WTH is economics?

[Godless-Kafir]

Just look at the debt level of each country in this index!!!

US has 97% of its GDP in Debt
UK has 400% of its GDP in debt!!
List of countries by external debt - Wikipedia, the free encyclopedia

So theoretically it is impossible for the west to recover. So what are they going to do? How will they pay China? and if USA is not paying China for all the goods it exported then China is going bankrupt too?


Also how did they allow this debt to raise so high, has this been wantedly and consciously done so as to slow the developing economies?

Please explain this freaknomics to me.

 

[Dovah]

Last time they started WW2 over it, just destroy the nations you owe money to.

 

[Godless-Kafir]

Last time they started WW2 over it, just destroy the nations you owe money to.

Thats not why WW-2 happened, that happened because Hitler wanted to rule Europe.

The whole point here is someone has to make sense to me here. How will they bail themselves out or does it mean USA and EU will end up like Somalia?

 

[niharjhatn]

I honestly believe that the whole debt crisis is just a facade produced by politicians to keep control of the american people.

Even if it is legitimate, supposing they don't pay their loans, what are the countries owed money by the US realistically going to do to recover it?

America has the infrastructure to rebuild itself... I doubt it would decent into anarchy like Somalia!

 

[thakur_ritesh]

When you loan a few lacks/crores, the bank owns you, when you loan a few 100/1000crores you own the bank.

Banks are the countries/HNIs/retail investors investing in these countries, the countries taking all the loans are the ones owning all the investor community - countries/HNIs/retail investors.

What can the chinese/Japanese/HNIs/retail investors etc do to recover all that money, I tried to find an answer, HNIs/retail investors will pary to their gods that no default happens and the countries can do nothing more than sweet talk, persuasion on not defaulting, and other than that they have no option. The only other option is to sell off all the holdings they have at a cheaper rate in the market, but who will buy all that in such large quantity, there are no buyers anymore. Eventually a lot of this debt will be written off under mutual understanding, the bigger players like the US who make the rules of the game will move on as usual taking a slight hit but the smaller ones in Europe will enter the same phase as japan facing stagnant growth for years together, the other economies across as a result will take a hit for sometime, newer economies will take shape who will push the global economy ahead. With growing unemployment in the west, people there will look for better prospects in the east and move there.

China is not going bankrupt, they are sitting on huge cash reserves, the hit they might take is slow down on those high gdp numbers for sometime since the exports will take a hit and investment will take a hit within, there could be internal turmoil as people employed in export related industry will go unemployable, though china is trying to correct the trend but still they are way too over depent on exports.

Also how did they allow this debt to raise so high, has this been wantedly and consciously done so as to slow the developing economies?

Take the case of india today, and put the same in context with the west a few decades back.

India is making sure more and more internal consumption happens. How will you do that? Make sure people save less, spend more, so the savings interest rate in the banks offered will be less, banks will lend more to people, companies will raise loans within and outside since there is a process of high investment without which the economic growth will drop and then there are high returns to be made, the country will take more loans since they cant match their expenses, since all those populist measures initiated will have to be fueled from some source, this compounds yoy and then there comes a day when the country will be in no position to repay all the accumulated debt, and the country is on the verge of defaulting.

The cycle will continue, when we reach that stage, some other countries would have taken the role of global economic engines and people we despise today will tomorrow become a the very people who we will be praising just the way today westerns come over and talk all good things about us. By this time when we hit the wall, west would have recovered well and they will be again in a position to get moving.

Anyways, if you are an investor, invest in commodities, they will always be in demand and will always give you strong returns, come what may.

 

[Yusuf]

See how all advanced (west) nations have high debt to GDP ratio whereas the developing countries have far lesser ratio.
And who are the debt holders? Developing countries.
Looks like new kind of colonial loot. Lol past master UK has the highest ratio!!

 

[Godless-Kafir]

When you loan a few lacks/crores, the bank owns you, when you loan a few 100/1000crores you own the bank.

Banks are the countries/HNIs/retail investors investing in these countries, the countries owning them are the ones owning all the investor community.

What can the chinese/Japanese/etc do to recover all that money, I tried to find an answer, and the answer was nothing more than sweet talk, persuasion on not defaulting, and other than that they have no option. The only other option is to sell off all the holdings they have at a cheaper rate in the market, but who will buy all that in such large quantity, there are no buyers anymore. Eventually a lot of this debt will be written off under mutual understanding, the bigger players like the US who make the rules of the game will move on as usual taking a slight hit but the smaller ones in Europe will enter the same phase as japan facing stagnant growth for years together, the other economies across as a result will take a hit for sometime, newer economies will take shape who will push the global economy ahead. With growing unemployment in the west, people there will look for better prospects in the east and move there.

