IRAN / USA

[Marcin2 + 726]

0R0 in black, Marcin answers in blue.

I do understand where you are coming from and had thought the same in one way or another for years. However, there is a need for them to be able to finance the technology leap they have in mind. They have GDP PPP higher than United States. Large countries like US and China are generally self sufficient in broad economic sense, net exports/current account balance are small part of GDP.

Per UNESCO data in 2017 R&D PPP spending: 

United States: 543 and China 496 billion USD.

Chinese rises 7-8% a year in real terms (faster than Chinese GDP, in US growth is small about 2% in real terms)

In 2019 China spending on R&D in PPP USD was larger than in US by about 10%.

The same point you were making elsewhere that the Chinese tech workers are generating more economic value, also applies to the cost of diverting them to the duplication or run forward of existing technology and the entire framework of materials and equipment makers for chips that have not made even the tiniest step into China.

They have 4 millin FTE of R&D staff in China, in US it is 1.4 million FTE.

As a % of workforce it is still lower than US cause they have 4 times US number of people in workforce.

This also works on the US/West to have their sputnik moment and freak out that sends resources the way DARPA and DOE etc. did their large R&D pushes from which we are still making a living.

US increased R&D spending by 48% from 2000 to 2017 , China increased 11 times (by 1,000%).

In China they spend 0.5 trillion USD a year on their Sputnik moment, more or less Pentagon budget.

That is an arms race in which China is outnumbered, because the Tech industries are global. It is not enough to have a large cohort of engineers and scientists, it is also a matter of having MORE than anywhere else put together and have some Darwinist management structure that can be driven centrally - as opposed to their wild private economy, which is very competitive and broadly distributed - even more so than Western economic actors, and just as Darwinist. 

Not an expert on Chinese vs US race but you know this yearly entry exam, very competitive in China ? They work really hard. Tech industries are Global, and China understands this fact, thousands of Chinese R&D centers present in 180 countries.

China's techies cost $40-60k at the junior level, but cost >$200k at senior level. Just a tad cheaper than they do in the US and elsewhere. Many US companies had tried to recruit these people even to work within China, but few have gone in these past 5 years because the cost was not that different from doing it in the West or other SE Asian countries and India. 

Do not know the details but you are probably right in richest provinces labour costs of top R&D staff are approaching high income countries. China is on a global recruitment spree, they give fabulous packages for top engineers. For Taiwanese IC sector Chinese poaching of top talent is now the largest risk. So on top of these 4 million domestic staff they recruit foreign.

What I am saying is that they can't afford it given the hole they have sunk a generation's savings into, and continue doing so.

Country that have highest savings ? And largest banking sector assets=loans.?

What is the only country among 10 largest economies that has still prudent monetary policy of positive real interest rates ?

Yes the answer is China to all of them.

Loans are in yuan (well not all, just 97% of them), high savings, total control over credit expansion. They have different problem: not enough loans for private sector, too tight loans policy. Too much loans are for state owned sector, given by state owned banks (these are just accounting entries at the end of the day). Chinese leverage is decreasing albeit slowly at present 270% of GDP, it is in overall too high, but not crisis or disaster. NPL ratio is at global level in China (less than 2%).

 

Edited May 15, 2020 by Marcin2
typo

[Marcin2 + 726]

1 hour ago, remake it said:

China has half the debt:GDP ratio of the USA so maybe you have your ideas back to front.

You are talking about government debt only. Important is total debt to GDP ratio. In total ratios China and US are similar. The nature of these debts is what counts. In US most of loans are to finance current consumption. In China loans are investment, to generate new fixed assets, modernize companies, modernize country. And because of this nature Chinese loans are more backed by real assets, they are inherently more safe. Latest data you can find on the Bank of International Settlements page.

Edited January 17, 2020 by Marcin2
typo

[remake it + 288]

30 minutes ago, Marcin2 said:

You are talking about government debt only. Important is total debt to GDP ratio. In total ratios China and US are similar. The nature of these debts is what counts. In US most of loans are to finance current consumption. In China loans are investment, to generate new fixed assets, modernize companies, modernize country. And because of this nature Chinese loans are more backed by real assets, they are inherently more safe. Latest data you can find on the Bank of International Settlements page.

