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Guest Post: What China Really Thinks of the Shutdown
Submitted by Isaac Medina via The Diplomat,
In the midst of a domestic crisis, it is easy to forget that the rest of the world is watching. Now that the U.S. federal government has shut down for the first time since the mid 1990s, the talk of the town is the political problems of the world’s largest economy and sole superpower. In China, most media reports about the shutdown have been merely informative, but every now and then they offer a rare insight into what the Chinese have learned about America’s shortcomings.
“As far as the Chinese populace is concerned, the government shutdown is like the Arabian Nights,” writes Wang Xuejing of Hong Kong Daily News. Evidently, for the citizens of a totalitarian state, the prospect of a government shutdown seems otherworldly. The newspaper Qilu Wanbao complains, “To us, far on the other side of the ocean, the information appears contradictory. Some say Americans are furious [...] Some say [everyday] life remains unchanged. Have or haven’t Americans been affected by the federal shutdown?”
The notion of a government shutdown is strange for the average Chinese person because its consequences in the People’s Republic would go far beyond closed federal agencies and parks. In mainland China, and increasingly Hong Kong, every school and every agency (national and local) answers to a party minder. Banking and internet traffic are also closely monitored by Beijing. Should the party overseers be absent one day, many organizations crucial to China’s social structure would suddenly find themselves without official guidance. The effects of such an abrupt and unfamiliar decentralization are impossible to predict.
Yet other commentators find the federal shutdown inspiring. Dr. Li Xiaohui, Assistant Professor of Law at Xiamen University writes, “The life of the average American has not been greatly affected by it and the economy has continued to grow. This reflects the clear limits between America’s government and the market. Our country should likewise move forward and decouple the government from the economy.” Similarly, the newspaper Nanfang Dushi Bao commended the strength of American society for being able to function without the government. Interestingly, while the American public sees the shutdown as a government failure, some Chinese are seeing it as a sign of efficiency. The common belief that the Chinese words for “opportunity” and “crisis” are the same, though wildly untrue, seems applicable in this case.
While common Chinese citizens muse over the implications of a shutdown, China’s leadership has been giving the impression of merrily promenading through Southeast Asia, stealing the international spotlight. Taking advantage of Obama’s absence at the recent APEC and East Asia summits, President Xi Jinping visited Malaysia and Indonesia with a friendly demeanor that his predecessor would have likely avoided, greeting the Indonesian parliament in the local language and visibly travelling with his celebrity wife Peng Liyuan. In Brunei, on the other hand, Premier Li Keqiang stuck to the usual rhetoric of making progress on a code of conduct for the South China Sea disputes and indirectly urged the U.S. not to get involved.
But aside from bewilderment and contentment over the shutdown, there is also concern in China about the possibility of a future U.S. default. At a recent news conference in Beijing, China’s Vice Finance Minster Zhu Guangyao said that the U.S. must protect its creditors, stating, “safeguarding the debt is of vital importance to the economy of the U.S. and the world [...] This is the United States’ responsibility.” Dr. Li echoed the Minister’s message, “The shutdown of the American government is a warning to our compatriots that we should optimize the allocation of our foreign exchange reserves.”
As the largest holder of U.S. debt, China unsurprisingly appears more concerned about American solvency than about the unfamiliar mechanics of a representative democracy. Despite this, China as a whole also appears to be learning a great deal from the shutdown, not only about the American political system, but also about itself and its future. As the shutdown enters its third week, it remains to be seen if America will learn something as well.
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Who cares what the Chinese think.
The market seems to be very resilient to all this news about the debt ceiling and the gov shutdown. Most of the indexes are at, or near all-time highs. Can you imagine where we will be at once these problems are gone and the economy really starts to take off? At this rate, in about 6 months, we will see ES at 2000, and the DOW at 18,000.
So, it must be time to invest everything in the markets, right?
The Deal:
America gives China most favored nation status around1980. In exchange for cheap goods, America sells China rock solid bonds- a good investment, no? 33 years later, China has a stack of promises and America has a stack of cheap plastic shit, no jobs, and huge debt.
All the politicians who FUCKED AMERICA hard are enjoying cushy retirements.