So you mean to say if they default on loans the US will still go Scot free?

Also you mention here about China and Japan who own about 15% of US debt combined will probably come to an agreement? They already have an massive balance of payment issue on trade with US and combining this debt means it may take a lot of time to pay that off and thats atleast wont happen in this Century!

China is not going bankrupt, they are sitting on huge cash reserves, the hit they might take is slow down on those high gdp numbers for sometime since the exports will take a hit and investment will take a hit within, there could be internal turmoil as people employed in export related industry will go unemployable, though china is trying to correct the trend but still they are way too over depent on exports

.

When their main markets are all debt ridden, i dont see how they can continue to show positive profits!

Take the case of india today, and put the same in context with the west a few decades back.

India is making sure more and more internal consumption happens. How will you do that? Make sure people save less, so the savings interest rate in the banks offered will be less, they will lend more to people, companies will raise loans within and outside since there is a process of high investment without which the economic growth will drop, the country will take more loans since they cant match their expenses, since all those populist measures initiated will have to be fueled from some source, this compounds yoy and then there comes one day when you are in no position to repay all the accumulated debt, and a country is on the verge of defaulting.

The cycle will continue, when we reach that stage, some other countries would have taken the role of global economic engines and people we despise today will tomorrow become a the very people who we will be praising just the way today westerns come over and talk all good things about us. By this time when we hit the wall, west would have recovered well and they will be again in a position to get moving.

Anyways, if you are an investor, invest in commodities, they will always be in demand and will always give you strong returns, come what may.

I am planning to invest in mutual funds but the Tax is 14% on that? Do you have any idea about MFs? and will i recover money than i pay in Tax or lose it completely?

 

[thakur_ritesh]

So you mean to say if they default on loans the US will still go Scot free?

pretty much, no one penalizes the defaulter if the people defaulting, making the rules of the game and the referee are all the same.

Also you mention here about China and Japan who own about 15% of US debt combined will probably come to an agreement? They already have an massive balance of payment issue on trade with US and combining this debt means it may take a lot of time to pay that off and thats atleast wont happen in this Century!

what is the option with these debt owing countries? can they go to some higher authority which will then tighten up the screws on the US? who is that authority? if they at the end get no result, what options are they left with? confrontation, and if so, what sort of confrontation?

at max if anything japan/china and others can do is all posturing, and no more. they are way more smarter, they will bargain for bigger goals that they would have in mind, a small thing like america leaving scs to china, all the natural resources there be chinese, so on and so forth, it will be bargain time and china will be accommodated big time at the world stage and that is when they will be the other force calling the shots.

japan will be in dire consequences, they will head towards contraction in their gdp, they will be revisiting the 90's yet again. today they would be the most worried along with the europeans.

When their main markets are all debt ridden, i dont see how they can continue to show positive profits!

please explain this further, are you talking in today's context, or are you reflecting to the point that at some point these economies will recover and get back to growth path.

I am planning to invest in mutual funds but the Tax is 14% on that? Do you have any idea about MFs? and will i recover money than i pay in Tax or lose it completely?

MFs come under short term/long term capital gains (stcg/ltcg)

stcg= if the investment is withdrawn in less than one year from the date of investment. if you do so, you will be taxed on the earnings made.

ltcg= if the investment period exceeds one year. this is absolutely tax free as of date but if the tax to gdp ratio is to be increased the govt will tax this as well in coming times.

 

[Godless-Kafir]

See how all advanced (west) nations have high debt to GDP ratio whereas the developing countries have far lesser ratio.
And who are the debt holders? Developing countries.
Looks like new kind of colonial loot. Lol past master UK has the highest ratio!!

Not so easy, most of the debt is internally owned atleast in the US. The funny part is UK has 400% debt to GDP ratio and the US has only 97% of GDP in debt but yet we dont hear anything harsh about UKs debt!! They make it sound like only US is in major debt, Britian is deep into shit and this is the right time to buy UK and higher an mercenary army and Invade the government.. Lol.

 

[Yusuf]

Not so easy, most of the debt is internally owned atleast in the US. The funny part is UK has 400% debt to GDP ratio and the US has only 97% of GDP in debt but yet we dont hear anything harsh about UKs debt!! They make it sound like only US is in major debt, Britian is deep into shit and this is the right time to buy UK and higher an mercenary army and Invade the government.. Lol.

I think US external debt is more than 4-5 trillion. Pretty large sum equal to the size of Chinese economy. Wonder if anyone has a break up of UKs debt structure.