Yes it is important to consider how money is being used but it also important to context sovereign debt as it affects market rates and business confidence.

[0R0 + 6,251]

3 hours ago, Marcin2 said:

Country that have highest savings ? And largest banking sector assets=loans.?

What is the only country among 10 largest economies that has still prudent monetary policy of positive real interest rates ?

Yes the answer is China to all of them.

Yes all other largest economies have negative real interest rates.

China is hysterically overextended and M2 to GDP is 200%. Total official (household corporate and govt.) debt/GDP is 275%. Off the books SIV structured Municipal and provincial debt at about 50% of GDP at 2017, Now expected to approach 80% of GDP. Non bank (shadow) company lending has resumed.this year at $100 Bil last quarter. Estimates are of another 100% of GDP before the clamp down. Not clear if balances were affected. The total is `>450% of GDP. Japan is 375% of GDP but has 400% of GDP in external assets. China has nearly nothing outside its reserves,  The average global figure is 308% by the IMF tally. US is at 250%, EMU ex Germany is 330%, Germany is 170%.last I looked. 

China consumer deposit rate was 0.35% since 2000. Their interest rate has not been in line with GDP growth, but a bit above half the Taylor rule level for 20 years. When they did not want to print money domestically because of inflationary fears, they printed it up in the Eurodollar sphere, accumulating 40% of GDP in reserves, thus lowering global rates. They then used it as collateral for Oil and other commodity futures contracts which spiked up oil prices and did wonders for Saudi revenues. . . 

The Western negative interest rates are only to a slight degree related to monetary policy being too loose. The main reason is that they had curtailed money supply growth for decades. As per Milton Friedman, the low interest rates are a result of low money supply growth because the Fed and ECB had been too tight for 2 decades while China M3 is up nearly 20 fold. The Fed and ECB etc. were trying to counter China's inflation by restraining domestic demand China contributed 80% of commodity consumption growth over the last 2 decades. 

China has contributed 2/3 of monetary growth globally for over a decade. Their dollar book was larger than the Fed's. Compared to China's M2 of 200% of GDP, US is 70%, and Europe is 80%. 

The Chinese setup is beyond the worst we have seen in Cyprus and Greece. The only scrap of free balance sheet is on the Central government's book. 

You have a pop economics understanding of this issue. At its current official growth rate the Taylor rule (not that I am a believer) would have had the current lending rate of 4.35% and 3% overnight as rather loose, neutral being about nominal GDP less a small discount. To gain a better understanding go look at Jeff Snider on the Eurodollar and central bank policy at Macrovoices and elsewhere.  Central banks have gone nuts, but in exactly the opposite way from what you are thinking. There is a dollar shortage in the global financial markets. 

As a rule, the real interest rate is determined by the demographic ratio of savings cohorts vs.the younger adult spending cohort.as domestic suppliers of savings vs. the demand for borrowing. Look at Jim Bianco's thinking here https://www.macrovoices.com/guest-content/list-guest-publications/3393-understanding-fixed-income-bianco-research-12-19-2019/file for example. pg 8. Raoul Pal on Real Vision covers the relationship of demographics and interest rates on occasion. 

As a result of the enormous China bubble, there has been capital flight since 2014. Since there are capital controls, it is not in official capital flow numbers but as the correction figure to balance the PBOC's balances against its current account.So in the BOP accounts it is in the errors and omissions report.Note that it is a monthly figure. The units are millions, so 50k is $50 Billion. 

. You can see that it is the bulk of their current account. 

In addition to their official $2 Trillion external debt, there are another $1.7 Trillion in junk debt issued through Cayman and HK entities as of end 2018.  Their reserves are already spoken for twice over. 

https://www.ceicdata.com/en/indicator/china/external-debt

 

From a financial economics and monetary perspective China is in a huge crater. We are just waiting to see the mushroom cloud. 

