Home › Forums › Financial Markets/Economics › Who’s next to unpeg?
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FlyerInHi.
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July 9, 2015 at 6:27 PM #787857July 9, 2015 at 8:31 PM #787858
utcsox
Participant[quote=joec][
..After a wave of crime, tough times, cuts will have to be done since they simply don’t have the money to pay anyways. Like our nice state of CA...They can raise all the taxes, but if people leave the state or simply find ways to not pay, people will just leave or the state (or country) has no choice but to cut services…
At that point, I think the Greece people will maybe wake up and decide if they want to stick it out and actually pay for stuff finally or just descend into a mess of a country.[/quote]
Care to elaborate how is California is similar to Greece? Is it the 25% drop of GDP from its peak? Is it 25.6% unemployment rate? Or are you implying Californians are evading taxes like Greek people?
July 9, 2015 at 10:04 PM #787859flyer
ParticipantThe Telegraph 7/9
“While all Western eyes remain firmly focused on Greece, a potentially much more significant financial crisis is developing on the other side of world. In some quarters, it’s already being called China’s 1929 – the year of the most infamous stock market crash in history and the start of the economic catastrophe of the Great Depression.
In any normal summer, a 30pc fall in the Chinese stock market – a loss of value roughly equivalent to the UK’s entire economic output last year – after an ascent which had seen share prices more than double within the space of a year would have been front page news across the globe.
The dramatic series of government interventions to stem the panic – hitherto unsuccessful, it should be added – would similarly have been up there at the top of the news agenda. Yet the pantomime of the Greek debt talks, together with the tragi-comedy of will they, won’t they leave the euro, has relegated the story to little more than a footnote – even though 940 companies, more than a third, have now suspended trading on China’s two main indices.
America in 1929 and China today – are at roughly similar stages of economic development.
The parallels with 1929 are, on the face of it, uncanny. After more than a decade of frantic growth, extraordinary wealth creation and excess, both economies – America in 1929 and China today – are at roughly similar stages of economic development.Both these booms, moreover, are in part explained by extremely rapid credit growth. Indeed, China’s credit boom dwarfs that of even the “roaring Twenties”. Borrowed money, or margin investing, played a major role in both these outbreaks of speculative excess.
True, the Chinese stock market bubble is only a one-year wonder, whereas the build-up to the Wall Street Crash of 1929 was more sustained. Even so, the comparison still holds. As noted by JK Galbraith in his classic account, The Great Crash 1929, even as late as 1927 it was possible to argue that American stocks represented fair value.
It was only in the final year that the “escape into make-believe” happened in earnest, when the stock market rose by nearly 50pc. This applies to the Shanghai Composite, too. Stripping out the lowly-rated banking sector, valuations for just about everything else have rocketed, making those that ruled on Wall Street in the run-up to October 24, 1929, look relatively modest.
Nor do the similarities end there. As in 1920s America, China’s stock market boom has ridden in tandem with an equally speculative real estate bubble.
The macro-economic backdrop is also surprisingly similar. Then, as now in China, rural workers had emigrated to the cities in vast numbers in the hope of finding a more prosperous life in fast-growing industrial sectors. In 1920s America, virtually all these sectors – from steel to automobiles and the new technologies of radio and consumer durables – grew like Topsy, inspiring households to invest in them and chase the apparently bountiful profits they were generating.
A similar explosion in industrial activity has taken place in China, only more so. China has packed more development into a few short decades than any country in recorded history before, creating a worldwide glut in industrial capacity that even global demand, let alone domestic Chinese demand, is struggling to accommodate.
Already, there are warning signs of a slowdown, similar to those that front-ran the 1929 crash – depressed commodity prices and a virtual hiatus in global trade growth. The Chinese economy is like one of those cartoon characters who manages to keep running long after leaving the edge of the cliff, only belatedly to look down and plunge into the abyss.
Naturally, there are many dissimilarities too, not least that China is still essentially a planned and centrally-controlled economy which has so far managed to defy the usual rules of economics. The consensus is that this time will be no different, that even if the stock market does continue to crash, the impact will be no worse than 2007-08, when the Shanghai Composite fell by two-thirds.
Yet after a massive fiscal and monetary stimulus, the wider economy barely lost a beat. Have no fear, the Chinese authorities have it all under control. Believe it if you will.