I get so tired of these articles describing things that simply DO NOT EXIST!
Anybody who uses the phrase "X thinks" (where X is a non-thinking abstraction), should be beat about the head repeatedly until they understand the error of their ways.
Only individuals have the capacity for thought. Anything else, is merely an exercise in delusion in support of some facade.
a sign that is none really in charge ... may be?
No one in charge?? But that would be.... it would be.... THAT'S CRAZY! Somebody HAS to be in charge. Some secret government organization or ancient society has to be controlling all of this! Everyone knows that. That's just crazy talk what you said.
The other thing we "imported" was the Chinese life style.
Decent hardworking middle-class families used to be able to afford to buy a modest house and go on 1 or 2 little vacation a year, usually camping in a trailer, or going to visit grandma's house, nothing too expensive. Now we need to stuff two families into every house just to afford to pay the mortgage/rent. All the shit that we make is plastic, just like the shit that gets imported from China. And we drive around in little bullshit cars that have a lawnmower for an engine and 16 inch wheels.
My point is that in order to compete with the Chinese imports, the average US worker has to take a cut in pay that places them at par with the Chinese worker, and their quality of life is now equivalent to living in a slum in Beijing.
Hooray for the Chinese.
They're learning that to become a superpower on the world stage you have to stick your nose in everyone else's business whether they like it or not.
Having learned from the nosiest busybody on the planet today they're now beginning to stick their nose into our business.
All I can say is that a lot of politicians in the Senate might want to start wearing clean diapers every day.
a lot of politicians in the Senate might want to start wearing clean diapers every day.
****
You give them way too much credit...
Every been around them? Senate? Remember the other day in the Syria hearing McCain/Kerry playing game-boy?
Me thinks screwing interns ( usually male ), and getting drunk in DC bars, and hooking with young male whores is what 99% of DC pol's do in their awake hours, the job of gubmint is left to assistants, and job of law making is left to lobbyists,
Somebody above asked rhetorically "Anybody in control?", ... I don't think so, this is why the IRS, NSA, CIA, ... FBI have all been privatized, and every 3 letter agency is out of control and on a gang-style turf war.
"Politicking is what parasites do when they're not screwing young boys in the arse"
Of course WE THE PEOPLE voted for this gubmint ...
I would propose that the majority of the US Congress or Senate, or Supreme Court don't give a flying fuck what anybody say's, ... they have it all, and they're flying high, its only when the check's start bouncing that these GIMPS will open their eyes and smell the shit in their 'depends'.
Give you in short:
Most of Common Chinese are blaming Government buying US treasury debt
"Similarly, the newspaper Nanfang Dushi Bao commended the strength of American society for being able to function without the government."
I commend the strength of American society for being able to function WITH the federal government.
@ Millivanilli: "America gives China most favored nation status around1980."
Yes, very few countries get the MFN status from the moment of their Recognition by the US.
...but now China is getting all the gold...
You first, I'll gladly miss out on a potential 30% gain to ensure im not caught when the 80% loss happens.
Say What Again
BE PRESIDENTAL!!!!
OK, I'm the president, and I'm not taking any shit from the jerk with the sun-tanned face. You know Bain-er.
You have a funny accent... I read it as Bone-er.
As in, John gets a boner every time he gets to "cave" with O'Hitler.
Interestingly, while the American public sees the shutdown as a government failure, some Chinese are seeing it as a sign of efficiency.
Some?, yeah I'm sure all the ones that have half a brain.Logic that escapes the Sems, and RINO's.
....someone is missing a sock!
Dr. Li Xiaohui, Assistant Professor of Law at Xiamen University writes, “The life of the average American has not been greatly affected by it and the economy has continued to grow.
Half right is better than none right.
Obviously our MSM propaganda has reached their shores without hindrance.
Chinese are pretty good math students...wonder what they think of the following (AU?)
Based on US Treasury cumulative blended interest rates through recent history (bills, notes, bonds) - here is the interest we would pay now with our current $17 trillion debt based on those rates...