The Chinese interbank lending market had a freeze up identical to the US dollar repo crisis just recently. Look it up. 

[0R0 + 6,251]

4 hours ago, Marcin2 said:

Loans are in yuan (well not all, just 97% of them), high savings, total control over credit expansion. They have different problem: not enough loans for private sector, too tight loans policy. Too much loans are for state owned sector, given by state owned banks (these are just accounting entries at the end of the day). Chinese leverage is decreasing albeit slowly at present 270% of GDP, it is in overall too high, but not crisis or disaster. NPL ratio is at global level in China (less than 2%).

You are again understanding it just partially, the SOEs are still 40% of the economy. They have been losing money more often than not. They look as bad as Italian credits.and have about 40% of new loan issues being negative amortization.If you try to determine SOE NPL levels that figure implies, it is about 80% that do not pay interest on their loans..   

What is stable is reportable debt (275% of GDP up from 270%, stable for 5 years till then) that they have to provide to the IMF and BIS. Since the capital flight started, they have been borrowing "off the books" for Municipal and provincial SIVs. Now that private lending has been revived, they are still not reporting it the way it is reported in OECD. It is essentially off the books too. 

US borrowing is not quite what you think it is.It is not all consumption financing. Chinese household debt is $7 Trillion. Their real estate values are at bubble territory and 50 million units stand empty. 

 

[James Regan + 1,776]

9 hours ago, footeab@yahoo.com said:

History Lesson... Mexico took it from Spain literally a breath earlier, who took it from the Aztecs who took it from... with nearly zero troops in all three cases, so arguing that they "owned it" is absurd any more than the French "owned the Louisiana Territory, or the British owned Western Canada.  Pretty hard to own something when there are 1) zero of your people are there and 2) almost no other prior mostly nomadic people either.  Just ask the Comanche/Apache.

What about the Klangers and Soup Draggon they must be pissed off 😤 

[James Regan + 1,776]

Back on Topic anyone see the real photos of the Soulamanis attack if wanted I will post, if not I won’t upvotes post  downvotes no post.... very interesting but somewhat gory no blood just well done steak 🥩 

[Rob Plant + 2,756]

10 hours ago, Marcin2 said:

China is only afraid of 3 things: 1 its technological gap and about access to 2.  crude oil and 3. natural gas.

I think there should be a number 4

China's ageing population will become a massive headache for China in 10-20 years time

It will be interesting to see the level of social care that is given to the elderly.

[Marcin2 + 726]

This could be true.

Edited May 14, 2020 by Marcin2
typo

[0R0 + 6,251]

I should add "SOEs account for about 70 percent of corporate debt but generate only slightly over 20 percent of industrial output." 

https://www.mckinsey.com/~/media/mckinsey/featured insights/china/china and the world inside the dynamics of a changing relationship/mgi-china-and-the-world-full-report-june-2019-vf.ashx

But it is useful to see how unstable the China interbank market is. since 2017, shown is the 7 day repo rate for interbank lending. The official Shibor is now roughly 2.5%  and official overnight rates were 3.02% when last reported. The Fed went into a tizzy over a much smaller spread to its official number - they printed up reserves - the PBOC lowered reserve ratios so that banks didn't need to do as much repo volume to keep within the law, and they are printing money as well. But it isn't settling back as it did before, but remaining elevated at the 8%-18% range.

 

[Papillon + 485]

2 hours ago, James Regan said:

Back on Topic anyone see the real photos of the Soulamanis attack

I fear some users are unaware of the difference between Iran and China sir? 

Fortunately I was personally getting withdrawal symptoms with regard to this subject, as it has been a whole ten minutes since China was mentioned.      /sarc

Edited January 17, 2020 by Papillon

[Marcin2 + 726]

An interesting graph.

