Evergrande Has Defaulted On Its Debt (cnn.com) 154
Evergrande, the embattled Chinese property developer, has defaulted on its debt, according to Fitch Ratings. From a report: The credit ratings agency on Thursday downgraded the company and its subsidiaries to "restricted default," meaning that the firm has failed to meet its financial obligations. Fitch said the downgrade reflects the company's inability to pay interest due earlier this week on two dollar-denominated bonds. The payments were due a month ago, and grace periods lapsed Monday. Fitch noted that Evergrande made no announcement about the payments, nor did it respond to inquiries from the ratings agency. "We are therefore assuming they were not paid," Fitch said. Evergrande has about $300 billion in total liabilities, and analysts have worried for months about whether a default could trigger a wider crisis in China's property market, hurting homeowners and the broader financial system. The US Federal Reserve warned last month that trouble in Chinese real estate could damage the global economy.
Lehman Event 2.0 (Score:5, Insightful)
Party like it's Two-thou-sand-and-eight!
Bum-skella-bum. That's the sound of markets hitting a nadir.
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US real estate market was 9% of GDP in 2008. China's real estate market is 30% of its GDP.
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Technically, the CCP defaulted (Score:4, Insightful)
No one can operate in China with zero control; this default has been known to be coming for about 9 months. The CCP has quietly distanced itself from the bank so they do not have to pay off the Western banks.
In affect the CCP has successfully swindled Billions. They are not stupid. This just keeps up the myth in China, that
the rest of the humans are not as smart as them.
As to the posts about a lazy story, there is a reason not many have heard about this, or will. China never talks about what it does wrong.
It is someone else's fault, nothing bad or sinister happens in China.
Re:Technically, the CCP defaulted (Score:4, Interesting)
It's suspected part of the reason the gov't allowed this is to send a message to other wealthy corporations that they are expendable. Some Chinese moguls tried to influence the top echelons for change, but Xi punched back.
Re:Technically, the CCP defaulted (Score:4, Interesting)
The Chinese government likes to act like it has 100% control, but in practice they do not. Rules and regulations are flaunted all the time The government response tends to be to eventually clamp down and send a signal with a harsh punishment to one entity. For example, shoddy building construction is rampant in China, not because the building regulations are lax but because everyone is cutting corners. If you're a regional party boss you end up thinking that you can get away with it. Eventually a school collapses and a local business or party leader is held responsible and sentenced to death. Then they hope that everyone else gets the message. Like all governments everywhere, there's far too much stuff to keep track off for the resources they have so they hope that the machinery works smoothly most of the time and that only a few nudges here and there are necessary.
In this case, they may let Evergrande fail as a signal to others. They may even punish some higher ups, stick some political functionary that was in charge over oversight in a reeducation camp, etc.
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That's not really true, for example SCMP regularly covers Evergrande in both English: https://www.scmp.com/topics/ch... [scmp.com]
State news outlet Xinhua covers it in Chinese: http://www.news.cn/fortune/202... [www.news.cn]
The real issue is that the government doesn't want to commit to covering all of Evergrande's debt, they want to look at it on a case-by-case basis. Part of the reason is that they don't want any company to be too big to fail, and part of it is they think that it might be better to let stuff that really is unviab
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As you said, the government may cover debts, case by case.
What I am hearing is all those local homeowners will be made whole, either by making sure construction for the homes they paid for is complete, or they get a full refund. Same for the local small investors in the wealth management product that was sold. Full refund, etc.
I think the local banks will be helped out somewhat as well.
But if you are a foreign bank who is due money or foreign investor, you going to get totally screwed. This way they minimis
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As I recall the vultures were circling Evergrande some weeks ago, and miraculously they were able to keep up payments or make deals with creditors and the crisis seemed to be averted. Business news outlets moved on to other distractions like Theranos trial, Jack Dorsey's beard, and Omicron.
Sounds like that earlier situation was just buying time for powerful people/groups to safely exit their investment, and or create a plan for taking over Evergrande on the cheap. Now the wheels are in motion for those w
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As I recall the vultures were circling Evergrande some weeks ago, and miraculously they were able to keep up payments or make deals with creditors and the crisis seemed to be averted.
The Chinese government pressured the billionaire owner to put up some of his own money to pay some of the earlier debts.
The whole time they have been trying to sell off assets to raise money and keep the company afloat.
But with no takers for the properties. And even bigger debts coming soon. The writing was on the wall.