1980 - 15%...$2 T 550 B
1990 - 7.8%...$1 T 326 B
2000 - 6.4%...$1 T 88 B
2007 - 4.8%...$816 B
2013 - 2%...$350 B actual...actual 2013 tax revenue $2.7 T
Who would like to guess what we will pay on our $20 T in debt in 2015??? Guesses for interest interest rate??? Here's a hint, Japan currently pays 0.66% on 10yr debt w/ a blended interest rate about the same 0.6%>>> It's not just the Japanese school girls that set all the fashion trends...it's the Japanese CB that is the leader to the bottom
Or another way to think about it, any increase in economic activity (say a 3.5% jump in GDP) would increase economic activity by $560 B but the increase in taxes would be @ 20% of that or $110 B...the paralell rising interest rates to say 3.5% would raise interest costs to $600 B...a net deficit increase of $140 B...get it, the game is all but over for anyone w/ 7th grade math. One step forward economically would create two steps backward budgetarily.
Money supply must continue growing, interest rates must keep declining, and GDP must remain very low to allow this. Fed never intends for us to get better as that would be worse than remaining sick...time we all brush up on our Japanese...
From the looks of it, by 2015 it will be illegal to save money and you will be forced to pay a fine for every day that goes by without you purchasing stocks. Interest rates? Probably negative. Why? WHY NOT?
Exactly. Why not? I think "whatever it takes" is the new mantra of economic survival of the world's richest elites. If they need the rest of what little we have left to survive, thats not so much to ask, is it? But are we still going to have to pay taxes on gains that are purely inflationary? We have so far.
Nice post. Of course, it is all lost on the Fed. They will read your analysis and say, well, if rates go up, we'll just have to increase QE to fund the debt. In fact, when we at the Fed buy the bonds issued by Treasury at then prevaling rates of, say, 3.5%, we will turn around and remit the 3.5% we 'earn' right back to Treasury, thus reducing the deficit in a genius move of free lunch excess only we could pull off.
Seriously, this is how they think. Bernanke has already told us how QE has reduced the deficit through this cloudy thinking. QE has allowed the government to finance itself at 0% by spreading the cost over millions of savers and holders of US debt. Until the markets call bs on this, the game goes on.
Right you are but the only problem is the Fed "only" owns $2.2 T of $17 T in Treasury debt...thanks for the put back Ben but you'll have to buy up all $12 T of outstanding public debt to make that trick work...hmmmmm...he wouldn't....would he??? Given he's already purchased 55% of all outstanding public debt Notes / Bonds / TIPS and he's got a 70% cap on each issuance - well that would leave him the $7 T Bill market to devour for dessert.
Assuming the markets allow it, I assume that is Janet's trick. She is going to monetize 100% of the annual deficit and 100% of the maturing existing debt. She'll figure, "Why not? I'd be a fool not to do it if I can get away with it." In that way, through what is clearly a massive accounting fraud that would get anyone outside government thrown in jail, we can watch as Treasury finances the fiscall excess for free.
Inflation that they can't deny/currency collapse or something else will have to spoil the party.
Yup - Ben will nearly get to the 70% Fed ownership level of the mid / long end of the outstanding public debt when Fed Treasury holdings hit $2.8 T (Fed holds de minimus T-bills) ... then it's Janet's turn to attack the $7 T t-bill market in a much larger and much faster QE due to the size and fast rolling T-bills.
Funny, this makes me think of Weimar...I wonder if the German CB did the same as the Fed buying up long dated debt first forcing everyone shorter and then got swamped in the short end of the curve??? Or, the dollar lost value slowly at first and then all at once???
Ham-bone, so the fed is in a rush to hyperinflate? Or is hyperinflation not guaranteed even though the fed will eventually own the entire bond market?
Fonz - shit, I don't know.
One big change I have noted is the TIC data showing 2013 that foreigners are net negative buyers of Treasury's (currently like $-11 B through Aug) - this is a huge change from '09-'12 when foreigners bought up $500 to $750 Billion in Treasurys annually.