 

 

 

Edited May 14, 2020 by Marcin2
typo

[Douglas Buckland + 6,308]

3 hours ago, James Regan said:

Back on Topic anyone see the real photos of the Soulamanis attack if wanted I will post, if not I won’t upvotes post  downvotes no post.... very interesting but somewhat gory no blood just well done steak 🥩 

Probably best to NOT post on here. If somebody wants them they can contact you. The results of a drone strike is not pretty and these photos may offend some.

[remake it + 288]

51 minutes ago, Marcin2 said:

More than enough good articles you can find all over the web.

Yes.

[0R0 + 6,251]

2 hours ago, Marcin2 said:

3 hours ago

•  

 

 

China is hysterically overextended and M2 to GDP is 200%.

M0 is cash in circulation, M2 is cash and all deposits: time deposits and avista.

China had at the end of 2019 has negligible M0:  8 trillion yuan, and 190 trillion yuan of deposits, that is why M2 nearly 200 trillion yuan.

China is doomed cause saves too much, and has prudent monetary policy ?

Total official (household corporate and govt.) debt/GDP is 275%. Off the books SIV structured Municipal and provincial debt at about 50% of GDP at 2017, Now expected to approach 80% of GDP. Non bank (shadow) company lending has resumed.this year at $100 Bil last quarter. Estimates are of another 100% of GDP before the clamp down. Not clear if balances were affected. The total is `>450% of GDP. Japan is 375% of GDP but has 400% of GDP in external assets. China has nearly nothing outside its reserves,  The average global figure is 308% by the IMF tally. US is at 250%, EMU ex Germany is 330%, Germany is 170%.last I looked. 

BIS data are respected globally.

About 250% GDP for China, and about 250% for US (it is with shadow banking etc.). In China 50% households, 150% business, 50% government debt. In US: 75% households, 75% business, 100% government debt. Much worse structure.

If you want to say that BIS data, the best in the world, are not good for you, just need to show really good sources, not the back of the envelope conspiracy theories or what your buddy told you.

China consumer deposit rate was 0.35% since 2000. 

It is for avista deposits, for time deposits 12-24 months you get more or less inflation rate, and the interest is tax exempt from personal income tax. Again prudent monetary policy has good effects

 

I will not describe in detail devastating impact of negative real interest rates on other major economies, including the US economy:

on savings rate , economic distortions at nationhttps://asia.nikkei.com/Spotlight/Cover-Story/China-s-housing-glut-casts-pall-over-the-economyal and corporation level, lack of sound investment decisions, creation of asset bubbles, credit bubbles, on consumption patterns

More than enough good articles you can find all over the web.

Your analysis is upside down.

M2/GDP reflects lending, not savings. Money supply grows with bank lending. It does not change regardless of whether the funds are spent or saved and then invested. The money will only change hands but not go away. It only dies when a bank loan is repaid.Savings are reflected in lower prices of goods and services and rising assets: real estate, business investment, portfolio assets by price and//or volume. We see strong savings in that China had a stock market bubble in the 2000s, and a real estate bubble now. 

https://asia.nikkei.com/Spotlight/Cover-Story/China-s-housing-glut-casts-pall-over-the-economy

The BIS only has the information the member CBs provide it. In the standard reporting items you don't cover SIVs, which are common for China but not in the West (except during the end of the housing bubble). and private non-bank lending outside the bond market. It is precisely why China  has reverted to these methods to hide its leverage. 

The monetary circumstance in the West is a direct result of the misguided monetary policy response to the China bubble. That created too little money supply growth and thus had to result in low nominal interest rates (Milton Friedman, 1967).  During the 20 fold expansion of China's money supply and its book (reserves) over 2 decades, and huge commodity spending spree, China interest rates would have been higher if they were not capped,

Western CBs kept rates higher than they should have in order to subdue the commodity inflation that China caused from affecting local prices. Ergo, slow monetary growth. Those resulted later in the steady decline of interest rates. But at the time, those attractive high rates brought a gusher of capital flows.