Sounds like that earlier situation was just buying time for powerful people/groups to safely exit their investment, and or create a plan for taking over Evergrande on the cheap. Now the wheels are in motion for those without access to power/influence to get screwed over. so yeah, CCP will come out of this ok. Foreign investors will lose big as will the middle class Chinese investors
That's the conspiracy version.
China will probably bail out the suppliers who were forced to lend Evergrande money. Bail out the homeowners whose properties haven't been finished yet but we
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That's how Trump made his money: by borrowing it and not paying it back.
I guess the rest of the humans aren't as smart as Trump, either.
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Really? That's supposed to be insightful?
The most insightful bit was to note the propagation of the vacuous Subject. Rather long discussion and "lazy" is the vacuous keyword about 4/5 of the way through it.
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Actually, his comment was pretty accurate. The CCP definitely has a seat at the highest table in any non-small company based on the Chinese mainland. Whoever sits in that seat can veto or demand anything. The CCP definitely owns some of the culpability here.
His point about the story not getting much traction is fair. It's only been getting coverage in the mainstream non-Chinese press for the last few days. That changed yesterday. I've been following it the english language Chinese press for a couple of mo
The old adage (Score:4, Insightful)
Yeah, last month (Score:2)
Why this matters (Score:3)
Spoiler: Authoritarian capitalism doesn't work long term.
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Authoritarian capitalism is just communism by another word.
Basically the government forced the company to go bankrupt, extracting tons of cash from foreign investors they never have to pay back. Soviet Union did the same, eventually investors stopped investing and the country went bankrupt. This is just the first of many more to come, China has greatly over-invested in developing property for its population so they could work on collapsing bridge-to-nowhere projects in the middle of nowhere. They tried to f
Re:Why this matters (Score:5, Informative)
No. It's fascism. China is fascism using Communism as a brand name. Merger of corporation and state: check. Aggressive military expansion: check. Fascism.
They didn't bother going through an anarchic capitalistic phase like Russia after the walls fell. They didn't wait for a Putin to make them fascist. The didn't want to lose control, so they jumped straight over to the other side at Tienamen.
The CCP is fascist. People need to realize it.
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Lol, it's one of histories great blunders, every time communism f
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Really, I believe in the horse-shoe theory no matter how much academics hate it. So yes, China was "fascist" under Mao but it was also "communist" because as you move further out on the extremist end, they both look alike.
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No one has ever tried communism without being authoritarian.
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Actually, they have:
https://en.wikipedia.org/wiki/... [wikipedia.org]
It just doesn't work out too well. Without the ability to prevent people from leaving, eventually that's just what they do.
The concept of currency wasn't just invented one time like prevailing Marxist thought suggests, it was actually invented many times. It's actually vitally important for any civilization to scale beyond being just disparate tribes. Without it, that's literally all they end up being. You can observe that in any of these early communism
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I'm not sure why you see currency as related to factioning off.
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it's not "true" communism
Well yeah. Just like nothing is ever truly flat, or truly round, or truly black. Communism is a well defined ideal, and any state which aspires to communism can only get so far. So we compare a state against that ideal, and we see.
So, let's see: The communist ideal is a society which is stateless and classless. Is China stateless and classless? Not even close. Okay, but is China working towards that goal? Not even close. Okay, but has China implemented any of the stipulated communist methods of achieving
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Facism is equating allegiance to an individual leader to allegiance to the nation.
If someone says, If you are against (Mussolini, Indira Gandhi, Zia-ul-Huq, Narendra Modi, Trump) you are against (Italy, India, Pakistan, India, USA). Note to the mods: I am not saying these leaders are fascists. If some one conflates allegiance to to them with t
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Well then OK [telegraph.co.uk], unless you're being sarcastic or perhaps pedantic because he may not have made an explicit call for personal allegiance; but it does indeed seem to be a requirement now. As we have recently seen, even calling out one of Xi's *friends* can make you go away under suspicious circumstances.
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Could his friends be the reason WHO skipped Xi and named the more recent deadly variant Omikron? Was there a Xi variant named at all?
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I heard they skipped Xi for this very reason, with the justification being that it's a common surname and would thus stigmatize a lot of people not just the famous one. You can take that with various grains of salt. Nu was skipped because it sounds too much like "new" and would be confusing to anybody who speaks English which is a lot of people.