And who bought Treasury's in the '08-'12 period (and to my suprise almost nearly unanimously Notes / Bonds) is both expected and some surprises (btw- these are net holdings...not purchases).
xxxxxxxxxx '08 '10 '12
Belgium $16 B $95 B $143 B
Ireland $20 B $56 B $90 B
Norway $ 5 B $$24 B $70 B
Are these pass throughs from currency swaps???
Russia $95 B $168 B $163 ( but Russia sells $60 B in t-bills from '10 and buys all notes/ bonds by '12)
Germany $60 B $60 B $ 60 B
China $530 B $1.1 T $1.1 T
Japan $1 T $1.2 T $1.1 T (fyi in '07 Japan had $600B)
Brazil, UK, Taiwan, Switzerlandd also big increases???
90% of this debt as of '12 was in notes / bonds..
So, Fonz, '13 is definitely trending very differently from the rest of the "recovery" years since the GFC...seems the huge increases of foreigners financing our Treasury debts post the GFC have at least stalled if not reversed...we could be at the start of something new??? So, yes, this is the point either the politicians make the super painful structural changes and right the ship (2% chance) or Fed has to shift gears into overdrive to avoid the interest spikes that would ensue (68%)...(30% chance something else like a bail in or or or).
Hey thanks man, I always appreciate your analysis and insight.
I take it as a given Fed will own 70% of the intermediate / long end of the public outstanding debt...and that doesn't appear to be hyperinflationary (maybe even deflationary?).
But the move into the T-bill market if neccessary or the plan all along would, I guess, be a doubling or maybe quadrupling of present QE (enough to maintain the intermediate/ long end) plus a large number in T-bill land to move the market...I'd really like to hear if folks in the banking / treasury market believe the Fed moving into the T-bill market is possible and if so what sort of number they would expect??? Would this create a rush for the exits and that hyperinflationary dollar exodus as Fed increases it's balance sheet from $4 T to $ 8 T (or whatever) within a years time...
Hey Ham-bone. Chew on this for a bit. It is from someone who used to be on here who I think seriously knows his shit.
"its funny, im totally on the watch for something just unexpectedly taking this down (japan, skynet etc) but right now this engine is firing on all cylinders, I mean even the collapse in volume has totally abated to an acceptable levels.
On a bigger intellectual level its so interesting. Like take that article ZH is featuring right now about JPM reserves etc. Its SO funny how they called this the "broken piping" lol, they couldnt have missed the point more. Check out this paper published by the Chicago Fed in 2012.
http://www.chicagofed.org/digital_assets/publications/working_papers/2012/wp2012_16.pdf
the key take away was the following:
"While a central bank can refuse to turn government debt into cash by simply not purchasing it, it is unclear to us how a central bank can refuse to turn excess reserves into cash without explicitly or implicitly defaulting"
The author is quite astute, he published this as a follow up which supports the same argument:
http://www.chicagofed.org/digital_assets/publications/working_papers/2013/wp2013_04.pdf
"The following proposition shows that excess reserves cannot cause losses on the CB balance sheet, whenever they are invested according to the “bills only” doctrine. This result is intuitive: any excess reserves are matched by assets of the same maturity, and hence no loss can arise from their issuance. The only qualification that is required for the case in which Rt may hit zero is that the CB should never distribute transfers to Treasury in such an amount that it would lead its portfolio of assets to have negative value.21"
Think about this (I mean read the paper if you have the time obviously) but the implications are quite clear: the Fed could never even theoretically unwind due to what it has done to the maturity curve. The effect of unwinding and causing interest rates to rise on the longer duration equivalents would be tantamount to a default on the excess reserves!!! And since this whole time QE has served not only to soak up government debt in aggregate but also push the maturity curve WAY up (ie to convert long term coupons to bills where the interest is practically zero), this could really never even theoretically happen. Think about it, any unwinding of the curve would be tantamount to a default on primary dealer's excess reserves...
Fonz - exactly right the Fed cannot unwind nor does it intend to...everything that goes onto the Fed's balance sheet will stay there and roll there, and die there for long as I can imagine. The Fed can only keep going ...never retreat.
Glad to do some reading tonight
I wish I could remember. I read a couple books on Weimar and inflationary collapses, along with some of Dalios stuff...p 29 below
http://www.bwater.com/Uploads/FileManager/research/deleveraging/an-in-de...
