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Pakistan heading towards a debt default? Best friend China thinks so

Discussion in 'South Asia & SAARC' started by Marqueur, Feb 21, 2017.

  1. A_poster

    A_poster Lieutenant FULL MEMBER

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    What you are describing is not a Black Swan event, but dominoes effect. If one major economy tanks, it has a potential to take its partners down with it, and partners of its partners sinking sown too and so on.

    Only North Korea is global depression proof, though it is always in state on domestic depression.
     
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  2. IndiranChandiran

    IndiranChandiran BANNED BANNED

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    Definition Of A Black Swan Event

    "A black swan is an event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict; the term was popularized by Nassim Nicholas Taleb, a finance professor, writer and former Wall Street trader.Black swan events are typically random and are unexpected."

    It's essentially a random , unexpected & improbable event .

    I'd describe it as both - random & unexpected plus a domino effect .
     
  3. Ghanta

    Ghanta FULL MEMBER

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    Nothing is ever random in this world. Every actions have a set consequence. The set may vary from being a small number to a large one.
    And for a particular event to happen lots of things need to go its way.

    I'll give you an example:
    You have taken a loan of 10 crores but you earn 1000rs a year.(the point being that the bank has granted it to you somehow to meet its loan targets). It's obvious that you can't pay it back and the bank will impound your security you used for loan. Now if 1 person cannot pay back his loans its not a problem since the bank can write-off it. But if lakhs of people do the same then the bank is F****d. But its not just the lending bank which will be in problem. It will affect or take down its related supply chains. Now if the failing bank is small/mid-sized(eg lehmann bros 2007) the economy will go into recession. But if the bank is Citi, JP morgan chase, Goldman,Deutsche Bank, ICBC or CCB(latter 2 are chinese dealing with multiples above 10) then you can expect something along the lines of 1929.

    And the Oil embargo crisis you are mentioning doesn't hold a candle to 1929. Started in US with Europe getting effected a year later. Already weakened Germany from WW1 had its currency getting devalued everyday. Rise of Hitler and you know what happened. As for India during the same time don't forget the iconic Dandi March. British taking monopoly of salt and taxing it heavily to help their own ailing economy.

    Another live example would be real estate during 1929: In the run-up to the depression the real estate prices in Manhattan jumped as much as 75% about 3$ per Sq.Foot. When the depression was well on its way the price dropped to less than $0.40 . It was a heavy decline. At that time the British pound was the supreme(reserve) currency. Now these same houses in Manhattan cost about $14,000 per Square foot. So if the "too-big-to-fail" banks fail imagine the carnage.

    Everytime a new country tries to become a superpower, more often than not it will preside over a great depression. The fall of Spanish empire gave rise to British Empire(more due to luck in destroying the former's navy when they had a plague), The great depression originating in USA causing reforms in creating an industrial juggernaut that replaced British empire. So, if China want's to become superpower something must happen. History points towards it.

    There are 3 prominent things that can happen here in regards to China and USA:
    1. Economic War(high possibility)
    2. World War( Above moderate possibility)
    3. Status Quo (Not gonna happen; respective egos are too big)


    FYI, Government Debt to GDP ratio of prominent countries:
    1. USA: 106% (not a problem as long as it enjoys reserve currency status)
    2. China: 92%
    3. India:45%
    4. Pakistan:57%
    5. Japan: 216% (not a huge problem due to its own central bank holding almost all of it, but also an economy under continuous recession)
    6: Greece: 180%( Huge problem due to creditors being IMF,Eurozone, hedge funds, they can't repay it )
    7: Cyprus: 112%( had a meltdown a few years ago, overnight devalued by more than 50% to meet creditors demands for bailout)

    The point is anything above 100% in government debt is dangerous. The best place to be is at less than 35%.
    Note: This doesnot consider the debt owed by banks in non-performing assets. This is where China is in trouble now. Unofficial reports suggest that it is 400% of its GDP. This being one of the reason for one of the strictest capital controls ever seen in the world(every economic news has stated this).
    Capital control is only put in by the country if it believes that there is an upcoming economic turmoil.

    That is why I disagree with you on everything being hunky-dory with China and agree with Nassem Taleb that something big is gonna happen. While he says this year, I stand with the event happening before 2020 and (make money when it happens) .
    And the $1Trillion that you mention being held as US Treasury bond will not be able to cover its $10Trillion government debt neither it will cover the $40trillion dollar debt held by its banks and corporates.
     
  4. Golden_Rule

    Golden_Rule Lieutenant FULL MEMBER

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    I do not think that there is any randomness left in understanding of any of the factors that matters for the global economic stability. Almost every situation is kept under wraps from exploding - whether it is Greece or Brexit or PIIGS or BIGPIS or Japan stagflation or the Chinese Shanghai Index drop from 5000+ to ~3000 or for that matter the super pumped up DOW and NASDAQ or even the employment statistics in US and its $20T debt or even the threat of a dirty bomb taking out a city somewhere .... and several more .... the Banks position of all the stuff, Deutsche Bank - it is 10x Lehman, the derivatives bubble said to be of a magnitude of over half a Quadrillion ... not sure if there is anything left as Black Swan? Any and all of the above can happen at any time!!
     
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  5. lca-fan

    lca-fan Captain FULL MEMBER

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    US has nothing to lose as whatever the USGovt bonds it has issued is in dollars. So even if its economy tanks and lenders ask for their money it simply can print those dollars and give it to lenders. It doesn't matter whether those dollars are worthless toilet paper as whatever US govt bonds have been issued promises dollar amounts not it's worth. So if 40 dollar s buy u a barrel of crude oil now after catastrophe you may need 400000 dollars for crude oil barrel but it D won't Matter US government. US is the only country which enjoys this facility, if China faces same catastrophe its economy will shrink and will go even below India's.
     
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  6. proud_indian

    proud_indian FULL MEMBER

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    I highly recommend everyone to watch this program if you understand hindi/urdu to get the actual picture of pakistani economy
    very informative program
     

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