Fears of Chinese land grab as Beijing's billions buy up resources

Re: OT: For Mike DC - Fears of Chinese land grab as Beijing's billions buy up resourc

If we default on all the debt we owe China, it means they can't cash it in for very much. Because a default will drive down the valuue of their assets as well as ours. It's pretty much a lose lose scenario.

I'd like us to be borrowing less from China, but in the grand scene of things, the problem there is that we're borrowing too much, not who we're borrowing from

 

Re: OT: For Mike DC - Fears of Chinese land grab as Beijing's billions buy up resourc

Not necessarily -the face value of the debt stays the same does it not ?

You can notionally write down the value of the asset in terms of what its worth ( in this case what you might expect it can recover ) but the point that Denny raises is a valid one except you must distinguish between private and government owned assets when speculating on the possibility.

 

Re: OT: For Mike DC - Fears of Chinese land grab as Beijing's billions buy up resourc

Well, maybe I'm reading it too technically, but if I default on a debt to you, it means you're holding a note for the face value of the debt, but I refuse to pay it. So if "I" is the US and "you" is China, they're left with worthless paper... or at least paper that's worth less than the amount printed on it. In the case of US/China, something like an all out (hopefully trade) war ensues and everyone is much poorer for the process.

As far as I know, this is true for both private and public debt... it's just that public debt rarely reaches that sort of status.

Of course, one reason it doesn't is governments generally try to inflate their way out of debt problems. Even non-crazy money supply growth would pretty quickly make a non-issue of China's holdings of US debt. At the same time, growth in the money supply will raise the price of assets across the board. That is, China gets $800B (or whatever the exact amount is these days) in cash, but $800B worth of Texas oil fields is now on sale at, say, $840B.

This wouldn't be all that bad if the government planned to stop borrowing money anytime soon. Unfortunately, they don't, so China (and all other US debt holders) would simply roll over their debt at much higher interest rates. Or cash some out to buy stuff. Of course running oil fields is a lot harder and less certain of a return than lending money....

 

Re: OT: For Mike DC - Fears of Chinese land grab as Beijing's billions buy up resourc

So what?

There was exactly this sort of fear back in the mid 80s with the Japanese. Oh my god, they're going to buy everything! It makes for a great conspiracy theory, but in practice things don't work out badly.
1. There's a good section on this in Russ Roberts' short book, The Choice that goes through this really episode in an easy to understand way, and the parallels to today are pretty clear.
The Japanese, even during the height of the anti-Japanese investment craze, were only the third biggest buyer of American assets behind England and the Netherlands. I don't recall lots of paranoia about the English and Dutch. Most of it boils down to protectionist and occasionally borderline racist nonsense.

2. Let's suppose a Chinese company buys up all the oil fields in Texas. To do this, they've have to spend a vast amount of money. To convince the current owners to sell, I suspect they'd have to offer at least the PDV of what the oil fields expect to produce.
* This purchase is now a huge transfer of cash into the hands of the American(?) businessmen who previously owned the oil fields. So they go out and spend it on new business ventures.
* The Chinese, for their part, have not just spent a ton of cash on an asset they have to work hard to get their money out of. In doing so, they'll employ plenty of Americans, and if they desire to make a profit, which I assure you they do, they'll continue to sell their produce to the highest bidders.
* In short, there's no reason to care what nationality is the owner of an(y) asset.

3. I think a lot of the fears that start with "China will own everything" are really fears that we, Americans don't actually have much in the way of investment ideas to attract paying capital.

 

Re: OT: For Mike DC - Fears of Chinese land grab as Beijing's billions buy up resourc

Well, as it happens at the moment the Chinese only barely hold more debt than the Japanese. There's something on the order of $13.3T worth of US public debt currently on the market. Of that amount, most is held by Americans. About $4T is held by various foreign entities, 30%. By country, China has $847B and Japan $821B.

As I mentioned before, I fail to see why the Chinese buying these companies would constitute a good move on their part. Or, why would it be bad for the US? As an abstract proposition, I'd wager $300B could buy a lot of improvements in automobile efficiency, making gas much less necessary, and therefore making it not a big deal to import more. If you, as a Chinese, want to buy up an oil company, do you have the expertise to get it out of the ground and profitably sell it? Why sell it to your home market for cheaper than you could sell it for anywhere else?

 

Re: OT: For Mike DC - Fears of Chinese land grab as Beijing's billions buy up resourc

No, currency reserves are typically reported in dollars, but China's currency reserves are about $950B dollars, and the rest Yen, Euros, and other currencies. Which is a lot, but again only about 30-40% of their total reserves.

Again, the Japanese and EU, Russians, Saudis and other countries have trillions of dollars worth of currency reserves as well. So why are the Chinese particularly worrisome?

What are they going to do differently with those Brazilian oil fields, or American ones, or anything else than the current owners?

 

Re: OT: For Mike DC - Fears of Chinese land grab as Beijing's billions buy up resourc

Because they are the most energy hungry nation in the World with one of the world's biggest populations

And because , as they complete their transition from a principally Agrarian Culture to a more Industrialized one , with all the socio-economic stratas attached to that they really won't need their Export markets as much as they've pimped them over the last 20 years or so, which, make them less inclined to keep current terms of trade ( because they won't need to ) and may make them more inclined to insist on getting paid back leading to increasing pressure on deleveraging ( against a possible aggressive inflationary back ground - more later as to this sub risk.)