But, I don't think anyone got into that level of detail. Plus, there was no QE BS, they may have just printed money and gotten it into the system more directly somehow, but the real point is that there comes a time when the markets move against the central planners who believe in free lunch and it is game over.
There is inflation as asset prices are going ballistic with bonds near record highs and stocks outperforming earnings by a factor of 10 this year. There is already inflation in basic living costs well beyond 2% and has been for decades. As such, I see nothing but social problems as living costs continue to rise faster than wages and liberals continue to devise redistribution schemes that disincentivize work at all levels of pay.
It is very true that they have created a system where one can have a higher standard of living on entitlements of section 8 housing, snap, obamaphones, medicaid, etc versus earning $30,000. That is a shame for everyone. No skills are gained and a deadly culture of entitlement grows.
How the markets that remain freely priced react to all of this, I have no clue.
that was fuckin brilliant, h-b.
you just distilled a forty page white-paper into a few terrifying paragraphs.
those pesky mathematics just won't go away, will they?
http://www.youtube.com/watch?v=xf_1yHI5NRU
temperature's droppin at the rotton oasis/
stealin kisses from the leprous faces,
janus
Here is what a commentator feels about this US crisis :
I used to worry that a worsening European economic crisis could take down the American economy, just as it did in the 1930s. But it now appears that all the world has reason to worry about these Tea Party radicals can do.
If this isn't economic terrorism, I don't know what economic terrorism is supposed to look like.
Never have so few done so much to threaten so many.
The resulting financial meltdown resulting from US prolonged deadlock and panic in markets is that the interest spreads in DC markets will go ballistic and cause much hardship in the poorer countries.
Conclusion : This is a rich man's solution to an internal battle in the US which is being pushed out on to the poorest of the poor around the world.
The rich americans keep exporting their debt, debased via currency wars, to the detriment of the world.
Of course the poor of America also suffer; those on food stamps.
I don't know why you got slammed for that. Certainly the conclusion is correct, as it has been for decades. Sausage making is messy.
Tea Party my ass. The "economic terrorism" has been perpetrated for a hundred years now by three letter agencies with names like: The Fed, the IRS, the IMF, the BIS.
This is a rich man's solution to an internal battle in the US which is being pushed out on to the poorest of the poor around the world.
The T-Wing is as full of shit as the rest of them. No saviors there.
Sorry.
Savior? Who's looking for a savior? Fuck that figurehead shit. The only way the D.C. machine's Tea PartyTM will be my Tea Party, is if they end the fucking fed, bring our troops back home and place them on the border, close numerous government departments, institute honest money, drop the power of presidential executive order, repeal the Patriot Act, repeal FICA, repeal ObamaCare, etc......as a start.
What are the chances that they are my Tea Party?
As rich people control things and as they see poor people as inevitable and fully replaceable, it make only sense that they, the rich, should be preserved, for without them, where would we derive all the new poor folks?
you may be oldwood but back in 1789 as again in 1917 heads did roll.
"Similarly, the newspaper Nanfang Dushi Bao commended the strength of American society for being able to function without the government"
... Really? Where to begin, so many problems with this statement and the sentiments bound up therein.
You must be a big city dweller. Americans can organize and survive quite well without any central government minders. Yeah, transition would be rocky, but the Federal Government could disappear along with their Wall Street minders. A stronger America would emerge unlike China where: "Should the party overseers be absent one day, many organizations crucial to China’s social structure would suddenly find themselves without official guidance. The effects of such an abrupt and unfamiliar decentralization are impossible to predict." We'll soon be a nation of beggars and borrowers, unable to function without the government propaganda and welfare machine.
You must be a big city dweller. Americans can organize and survive quite well without any central government minders. Yeah, transition would be rocky, but the Federal Government could disappear along with their Wall Street minders. A stronger America would emerge unlike China where: "Should the party overseers be absent one day, many organizations crucial to China’s social structure would suddenly find themselves without official guidance. The effects of such an abrupt and unfamiliar decentralization are impossible to predict." We'll soon be a nation of beggars and borrowers, unable to function without the government propaganda and welfare machine.
