From Greg Canavan in Sydney: -- As far as can kicks go, this one was not a bad effort. The question you should ask, though, is how long it will take the market to accept this latest European bailout still doesn't solve any fundamental problems. It is just a shameless attempt for gain without pain. -- Let's look at a few of the details. Greece will get a 50 per cent haircut on its debt? Not so fast. Their total debt load is a mind-boggling 350 billion. This includes around 70 billion in loans from the IMF etc. and about 75 billion that the European Central Bank (ECB) has kindly purchased from the private sector. -- These amounts will not be subject to a haircut, so Greece is still on the hook for this debt. That leaves around 200 billion subject to the 50 per cent reduction...which actually means it's only a (roughly) 30 per cent trim (we wouldn't even call it a haircut). -- Given Greek pension funds and banks own a decent chunk of this outstanding amount, it's easy to see who's really paying for this. Banks 1 Greece 0. -- As an aside, events like this go to show the mainstream press are not up to the task of reporting the facts. Today's front page of the Australian says the haircut will cost banks 150 billion. Then one dot point later it says banks will be forced to strengthen their balance sheets by 106 billion...which, if true, would leave a capital deficit of 44 billion. Clearly, it's not true. -- This will apparently leave Greece with a debt-to-GDP (Gross domestic product, or economic growth) ratio of 120 per cent by 2020. The Bank for International Settlements recently released a paper showing debt levels were bad for growth when debt hit around 85 per cent of GDP. -- How is Greece meant to return to private debt markets and borrow unassisted with a still debilitating debt load? (Banks 2 Greece 0). -- But that's not really the point of this whole exercise. It's a political stunt designed for maximum gain and minimum pain. And as far as the European Financial Stability Facility (EFSF) goes, there's only 'agreement' to leverage it up, with no concrete details on where the money will come from. -- Apparently the 'rich' nations of China and Brazil (the ones with income per head of population much lower than the countries they are meant to be helping) will stump up some cash for the EFSF. We'll see. If they have any brains they'll steer clear. -- And China could well be occupied with its own problems. According to a recent FT report... In recent days, small and sporadic demonstrations have broken out at a handful of real estate sales offices in large cities such as Shanghai, with angry recent homebuyers organising sit-ins and demanding refunds after developers started offering discounts on neighbouring apartments to attract new customers. -- The cracks are starting to appear in China's property and fixed asset investment bubble. Authorities have halted work on 6,000 miles of railway construction because financing has dried up. -- Good luck...the Ministry has a debt load of around US$330 billion, or 5 per cent of GDP. There is so much overcapacity and inefficiency that debt has grown faster than the revenues from the network. -- As China's investment boom subsides - and it surely will - there will be plenty of other ministries and broke local governments putting their hand out for central government support and guarantees. -- If you think Western nations are liberal with the bailouts, wait until China buckles under the weight of its credit boom. Everyone who bought an apartment in the past two years will be screaming at the government to get his or her money back. -- As a result, the Chinese government's fiscal position will be much more precarious this time next year. So Europe better hurry up and coax money out of the Chinese while the central planners are still labouring under the misapprehension they can control their economy. -- A Daily Reckoning reader recently visited China and kindly sent us some observations. Here are a few of them: 1. The very best apartment space in Shanghai is quoted as Y120,000 per square metre, that's about $NZ24,000. I suspect that is more expensive than just about anywhere else in the world and the quality of life is well below Aussie or NZ standards. 2. There are plenty of half built apartment buildings on which work appears to have stopped, especially in the smaller cities (small by Chinese standards) 3. Nothing good is cheap. A Longines watch my wife bought in NZ for $460 was priced at Y25,600 (NZ$5,120) in Shanghai. 4. The China Daily reports that the money for many railroad and highway projects has run out. Evidence of this is plain to see with unfinished bridges a common sight. The same report says that many migrant workers have not been paid wages for up to 4 months. (Could only happen in a Socialist Paradise!) -- China has one of the most lopsided economies in history. Investment (in things like bridges, railways, apartments etc.) represents nearly 50 per cent of economic output. In its industrialisation phase in the late 1960s, not even Japan was so dependent on investment spending to generate economic growth. -- And when that spending is fuelled by credit (using pumped up land values as collateral) you get price inflation and poorly allocated resources. This is what our DR reader sees on the ground in China. -- So enjoy this stock market rally while it lasts. The Europeans have filled the punchbowl and turned up the music. Everyone is dancing. -- But like the Troubled Asset Relief Program (the US bank bailout) based rally in 2008, this one will also fade. Within a few months, it will be evident the debt crisis is spreading. If we have learned anything over the past few years, it is that government interference in the market mechanism creates tremendous distortions. -- These distortions don't manifest straight away. While they are building, false hope and optimism cloud their emergence. But we can guarantee that unintended consequences are already unfolding. When they will show themselves is anyone's guess. -- So while the music's blaring, it might be worth nonchalantly making your way to the door. Because when the music stops this time around, the exits will get very crowded. Greg Canavan for The Daily Reckoning Australia
Sounds familiar. This has been the case for the past 15 years in China. Everything is a ripoff up there, that's why all the rich Chinese prefer to shop in Hong Kong or Singapore, less fakes and cheaper prices. More info on the money drying up for infrastructure: http://moneywatch.bnet.com/investing/news/china-railway-road-projects-run-short-of-cash/6317258/ China is going to crumble soon, 9 of the rich Wenzhou factory owners bailing at once = alarms everywhere. It's going to bring Australia down but naysayers will say otherwise.