Also, props for confessing ignorance on the Internet. It's no sin, but a lot of people treat it like one so you're brave to be learning in public which IMHO is wh
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Suprisingly enough the market wasn't shocked (Score:2)
Partially because the market knew it was coming, but we'll see.
Re: Suprisingly enough the market wasn't shocked (Score:2)
Why do banks pretend interest is real money? (Score:2)
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I hope it does own property in the US ... a property crash would be nice.
This is a property crash at exactly the time of massive structural problems worldwide caused by Coronavirus.. We're potentially talking great depression level of collapse in China and that can expand massively worldwide. The companies that have invested in China might deserve what's coming to them if they can't get their money out but individual people starving to death, as happened in the 1920's, don't deserve it.
Re: Another lazy story (Score:3)
The xhinese government is backing it. China has enough clout to ride this out.
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No, they're not, because they cannot print the dollars the debt is in
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The Chinese central bank has about $3T in dollar-denominated bonds. So they could do a bailout.
The bailout would cost only a fraction of the $300B since Evergrande can still make partial payments. The problem is that Evergrande may only be the tip of the iceberg. Many other companies also have excessive debt backed by depreciating assets.
The cost of a bailout is likely lower than the cost of a financial collapse. More than anything else, the CCP wants stability.
Re: Another lazy story (Score:2)
> The cost of a bailout is likely lower than the cost of a financial collapse. More than anything else, the CCP wants stability
You do know that the Chinese govt caused Evergrande to happen, right? They tightened the regulation (increased the reserve requirement held against the debt). Crappy companies doing crappy things, but this why we see Evergrande in the news this year and not 10 years down the line or maybe even never.
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Caused by coronavirus?
Most of the price action that we have now are due to
1) millions of people swtiching from services to buying goods
2) The stock market overreacting, and then the fed government overreacting to calm the market by dumping 1.2 Trillion on the economy
3) Very low interest rates, which increase purchasing power.
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Caused by coronavirus?
Most of the price action that we have now are due to
1) millions of people swtiching from services to buying goods
2) The stock market overreacting, and then the fed government overreacting to calm the market by dumping 1.2 Trillion on the economy
3) Very low interest rates, which increase purchasing power.
Totally agree that there's a bunch of other macro-economic stuff going on, but the great depression seems to have been an after-effect of the pandemic of 1918 and similar pandemics have caused economic crashes. The problem with what you are saying is that, due to very low interest rates, there are many many companies and people massively over-leveraged and unable to pay off their debts if interest rates increase. In the US this problem can to some extent be dealt with by printing dollars. China doesn't ha
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This is really good: https://courses.lumenlearning.... [lumenlearning.com]
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The absolute most that the CCP is going to do is bail out Chinese banks/investors. Everyone else is out of luck.
When will the rest of the world figure out that you just can't invest in China?
Re: Another lazy story (Score:2)
Only way to get money from China legally would be customs tarrifs.
Re: Another lazy story (Score:3, Interesting)
Re: Another lazy story (Score:4, Insightful)
. I think it's 300 billion in just interest.
Too stupid to read the article. But think you're smart enough to have valid opinions...
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Too stupid to read the article. But think you're smart enough to have valid opinions...
Welcome to the internet!
Sorry the place is such a mess.
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They owe a fuck ton of money they aren't paying back... I think it's 300 billion in just interest.
"Evergrande has about $300 billion in total liabilities [cnn.com]"
Re: Another lazy story (Score:5, Funny)
Re: Another lazy story (Score:5, Interesting)
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+1 insightful, unfortunately.
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When you owe the bank $1000, you have a problem; when you owe the bank $100,000,000,000 - the taxpayers have a problem.
There, FTFY, for a mere billion it's hardly worth bothering the taxpayer. When companies want to socialise their losses they do it in bulk.
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I came here to tell this very joke.
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I came here to tell this very joke.
It's a pity you forgot what usually happens when something is "too big to fail".
Is memory really so short?
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Re: Another lazy story (Score:5, Informative)
Its worth also considering the political backdrop of all this.
The CCP still is pushing the narrative they are big winners of the pandemic, they managed it well, and China is going to enjoy ascendance as a result; Its BS of course the pandemic has been the pandemic and at a macro level it does not appear anything anyone did made much difference but, China is not about to let this become an economic contagion. There will be political interventions that result in less than ordinary protocols about debt seniority, forced haircuts on claims, other forced modification of terms etc.