I don’t buy it. Indeed, I can see very little evidence for China’s technocratic elite having things under control. The firebreaks that China put in place over the weekend to mitigate the panic are, in practice, not much different from those applied during the Great Crash of 1929, only this time it’s public rather than private money that promises to quell the fire.
They failed spectacularly in 1929. This time around, they’ve thrown the kitchen sink at the problem, but so far it has produced only a mild, and wholly unconvincing, rebound. The fire still smoulders, threatening to break out anew.
China cannot forever, Greenspan-like, keep answering each successive bubble by creating another.
First it was gold, then housing, and when cooling measures threatened an all-out bust in the property and construction markets, the taps were turned on afresh, producing a further flood of money into the stock market.The authorities were happy to tolerate the bull market at first, hoping it might encourage a switch from debt to equity financing, but there seems little chance of that now. The stock market boom has only succeeded in adding to the debt.
Whether any of this turns into a calamitous economic meltdown obviously depends on the rest of the response. Policymakers have learned a thing or two since 1929; we now know that the real damage in financial crises is done not by the crash itself, but by a collapsing banking sector. Stock markets are only a signal of credit contraction to come. Even so, I doubt China has as much of a handle on its banks, and more particularly its shadow banking sector, as it pretends.
One further thought on these parallels. Now that the export-led model of economic of growth seems to have reached its natural end, at least for China, president Xi Jinping pins his hopes on internal consumer demand to drive growth, and he’s vowed to continue with the free-market reforms of predecessors to help achieve this.
Unfortunately, it’s proving a difficult transition. Part of the problem with free markets is that by definition they cannot be controlled. Busts are as much part of their DNA as the wealth-enhancing properties of their booms. As China is about to discover, bad downturns come with the territory.”
Should be fascinating to see if, when and how this plays out.
July 10, 2015 at 6:17 AM #787866livinincali
Participant[quote=utcsox][quote=joec][
..After a wave of crime, tough times, cuts will have to be done since they simply don’t have the money to pay anyways. Like our nice state of CA...They can raise all the taxes, but if people leave the state or simply find ways to not pay, people will just leave or the state (or country) has no choice but to cut services…
At that point, I think the Greece people will maybe wake up and decide if they want to stick it out and actually pay for stuff finally or just descend into a mess of a country.[/quote]
Care to elaborate how is California is similar to Greece? Is it the 25% drop of GDP from its peak? Is it 25.6% unemployment rate? Or are you implying Californians are evading taxes like Greek people?[/quote]
Both have huge pension liabilities they can’t afford to pay in full. CA just hasn’t realized it yet, but one day it will.
July 10, 2015 at 8:31 AM #787867spdrun
ParticipantWhether any of this turns into a calamitous economic meltdown obviously depends on the rest of the response.
And by “calamitous meltdown” you mean “blessed opportunity.” Lol.
And not that the Chinese economy being sucker-punched would be a bad thing — I’m all for China being set back a decade.
July 10, 2015 at 11:10 AM #787871Hatfield
Participant… assuming it doesn’t result in massive civil unrest.
July 10, 2015 at 11:53 AM #787872ParticipantMight improve China in the long run if it does happen over there.
July 10, 2015 at 12:59 PM #787874moneymaker
ParticipantIf Greece is “forgiven” then maybe Germany will leave the EU because they would be pissed off that Greece “got away with it”. I wouldn’t bet on it but I wouidn’t be surprised too much either.
July 10, 2015 at 4:31 PM #787875fun4vnay2
Participantanything like this can never happen in CA
CA is different 🙂July 10, 2015 at 6:29 PM #787877joec
Participant[quote=utcsox][quote=joec][
..After a wave of crime, tough times, cuts will have to be done since they simply don’t have the money to pay anyways. Like our nice state of CA...They can raise all the taxes, but if people leave the state or simply find ways to not pay, people will just leave or the state (or country) has no choice but to cut services…
At that point, I think the Greece people will maybe wake up and decide if they want to stick it out and actually pay for stuff finally or just descend into a mess of a country.[/quote]
Care to elaborate how is California is similar to Greece? Is it the 25% drop of GDP from its peak? Is it 25.6% unemployment rate? Or are you implying Californians are evading taxes like Greek people?[/quote]
My point is that CA also has pension problems as most states in the US. CA has ALREADY raised taxes for medicare for the wealthy and some cities (SF comes to mind) has a “special tax” just to pay for healthcare for city workers I think.
