefit from China's actions.
 

HairyO

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How is it going to pay down debt? The United States is being propped up by China and when it develops to the point where the Communist Government of China deems it is secure and able to sustain itself, it will abandon the US altogether. That could be 5 years, 10 years whenever but don't fool yourself into believing that the US is somehow going to benefit from China's actions.
Because the US's debt held in Chinese currency just went down.

Or the US's debt to China held in USD csn be psid off by printing more money - because the usual effect of this is to drive down the value of the currency, which in turn drives up the other currency.

The US actually hold the cards when it comes to their debt. The advantage of being the global currency.
 

Nuggs Bunny

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How is it going to pay down debt? The United States is being propped up by China and when it develops to the point where the Communist Government of China deems it is secure and able to sustain itself, it will abandon the US altogether. That could be 5 years, 10 years whenever but don't fool yourself into believing that the US is somehow going to benefit from China's actions.
The total US debt is $21 billion. China 'owns' $1 billion, so less than 5%. If China suddenly and improbably decided to call in all US debt, the shock would be significant but not even remotely enough to collapse the economy. In fact at a cool $1 billion, the Federal Reserve could probably absorb the lot, and this would cause the US dollar to decline which undoes the benefits to China of devaluing their currency. This would probably hurt China just as much as it would the US, given their economy is predominantly selling consumer goods to the west. And they're not going to abandon that in 10 years let alone 5.
 

Northalives

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Because the US's debt held in Chinese currency just went down.

Or the US's debt to China held in USD csn be psid off by printing more money - because the usual effect of this is to drive down the value of the currency, which in turn drives up the other currency.

The US actually hold the cards when it comes to their debt. The advantage of being the global currency.
If the US decides to "print more money" then the world economy is shot to pieces as inflation takes hold in the US and the dollar becomes worthless and people/foreign countries get out of it because it is not THE global currency any longer. In 2016 that all changed with the IMF approving 4 other currencies as reserve currencies, the euro, British pound sterling, Japanese yen and Chinese yuan.

We are moving in uncharted waters now and this could well have catastrophic consequence for the world economy, not least of which, the USA's.
 

Northalives

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The total US debt is $21 billion. China 'owns' $1 billion, so less than 5%. If China suddenly and improbably decided to call in all US debt, the shock would be significant but not even remotely enough to collapse the economy. In fact at a cool $1 billion, the Federal Reserve could probably absorb the lot, and this would cause the US dollar to decline which undoes the benefits to China of devaluing their currency. This would probably hurt China just as much as it would the US, given their economy is predominantly selling consumer goods to the west. And they're not going to abandon that in 10 years let alone 5.
No friend, your figures are wrong. The USA has a $22 Trillion debt. Intragovernmental Debt is $5.9 Trillion (27% of the total National debt). $16.1 Trillion is Public Debt. Foreign investors and governments hold 40% of this debt with Mutual Funds, Banks and Insurance holding 18%, The Federal Reserve holding 16%, Pensions and local governments 10% and "others" own 16%.

China ($1.18 Trillion) and Japan ($1.03 Trillion) won over 35% of the $6.2 Trillion Foreign debt. That is, China owns 0ver 19% of America's $6.2 Trillion Foreign Debt.
 

Nuggs Bunny

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No friend, your figures are wrong. The USA has a $22 Trillion debt. Intragovernmental Debt is $5.9 Trillion (27% of the total National debt). $16.1 Trillion is Public Debt. Foreign investors and governments hold 40% of this debt with Mutual Funds, Banks and Insurance holding 18%, The Federal Reserve holding 16%, Pensions and local governments 10% and "others" own 16%.

China ($1.18 Trillion) and Japan ($1.03 Trillion) won over 35% of the $6.2 Trillion Foreign debt. That is, China owns 0ver 19% of America's $6.2 Trillion Foreign Debt.
Sorry, I mistyped.

But the point remains; it's 5% of total debt. Making this portion seem bigger than it is by comparing it exclusively to foreign debt doesn't change the fact it's a sum that the Fed can borrow from itself. The US deficit was approximately trillion dollars a year during the GFC and for much of the last decade, the bulk of which was absorbed by the Fed. The world didn't end either.
 

Northalives

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Sorry, I mistyped.

But the point remains; it's 5% of total debt. Making this portion seem bigger than it is by comparing it exclusively to foreign debt doesn't change the fact it's a sum that the Fed can borrow from itself. The US deficit was approximately trillion dollars a year during the GFC and for much of the last decade, the bulk of which was absorbed by the Fed. The world didn't end either.
I thought you may have. The Fed can keep absorbing it's domestic deficit but we are talking now about a currency war which would mean, I presume, more money being printed by the US and this will have massive implications for the domestic economy. The US, since 2016 when the IMF added 4 other currencies to the currency reserve, has meant that the USA can no longer manipulate world economic and currency markets anywhere near as much as it was able to or more to the point, the world now doesn't take it's overall lead from the USA. Things have changed and the US is now on thin ice.
 

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HairyO

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If the US decides to "print more money" then the world economy is shot to pieces as inflation takes hold in the US and the dollar becomes worthless and people/foreign countries get out of it because it is not THE global currency any longer. In 2016 that all changed with the IMF approving 4 other currencies as reserve currencies, the euro, British pound sterling, Japanese yen and Chinese yuan.

We are moving in uncharted waters now and this could well have catastrophic consequence for the world economy, not least of which, the USA's.
The US has printed money in varying amounts for decades. They have a long history of manipulating money markets.

They are pi**ed off because China has worked out they can too.
 

Total Power

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Or the US's debt to China held in USD csn be psid off by printing more money - because the usual effect of this is to drive down the value of the currency, which in turn drives up the other currency.