Given the current international climate I'd worry if I was foreign debt holder about finding myself at the back of line.
There is no rule of law in China there is only what the CCP wants this week. Though to be fair if you look at how the Obama administration treated the Chrysler bond holders not so many years ago so there will be a people in glass houses aspect to this as well that will prevent a lot of political push back on our end..
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Not quite. The money was essentially borrowed twice against the same set of assets, along with debt accumulated and not paid off from suppliers. China may choose to protect individual investors who paid in full or in part for new homes, along with domestic suppliers before protecting any foreign investors.
It will get as messy as a Xi wants it to get.
Re: Another lazy story (Score:2)
Messy only in the fact that china will take over the company and the ceo will get a vanishing act for hurting the chinese people.(ci pocketbook)..
Chinese investors wont lose anything foriegn investor s only will lose based on their ranking in the chinese government
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China may choose to protect individual investors who paid in full or in part for new homes, along with domestic suppliers before protecting any foreign investors.
Which is reasonable, tbh.
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To a degree; finance relies on equal treatment of debtors though. What if the US decided not to redeem foreign-held sovereign debt?
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In bankruptcy, debtors are not treated equally.
I would guess that foreign investment in China has dropped significantly, though. The CCP seems to be using central bank stimulus to replace it.
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They get the property as collateral when the borrower defaults.
Maybe that's how it works where you are from, but that's not how it works in China.
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I can guarantee you that the non-China banks will not be getting those properties.
"It's China. They are the problem here." (Score:2, Insightful)
Yeah, I know, right? They don't seem to get that you can do all those things without repercussions. Just learn how "too big to fail" works.
I wonder which country could instruct them?
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Re:"It's China. They are the problem here." (Score:4, Insightful)
*whoosh*
The reply was a commentary on declaring China the problem when their behaviours aren't materially different from those of other countries.
If China is the problem, then in this case, so are most western democracies.
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Bullshit the western countries didn't default.
Stop shilling for a country that has committed more genocide that the USSR and Nazi Germany did combined.
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Do you remember the U.S. banks and investment companies that were deemed "too big to fail" in 2008? The reason why they did not default is because the U.S. Treasury used "quantitative easing", i.e. the Treasury lent the banks cheap money and let them put it on their books, so they got to say their balance sheets were not red. The bailouts of QE avoided defaults.
It's kind of a cheat, and a cheat that isn't available
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Then the above missed the step where China changed the rules on Evergrande https://www.bbc.com/news/busin... [bbc.com] . So
Re: "It's China. They are the problem here." (Score:2)
Your link doesn't mention what changed .... "Evergrande expanded aggressively to become one of China's biggest companies by borrowing more than $300bn.
Last year, Beijing brought in new rules to control the amount owed by big real estate developers.
The new measures led Evergrande to offer its properties at major discounts to ensure money was coming in to keep the business afloat."
Sounds like the business plan of buy high, sell low isn't a good one.
Re:Another lazy story (Score:4, Insightful)
They are a very big construction and real-estate firm in China, that has run into difficulties because they expanded too fast. China's economy didn't grow as fast as expected due to the pandemic, and some of their investments failed because the expected demand just didn't arrive.
As such they have a lot of money tied up in assets and can't service all their debts. The Chinese government has intervened but not bailed them out so far. It will be interesting to see if they do get a bailout, because if they don't it will be very bad for the Chinese economy and the global economy (think the 2008 crisis), and if they do the company will probably be part nationalized and the people at the top who were deemed to be irresponsible punished.
Re:Another lazy story (Score:5, Interesting)
Xi want's to rein in real-estate speculation in the country. Because there are no property taxes people buy extra property as a safe-asset/investment. Those ghost-cities you hear about are not blighted areas, they are property bought for that purpose.
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That's what I mean about the expected demand. People bought apartments that then ended up not being occupied by tenants. Then the market started to sour but Evergrande was already in the middle of building tower blocks for the rental market.
Some of them will not only be written off, they will cost money to remove. If building stops part way through before they are watertight they tend to deteriorate fast and can't be completed. They seem to have been hoping that if they switched from rentals to owner occupi
Re:Another lazy story (Score:4, Interesting)
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It failed not due to market forces but due to intervention by the CCP, a “three red lines” policy, which are three specific balance sheet conditions developers must meet if they want to take on more debt.
Are you claiming things would have been better if the regulators didn't step in. And instead Evergrande just kept borrowing even more money?