There is also an added state income tax in CA where you pay an extra 3% or something if income is > 250k I think. Someone here rich can post the rule since it doesn’t affect poor me…
I am saying if Greece leaves the Euro, they will be now FORCED to do these things since they simply don’t bring in enough revenue to pay out current liabilities. Unfortunately for them and fortunately for CA, CA has lots of “rich” upper class worker bees to pay (rich companies don’t pay any tax since most offshore it all and have lower tax rates than you or me) and Greece seems to have a history of tax evaders in general. I’m sure the GDP of CA is massive compared to Greece (8th in the whole world) so CA can do lots of things to deal with misc “problems” here vs. Greece.
Also, there isn’t a massive exodus of people leaving CA (see property prices in SF or LA?) even with these wealth income taxes so CA seems to be managing their financial issues fine compared to Greece. Not to mention people actually voted for the tax increase.
I wonder how Vallejo is doing or other bankrupt cities. If they implemented a special tax in certain cities, it seems easier to just shop somewhere else or leave (so if Greece gives you painful austerity or taxes or spending cuts, why not just leave?).
July 10, 2015 at 10:11 PM #787882
CoronitaParticipantIf you like your “no” referendum…You can keep your “no” referendum….period….
-Tsipras
July 11, 2015 at 12:28 AM #787886FlyerInHi
GuestIn many ways, I feel sorry for Greece. But does anyone really believe that they will implement the reforms they promised?
July 12, 2015 at 10:49 AM #787906Participant[quote=joec]
My point is that CA also has pension problems as most states in the US. CA has ALREADY raised taxes for medicare for the wealthy and some cities (SF comes to mind) has a “special tax” just to pay for healthcare for city workers I think.
There is also an added state income tax in CA where you pay an extra 3% or something if income is > 250k I think. Someone here rich can post the rule since it doesn’t affect poor me…
I am saying if Greece leaves the Euro, they will be now FORCED to do these things since they simply don’t bring in enough revenue to pay out current liabilities. Unfortunately for them and fortunately for CA, CA has lots of “rich” upper class worker bees to pay (rich companies don’t pay any tax since most offshore it all and have lower tax rates than you or me) and Greece seems to have a history of tax evaders in general. I’m sure the GDP of CA is massive compared to Greece (8th in the whole world) so CA can do lots of things to deal with misc “problems” here vs. Greece.
Also, there isn’t a massive exodus of people leaving CA (see property prices in SF or LA?) even with these wealth income taxes so CA seems to be managing their financial issues fine compared to Greece. Not to mention people actually voted for the tax increase.
I wonder how Vallejo is doing or other bankrupt cities. If they implemented a special tax in certain cities, it seems easier to just shop somewhere else or leave (so if Greece gives you painful austerity or taxes or spending cuts, why not just leave?).[/quote]
I don’t understand why Greek just not leave either. I mean Greek shall book the first class flight out of there asap and have countries they want to immigrate to issue them visas immediately.
And what are those Californians doing? I mean they shall just fire sale their real estates holdings since it will become Greek in the near future. I am really really confused.
July 12, 2015 at 6:05 PM #787917ParticipantLooking at some articles today, the EU is rejecting Greeks new bailout terms even though these terms were what was asked earlier since they don’t believe Greece will hold to them and simply don’t trust the Greeks anymore.
I suppose the people who can’t or won’t leave are all the older, retired pensioners since if they leave Greece, they probably end up with $0 in pension anywhere else in the EU. They’re sorta shafted pretty majorly (sounds like a lot of pension systems in the US as well).
If you were a young hot shot or simply any worker, if your taxes are going up, services are going down, properties and businesses closing, you might as well leave and work somewhere else and let someone else worry about these older and retired people’s pensions…
I’m probably more curious to just see what happens when a country leaves the Euro.
July 15, 2015 at 4:37 PM #787997GuestCanadian dollar is now down to 77c.
There maybe a housing crash. Or not, if the Chinese take advantage to buy. That is if there’s no market crash in China.Iranian oil will start flowing again and the Saudi might pump more. Canadian oil is looking expensive. I guess XL keystone is not necessary.
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