This is because the real story with them moving forward will be more about domestic demand

So at face value you've got an emerging overt influence on key world energy markets that will become increasingly signficant , coupled with , a cultural transition where they are internally focused in production and consumption.

The portents of all this lead to signifcant inflationary pressures in the States and Europe over the course of the next 5 to 10 years , where the fuel to the fire , is the inevitable debasing of the USD and the Euro currencies driven by the current account deficits/ sovereign debt issues that ultimately have to be taken into account.

Denny is right when he says he references debt addiction.

And just like an addict the first step is to admit the problem.

And this is the problem in the lack of political will and leadership in the US and in Europe.

Basically , fuck the political inconvenience and the ugliness that ensues and the inevitable casualties that come from letting the Free Market do its thing without the Interventionists trying to hold an artificial market.

Western Economy must let the market find its natural level, at which point , capital will find that point when deleveraging and asset deflation has found its natural point.

You can't have a free market only when it suits you when you're inflating the bubble and everyone feels wealthier then what they actually are.

Hank, Ben and the all the other intellects who have studied what Andrew Mellon did and have tried to outmodel what essentially was and is a more simple and honest function of a market.....are spending billions more dollars only to arrive back at a point ( ultimately in my belief ) that you've got to take the pain.

And the real pain hasn't stared yet because the flip side of the free market hasn't been truly allowed to occur that would enable a quicker recovery.

And if Interventionists and Intellects are allowed to hold sway they will continue to bequeth debt for your grand children and their kids in the long slow progressive ineffcient decline , and possible death , of our social, economic , and possible legal institutions we take for granted. This is the risk in not addressing the realities and the structural issues of Western society that over politicise the efficient workings of an honest economic model.

 

Re: OT: For Mike DC - Fears of Chinese land grab as Beijing's billions buy up resourc

Well yeah .

But if you're talking production of a physical product ....reality is you got to follow labor cost around the globe

And it ain't in your back yard m'friend .

You guys , and Western Economy generally , sold long term sustainable manufacturing / production down the tubes , unwittingly , on the basic ideological premise on how our societies are founded - The Horatio Alger otherwise known as the Judao-Christian work ethic.

Work hard , get ahead , educate the kids and make them smarter than you so they can have the life that you always wanted in prosperity ....

It was actually the parents of the baby boomers that promulgated this view , carried on by the Boomers when once they got out of the luxury to question in the rebellious 60's and 70's - carried on the tradition that us Adult X's now have it up the arse with our debt that was borne from the aspirational life.

We all lost site of fundamentals along the way because of our societal development borne from the core ideology that has made Western Society tick since the 2nd World War.

And y'know it only took us 100 years or so to lose manufacturing and production of physical products ( in dominance ) and to morph our Economies into FIRE ( Finance , Insurance and Real Estate ) .....y'know the stuff of Bubbles.

 

Re: OT: For Mike DC - Fears of Chinese land grab as Beijing's billions buy up resourc

Now if you'll excuse me I have to get myself ready for a meeting with a cashed up private investor who is looking for opportunities to put into "dumb debt" First Mortgage deals for Commercial Real Estate traders.

He wants around 14% to 15% on his money at a max lend at 60 cents against the buck ( in the value of the security )

And the strapped busted arse on the other end of the transaction will pay me a 3% to 4% fee on the nominal amount of the debt.

Good times.

Unconscionable ?

Hey ....its a free market . I sleep well.

In fact ....I much prefer a market like this ( in which to operate ) than a hot market in ascendency where you have ass clowns making deals that have no business being in the game and take away from a natural point of traction I like to have in doing deals.

Cheerio !

 

Re: OT: For Mike DC - Fears of Chinese land grab as Beijing's billions buy up resourc

This will change radically in the next 10 years

And the seeds of this change were sewn back in the 1970's after another famous energy crisis

Remember OPEC ?

Western Manufacturing is dead. It just doesn't know it yet.

And the cause of death is because of cost of labor and the structure and sub structures of debt that come with that across corporate and consumer ...y'know that sees every the good ole US with the kind of debt that it has

 

Re: OT: For Mike DC - Fears of Chinese land grab as Beijing's billions buy up resourc

Right . FIRE

Not real products. Finance, Insurance, Real Estate

Derivatives ....in bullshit games of smokes and mirrors .

Or pass the parcel if you prefer

Musical Chairs works too.

And there is a moral bankruptcy to this in serving the short term needs and gratification of a few.

Well, well, well.... the concentration of wealth by few with everyone else on the bones of their arse is the stuff of Civil Wars / Bloody Revolutions

And you guys aren't even the Arabs or the Africans that "the few" can keep in ignorance and hoodwink them with religious belief.

Western society is supposed to be educated

Are we too educated ( and gutless ) for Civil Unrest ?

Too medicated / brainwashed by our media that sliced our nuts off and turned us into Eunuchs while we were watching Keeping up with the Kardashians?

 

Re: OT: For Mike DC - Fears of Chinese land grab as Beijing's billions buy up resourc

The only question is how it all unravels...