Because that sounds ridiculous.
Expect Evergrande to be China's Lehman Brothers. A managed high profile failure as a warning to the rest of the real estate companies in China.
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I see that as strikingly similar to the crisis with credit default swaps in 2008. The volume of bets on credit default swaps was 10x the value of the actual assets on which the credit default swaps were placed. Effectively, the credit default swaps were fake value.
In both cases, I don't have a problem with having regulation to instill more realism.
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Why should anyone care what happens to them at all ?
The reason some people in America should care about Evergrande defaulting on it debt is some of that debt is probability held by American firms, ie. they lost money. How much ? No idea but that number is greater than zero. The average American will not notice unless their 401(k) has money in one of the firms that is holding Evergrande debt. The biggest danger is Wall St. freaking out, the market drops, and the taking heads start yammering on and on about t
Re:Another lazy story (Score:5, Informative)
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I can understand that you might be ignorant of problems in the Chinese economy so here is a TLDR version:
Evergrande is the largest property developer in China with hundreds of billions of dollars in debt. Many Chinese have put their life savings into purchases of housing which has not been built. Some people predict that this could bring down the entire Chinese economy if not bailed out by the government.
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Even if it is bailed out, it could still bring down the economy, which is belabored by debt. This could start a chain reaction as municipalities find it harder to get loans that they need to expand at the pace that the central government wants, which has already gotten harder because of restrictions that the central government has imposed on borrowing. The latter have led to municipalities moving debt to state-owned entities that they control but which are not technically on their balance sheets, freeing up
Re:Another lazy story (Score:5, Insightful)
If you don't know who Evergrande is, you are just ignorant of current affairs. It's been a huge news item for months my dude. Educate yourself, don't wave your ignorance around like a banner.
Re:Another lazy story (Score:4, Insightful)
Only the slightest hint of why anyone outside China should give a crap is given in TFS
If I default on my debt, you shouldn't give a shit.
If a larger company in my country defaults on debt, well I probably give a shit you'll probably be fine.
If a company with $300bn in liabilities defaults on debt, you should take interest. It will affect you too regardless of where they are, and especially if they are located in a country with whom you do a metric fuckton of trade.
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I've been reading about this for maybe half a year in multiple news publications. Maybe you don't read the news? Otherwise I really have no idea why you don't know anything about this as it's been a building crisis that's been reported on extensively here in the US for quite some time.
But isn't Evergrande too grand to ever fail? (Score:2)
The first sentence of the "summary" is simply copied straight from TFA. Meanwhile I've never heard of these fucks once, so "the embattled..." is senseless in the summary. Why should I care? Why is this relevant? Only the slightest hint of why anyone outside China should give a crap is given in TFS ("The US Federal Reserve warned last month that trouble in Chinese real estate could damage the global economy.") but no information as to how it could do so is provided. Trust in The Fed is continually low so there's no assumption that even makes sense.
Does Evergrande own a bunch of our infrastructure in the US or something? Why should anyone care what happens to them at all?
While I think it's a poor FP, it doesn't deserve censor mod points, so I'm quoting it here.
In response, I'd say it's an interesting challenge to America's version of capitalism. Rather than America's socialism for the rich, the Chinese so-called communists have decided that "too big to fail" is a bad thing. They are fairly deliberately setting Evergrande up for the big fall. Evergrande had delusions of having gotten too big to fail, but Xi is going to let it fail. And let that be a lesson to you!
But China s
Re:Cool (Score:5, Informative)
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I'm guessing they're hardcore Austrian economists and/or libertarians who believe that every basis point of inflation is a default. See also, going off the gold standard.
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I'm guessing they're hardcore Austrian economists
You're probably giving OP too much credit (mind your inflation).
Re:Cool (Score:4, Interesting)
Technically the US defaulted on treasury bills in 1979, but generally speaking you are right.
Re:Cool (Score:5, Informative)
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Yeah, some kind of office screw up. Interesting but not a big deal.
Not true (Score:3)
The US has never defaulted on it's obligations. What are you talking about?
Includes defaulting on obligations to pay in gold coin, then MUCH more recently, in silver coin. Those you can't simply wave away as "repaid".
Some sources even consider devaulation [futureslabresearch.com]
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Currency is not debt. Gold and silver are not currency, they are commodities that were used as currency standards.
Removing convertibility of a currency to a commodity is not a default, albeit could be argued a devaluing depending on the circumstances.
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