Which is worse, China's debt problem or ours?
The US is in bad shape with subprime debt, but China's local governments aren't doing so well either
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Of course, that’s why there are corrections. That’s why every boom caused by excess, artificial credit is followed by a bust of excess, un-payable debt. Which is also why, here at The Daily Reckoning, we like corrections. They are like soap and water. They help get rid of accumulated debt dirt. And the grease of bad guesses. And the parasites that accompany a plan-gone-bad. So, lather up. Rinse well. And you’re fresh and ready to go again.Skip to next paragraph
Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning (dailyreckoning.com).
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But the authorities don’t like washing up. After all, one man’s grease is another man’s career path. And the parasites vote.
The Chinese authorities may or may not be smarter than their American counterparts. But they’ve got parasites to look out for too. Voters? Maybe not…but they’ve got plenty of officials…and some 100 million young men looking for work; they’re desperate to keep them busy.
We don’t know whether a Chinese blow up is around the corner or not. But it could happen any minute.
(One of the Chinese stocks in our Family Office portfolio is trading at only 2 times earnings. It was more when we recommended it. And if China blows up, it will go lower still. Perhaps they will give it away at the bottom.)
Meanwhile, Europe grows more troubled and more troubling. The Greeks want money. The Germans want austerity. The European Central Bank wants another bailout. Germany’s finance minister says he’ll support more money for the Greeks only if lenders agree to take a haircut first.
In the streets of Athens, demonstrations have become everyday occurrences. And the government, desperate to raise money, is said to be putting price tags on the Parthenon, the Acropolis, and several islands. “Discount!” “Going out of business!” “Inventory Reduction Sale!”
It is not our place to give advice, but we will give it anyway. It is the same advice we give to underwater homeowners.
It is obvious that Greece cannot work its way through this problem. It would have to increase GDP by 12% a year for three decades in order to “grow its way out of debt.”
Since it cannot pay its debt honestly, it should at least default forthrightly. Stop sniveling and complaining. Own up to having erred.
Don’t borrow more money, in other words; renege…walk away… Be of good cheer, knowing that lenders will suffer the losses they deserve.
Default and be happy.
America is so rich…and so wasteful…that it could probably cut its spending by half and most people would still be fat and sassy.
Here’s a report from The Daily Mail in London:
The US is providing hundreds of millions of dollars of foreign aid to some of the world’s richest countries – while at the same time borrowing billions back, according to report seen by Congress.