In this chart you can see how US capital inflows (% of GDP) - blue line - overwhelmed bank lending - red line

 

As to the composition of China debt, of the 133% of GDP in business debt, 93% is SOE debt, which have no requirement to be profitable or even have positive cash flow, nor pay interest if they don't want to. They are intended to produce particular items at policy set volumes and hire particular people and keep them employed. It is not an indication of wise monetary or other policy.

As explained before, negative real yields are a result of demographic imbalances. 1. Large savings age cohort vs. smaller spending age cohort results in negative real yields 2. Balance is 0 real yield, 3.. Young demographics mean positive and even high real yields. . The central bank will have to follow or have inverted yield curves in case 1 and 2, or inflating money supply and prices in case 3. 

This by no means makes up the entire world of factors going into market setting of interest rates. 

There is nothing at all that China has done that was long term economic thinking or financially sound. It is the same communist leadership that brought you the iron rice bowl that starved thens of millions of Chinese, and the iron production quota that caused China to dismantle its capital and melt it down into steel and iron ingots in Mao's day. It is long term strategic thought, but their economic understanding is limited. 

You should read "Economic Calculation in the Socialist Commonwealth". 

That said, till you get too large to ignore, the Chinese cash and carry private economy is a wild "rapacious" capitalist storm. Demographics dictate that it slow down and even shrink a bit for a while..And they are stretched on credit so far and for so long in this money and credit bubble the banks are looking more and more like a Ponzi scheme on the verge of collapsing. 

This is not to denigrate the truly amazing achievements in China. It is to point out that they were in spite of the CCP not because of it.

 

[0R0 + 6,251]

3 hours ago, Marcin2 said:

It is just scary as hell for me when Donald Trump, President of the largest economy in the world gauges his successes by the size of asset bubble he was able to create, and which asset bubble he  is actively further inflating with all the might of his political power, in the process destroying the independence of central bank (the FED). And when MSM of this country say all hurrah ! for this madman activity, all indicators of insanity are simply off the scale.

 

Sometimes gloomy reflection sinks in, maybe this cunning Chinese dictatorship is not that bad at the end of the day, even if only not as suicidal as current US economic policy is ?

 

Maybe the fate of the tribute nation of Middle Kingdom, which I think (with current US economic policies) is inevitable in 30 years, is sth young persons should already start to accomodate to.

 

Well this certainly could not be that bad: China will not invade us, as long as we will be willing importers of all the crap they would like to sell us, no import tariffs allowed, together with imported dictatorship model of governance.

 

This would be very bad.

 

 

 

I have great hopes for the Chinese people, but since Xi took over and got elected Emperor and disbanded the reformist movement within the communist party, the prospects for China's future are dimming. 

http://www.asianews.it/news-en/Xiang-Songzuo:-China's-economic-data-are-far-from-reality-48359.html

Hopefully Prof. Xiang is still teaching econ and finance. 

China is not that difficult to topple over because it is a house of cards built very tall. A further shortage and thus price spike of additional foods or energy will be dangerous for a country with such an excess of money supply, further acceleration of price inflation can create a hyperinflation surge. A 50%-100% price spike is not out of line.

[SERWIN + 749]

Obama allows Iran access to US banking system....

Put that in Google and see how many threads pop up. We have now found out that Obama was lying to congress all the time, he actually allowed them to get their assets from the US even though they were "sanctioned". Do you think that now, Trump has continued to allow them to flourish in this manner? Or has it super pissed them off and it has started them trying to push the boundaries, cross the red line so to speak. And now they have found that Trump will not allow them to dance on it like they did with Obama. Like it or not that is what needs to happen with them. As soon as they step over the line send missiles over and blast them back....

[Tom Kirkman + 8,860]

12 hours ago, Douglas Buckland said:

Probably best to NOT post on here. If somebody wants them they can contact you. The results of a drone strike is not pretty and these photos may offend some.

Yep, the pictures are pretty gory meat sausages.  There are other forums you can post this particular gore, we don't really need it here.

[Tom Kirkman + 8,860]

Some good back and forth discussions in this page between Marcin and 0R0.  Nice to see the forum getting back on track with some good debating.