I do not agree that Europe should hurry to get money from China. Unlike the US, Europe is not yet indepted to China. The European Goverments managed to keep out Chinese influence pretty well till now and I hope they keep it that way. China on the other hand wants to gain more power in Europe.
Kraut, what about the hidden CDS, amounts to Trillions in the 100 trillions, they may need CHina afterall
hiho maybe you are right yet I do not like the idea of being rescued by China They won't do that because they are nice
The EU politicians are so skilled in moving deck chairs around that they should be working on cruise ships. In winter. In the Atlantic.
I think it was said somewhat facetiously, not as policy advice. That notwithstanding, I think Europe's destiny is fairly closely linked to China whether they like it or not. To varying degrees we've all got skin in this global game - individuals, companies, countries. @fishball Would you care to elaborate on the 9 rich Wenzhou factory owners?
I agree with above, and want to add this: "China stopped collecting taxes? Source: Tanjug Beijing - A three-day tax protests in the city of East China Jill stopped after the reaction of the police and wrote in the press that the suspended tax collection. Tweet Transport in the industrial city of the rich province Dedjiang, about two hours drive from Shanghai, takes place without interference and damaged cars and debris are cleaned from the streets, blight. The streets were peaceful, although police are patrolling the city and directs people away from the central square. Police cars with loudspeakers warned people not to disturb the public order and invited the workers to return to work. Riots broke out in Jill on Wednesday when a shop owner with Kids, from the poorer provinces Anhui, refused to pay taxes to local officials and called on other retailers who have attacked the tax inspectors, state media quoted. The conflict spread to the street which caused over a thousand people to demonstrate for two days in the city. Some protesters threw rocks, smashing street signs, advertising billboards and overturned cars, making it out to the streets armed police, local media reports. Last night was more than a thousand demonstrators, many of whom are workers who came from the neighboring province of Anhui, occupied the city center shouting "People from Anhuija unite". Protesters have complained of ill treatment of people from Anhuija, poorer provinces from which millions of migrants working in the wealthier parts of China. "Currently the government of Jill suspended the payment of taxes from employees in the textile industry and dismissed the tax officers involved in the incident," the newspaper said Dedjianga "Chiandjiang". During the protest, a police officer and three officers of the city administration received minor injuries, the newspaper said, adding that police had arrested five persons for the crime and 23 detained. Protests in China are relatively common due to widespread corruption, and environmental zagadjeja illegal seizure of land by local authorities sold as building land large domestic and foreign firms." I apologize but didn't find proper link on English language, so i use google translate .
China's Property Developers Slash Real Estate Prices to Court Buyers ................. Plummeting sales have pushed many property developers towards compromise. Several major real estate companies including Longfor Properties, Greenland Group, and China Overseas Land & Investment have started to offer huge discounts ranging between 20 percent and 40 percent on some of their properties in Shanghai. The whole city's average housing strike price over the last week has slid by 5 percent from a week earlier, according to statistics by the China Real Estate Information Corporation (CRIC). ................ Property developers are in a rush for quick selling mostly because they cannot afford to wait anymore. The central government's tightening policies which put pressure on both buyers and financial institutions have been drying up regular funding chains for many developers. The second-home purchase restrictions implemented in many cities have discouraged speculative buyers, and the frequent hikes in bank interest rates and the reserve requirement ratio have limited banks' lending abilities. Banks in need of more cash have even recently increased first-home mortgage rates to levels above the benchmark interest rate, scaring away even more potential real estate buyers. http://www.china-briefing.com/news/...slash-real-estate-prices-to-court-buyers.html
Wenzhou is the money province of China. They are the wealthiest businessmen in China. Recently 9 factory owners bailed and left massive debts behind because they borrow from loan sharks. Not a good sign, there's a thread here before on this.
Maybe Mi lao shu can fill us in. Are you allowed to get your refund after you plonked the money down? Or are they demanding that they want to be refunded the difference between yesterday's price and today's price since they missed out on the 22% drop? Surely if you cannot afford it yesterday, then how is it different today? We are (I am) not on the ground in China, we cannot tell, but I just don't know how the average person on a Chinese wage afford to pay for $x thousand / sqm property there. Unless the average wage is not as low as we thought. Are all these property developments all bought up by well heeled flippers?
Deng Xiaoping is often quoted as saying "To get rich is glorious." Too bad he didn't understand that one person getting rich represents hundreds of failed speculators. These failed property speculators thought they were doing their patriotic communist duty of speculating in property to get rich. They were doing it for the state so the state should bail them out! That's what they need, real estate price controls!! That'll fix things right up. I'm sure the politburo will get right onto it. :lol:
So if China slows down and goes into a recession in 2012 which will hurt us, whats the outcome for PMs in Australia?
If china slowdown affects only Australia, the aud will tumble and PM will rise. However, the most likely outcome is that china's crisis will also add to the current crisis of confidence, once again driving everyone back to US T bonds. Killing every major currency and PM on the way. It might bounce back quickly though. Hard to read the future.
Thanks. A strong dip in China will probably be more severe internationally. Will hurt close to home also. Yeah the future sure is hard to read!! I wonder when US T bonds will no longer be seen as a safe haven? I guess its going to be recession first, inflation second.
US T bond will lose safe haven status if: They admit they are broke Every country and investor on earth dumps T bond to .... some other medium Everyone trades in their own currency, no longer trading in USD Swiss govt unpegs chf from euro, once again becoming safe haven, this will sap most safe haven dudes from USD. Meteor strike hits usa and wipes that country clean. Anarchy hits USA and its government wiped out
A 8% growth in GDP is so called recession? Fear not my friend, sit back and look at the big picture. http://www.tradingeconomics.com/gdp-growth-rates-list-by-country