What, you missin big brother already? Fear not for he is behind every corner and curtain, just waiting to leap out and come to your assistance.
When a country that has factories that put nets outside their windows to keep slave wage workers from committing suicide calls your countries government shutdown a "sign of efficiency"...stick a fork in it: Your fucked.
Head of Copper at Minmetals can talk only when he is allowed to and his words are really what business in China thinks about the US and its reseves held in Treasuries:
Gu Liangmin, head of copper at Minmetals. http://sufiy.blogspot.co.uk/2013/10/andrew-maguire-gold-smashdown-fed.html#
The 14th ammendment stipulates that all CURRENT government debt, treasuries, will be paid FIRST! With the payments being a small fraction of monthly tax reciepts, default is not possible at this time.
IF the federal government 'hits the debt ceiling' and cannot issue additional debt, how can the dollar NOT get STRONGER?
How can that be bad for ANYONE holding dollars?
Think BIG picture little people.
You are assuming that the government is going to follow the constitution.
What Constitution? The one politicians and judges have ignored and rewritten? The Constitution’s 14th Amendment states that the “validity of the public debt of the United States” authorized by law “shall not be questioned.” We are not questioning the public debt. We just not paying it. Repudiation, Bitchez! New society. No women, welfare, child voters. Term limits, balanced budget, abolition of Fed. State banks only.
I would be quite happy with a global debt jubilee, and I have zero debt.
Ticky Tocky Cocksucka!
Tyrants around the world have been making fun of our supposedly free society's great inefficiencies only to run their countries over the cliff, all in an effort to make the trains run on time. For every efficiency gained in system control, a loss of productivity seems to occur due to destruction of motivations that a loss of freedoms causes. People are not machines. But they can be sheep and that is exactly what you get when freedoms and personal responsibilities are replaced with dependency and a false sense of security.
"Should the party overseers be absent one day, many organizations crucial to China’s social structure would suddenly find themselves without official guidance." --- then what? they might realize they can work together with local citizens and handle everything themselves without the government?
My friends in China tell me candidly (in private) that they hold the US politician in the exact same regard as prostitutes:
1. The level and duration of service depends on the price. There is a 'Happy Ending' for both.
2. They think that America has lost all dignity (personal and national pride), in their boundless greed and worship of money.
3. While the US war machine is busy making enemies all over the world, Chinese businessmen are busy making new "BFF" all over the world. If they can't buy US oil companies or monster farms, they will buy them elsewhere (e.g., Canada, Africa, South America).
4. China is preparing for the world "After the Dollar". China is hedging its bets with (a) real assets (foreign minerals, oil, gas, food), (b) fiat USTs + USDs, and (c) Gold and other PMs.
5. Given points 2-4 above, they think that America is doomed - the same way that an addict is doomed: When they can no longer afford to support their pleasure habit, a hard crash results.
I can't argue with that.
2. They think that America has lost all dignity (personal and national pride), in their boundless greed and worship of money.
I mean, I really can't disagree with your Chinese friends on the whole, but have they never had any exposure to wealthy shopping mall owners in Shanghai?
China has its own shit storm to worry about. They have massively over produced and polluted the hell out of their country. If they do not regulate themselves their environment will be fucked. If they do start to regulate and increase employee standards they are going to see a major loss in economic activity which at the current time would probably cause en entire collapse. Probably why they are fudging the numbers so much but you can only do that so long. Not to mention they have a massive populace where the majority are poor and basicly slaves. Revolution anyone? If America is doomed then the Chinese are fucked...
While they sell us "Duck Dynasty" bedspreads and pillow cases.
Being the first over the cliff doesn't make us the last over the cliff.
Something must have been mixed up in the translation because there is nothing in the article about, "all your gold are belong to us" .
China says, "fuck dis shit, ret's oder take out".
P.S. They must think we are a bunch of dumb-asses. Obama re-elected, People with the intelligence of Pelosi or the integrity of Reid are in positions of power, and we put 'em there. WTF
gold market sunk to keep bond market afloat http://www.activistpost.com/2013/10/gold-market-sunk-to-keep-bond-market...