The US actually hold the cards when it comes to their debt. The advantage of being the global currency.
In theory, till rates are artificially low. Once the rates start to increase the balance sheet debt becomes beyond serviceable. It's not a question of what, it's a question of when. US can continue to inflate their balance sheet as long as they can hold rates to zero (or near zero), which means asset bubbles popping up everywhere, it's a matter of time before it pops, my prediction is within the next 2 years. The moronic Keynesians believe rates will always stay near zero..errrr ok.
 

HairyO

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Given we have a financial crisis every 10 or 15 years that is an easy bet.

But I dont think low interest rates will be the reason.
 

Total Power

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But I dont think low interest rates will be the reason.
Do you understand the effects keeping rates artifiically low for so long have impacts on all sectors of economy? when value of money is zero, the markets no longer reflect the actual picture, for example stock markets at such a massive high, Expansionary monetary policy appears to be producing market distortions that adversely affect expected economic outcomes. Poorly allocated business investments (“malinvestment”), induced by exceptionally low borrowing costs, are JUST ONE example. As central banks usurp the normal role of economic fundamentals by unilaterally determining key interest rates, wrong or misleading price signals are sent to investors, eventually exposing them to grave risks when interest rates go up again.
 

Total Power

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Japan has been doing it since the late 1980s.

Yet they are still around.
Did i say US won't be around? No country would like to be Japan. Another country surviving off low rates. If Japan's interest rates merely doubled, from 1.5 percent to 3 percent, then interest expense would be more than half of the government's tax revenues.
 

HairyO

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Did i say US won't be around? No country would like to be Japan. Another country surviving off low rates. If Japan's interest rates merely doubled, from 1.5 percent to 3 percent, then interest expense would be more than half of the government's tax revenues.
Same as the US.

But at the moment their debt costs them almost nothing. Its the perfect time to borrow.
 

Total Power

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Same as the US.

But at the moment their debt costs them almost nothing. Its the perfect time to borrow.
The difference being US is an empire, Japan is not. The major portion of US liabilities lie in off balance sheet items like medicare, medicaid, social security etc. Japan doesn't have this problem. US has 66 trillion off balance liability. Look it up.
 

Mofra

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Because the US's debt held in Chinese currency just went down.

Or the US's debt to China held in USD csn be psid off by printing more money - because the usual effect of this is to drive down the value of the currency, which in turn drives up the other currency.

The US actually hold the cards when it comes to their debt. The advantage of being the global currency.
... except there is no paying down of debt. They're running enormous deficits which little hope of even turning that trend around. QE is propping the whole s**tshow up right now.
 

Total Power

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... except there is no paying down of debt. They're running enormous deficits which little hope of even turning that trend around. QE is propping the whole s**tshow up right now.
The liquidity situation here in Europe is extremely dire, the banks are in terrible shape, savings rate have plunged due to negative interest rates in some parts of Europe and the risk has shot through the roof. The next crisis will be unlike any other, will be a chain of sovereign debt defaults in Europe and i am not sure what will happen after that. Meanwhile Deutsche bank shares have hit an all time low.
 

Mofra

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The liquidity situation here in Europe is extremely dire, the banks are in terrible shape, savings rate have plunged due to negative interest rates in some parts of Europe and the risk has shot through the roof. The next crisis will be unlike any other, will be a chain of sovereign debt defaults in Europe and i am not sure what will happen after that. Meanwhile Deutsche bank shares have hit an all time low.
Last GFC I know first-hand that 'warehousing' stopped overnight. Literally overnight. It wiped out virtually every securitised mortgage lender in the country for a short period of time (Macquarie had cash reserves but shifted those to commercial lending that had a higher ROI).

Capital requirements have changed since April 2008 for Australian banks but we're still in a vulnerable state. We simply don't have the rate levers nor the ability to 'flush the problem away with cash' a la QE1 & 2.
 

Total Power

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Last GFC I know first-hand that 'warehousing' stopped overnight. Literally overnight. It wiped out virtually every securitised mortgage lender in the country for a short period of time (Macquarie had cash reserves but shifted those to commercial lending that had a higher ROI).

Capital requirements have changed since April 2008 for Australian banks but we're still in a vulnerable state. We simply don't have the rate levers nor the ability to 'flush the problem away with cash' a la QE1 & 2.
I don't think you are flushing the problem away with QE, its delaying the inevitable. QE has mostly been failure and it's mostly done to prevent asset revaluation. The money is mostly paper money held by the institutions as the public hasn't seen a cent of it. Fed, ECB, BoJ...there all doing the same thing. Buying bonds. They're not taxing to buy them, they're not borrowing from other countries or domestically to pay for them. The sovereigns are implicitly "borrowing" capital from central banks. Without the central bank purchases, carry traders wouldn't get windfall gains from buying overpriced sovereign debt. Rates would have to rise to meet debt obligations. Banks already have a virtually limitless lending capacity because of fed funds targeting, but the primary dealer system and endless pseudo-borrowing (monetizing) is just another proactive way to inflate debt based credit and fuels the Wall Street financial asset casino. It's just a matter of time..
 

HairyO

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... except there is no paying down of debt. They're running enormous deficits which little hope of even turning that trend around. QE is propping the whole s**tshow up right now.
Why pay down debt when its free?

The real problem is what the borrowed money is being used for. If it was building infrastructure which modernises, improves efficiency, and makes lives generally better then its money well spent.

But the US Govt spends less on infrastructure than the NSW Govt (I seem to recall reading that, but maybe it was an exaggeration - but I bet not a big exaggeration).
 

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