 

[Godless-Kafir]

pretty much, no one penalizes the defaulter if the people defaulting, making the rules of the game and the referee are all the same.

So looks like things are heading the way of declaring bankruptcy? If they do wont China get hit hard and what assests does the US have to give to China that is worth the bill?

what is the option with these debt owing countries? can they go to some higher authority which will then tighten up the screws on the US? who is that authority? if they at the end get no result, what options are they left with? confrontation, and if so, what sort of confrontation?

at max if anything japan/china and others can do is all posturing, and no more. they are way more smarter, they will bargain for bigger goals that they would have in mind, a small thing like america leaving scs to china, all the natural resources there be chinese, so on and so forth, it will be bargain time and china will be accommodated big time at the world stage and that is when they will be the other force calling the shots.

So what your saying is China wont be hit in any major way? What can China bargain for? The fat american ate everything the Chinese made and now all that they ate is digested and flushed down the toilet and is floating in the Atlantic as poop and they dont have money to pay. The trade deficit with US is 800billion and with europe is another 800billion i am guessing and no one is going to pay to China. So where does this lead to? Those factories that made the goods need payment right? All those factories are waiting for payment for goods they exported or have they been payed? I dont get this.

please explain this further, are you talking in today's context, or are you reflecting to the point that at some point these economies will recover and get back to growth path.

I meant Chinas main markets the US and Europe are debt ridden and they wont pay the deficit, so China will have it bad too?

MFs come under short term/long term capital gains (stcg/ltcg)

stcg= if the investment is withdrawn in less than one year from the date of investment. if you do so, you will be taxed on the earnings made.

ltcg= if the investment period exceeds one year. this is absolutely tax free as of date but if the tax to gdp ratio is to be increased the govt will tax this as well in coming times.

So do you recommend i buy a short term MF? I have 4 months and 4lakhs to invest, which one would you suggest that i invest in?

Also the stocks of many major companies are low, do you recommend i instead by shares and hold on till they go up?

 

[thakur_ritesh]

GK there are 3 investments/earning tax free in india.

agriculture earnings.

proceeds made through property sale, provided you invest the same in property. if you buy a property, say from a builder or resale property, there is a home made and you do not need to do any further construction, then you have to get the possession of the said property within two years from the date of sale of previous property. if you are going to construct on the land, same needs to be finished within three years from the date of sale of previous property whose sale proceeds are being used in construction.

MFs - as explained above.

 

[Godless-Kafir]

I think US external debt is more than 4-5 trillion. Pretty large sum equal to the size of Chinese economy. Wonder if anyone has a break up of UKs debt structure.

The US debt is 14trillion Yusuf. Read the wike page, their debt is as big as their GDP. Their GDP is 14trillion and their debt is also 14trillion! lol.

 

[Yusuf]

The US debt is 14trillion Yusuf. Read the wike page, their debt is as big as their GDP. Their GDP is 14trillion and their debt is also 14trillion! lol.

I think the total US debt is 14. That includes internal borrowing. External debt is less. Somewhere around the figure I said earlier.

 

[thakur_ritesh]

So looks like things are heading the way of declaring bankruptcy? If they do wont China get hit hard and what assests does the US have to give to China that is worth the bill?

US for now is not doing that. lets say no one penalizes them, but will the investor confidence still be there, if you were to invest, where will you invest after US declares its bankruptcy, india or the US? you got the answer and so US will try and not declare bankruptcy, else they will have it bad. as i said in the first post, they will take a hit but they can try and minimize the damage that the smaller players wont be able to.

So what your saying is China wont be hit in any major way? What can China bargain for? The fat american ate everything the Chinese made and now all that they ate is digested and flushed down the toilet and is floating in the Atlantic as poop and they dont have money to pay. The trade deficit with US is 800billion and with europe is another 800billion i am guessing and no one is going to pay to China. So where does this lead to? Those factories that made the goods need payment right? All those factories are waiting for payment for goods they exported or have they been payed? I dont get this.

I meant Chinas main markets the US and Europe are debt ridden and they wont pay the deficit, so China will have it bad too?

there are so many things to be bargained for, what all, thats for china to decide, and US will accommodate them.

yes china will be hit and so i said it could/will lead to internal turmoil, if americans would be smart, they will make sure all that results into mass scale instability in china and china then loses all the steam and then as i said their export based industries will be severely hit, people employed there will go unemployed for months/years and so today they are focusing on more and more internal consumption. china could have it real-real bad, depending on what role US plays.

So do you recommend i buy a short term MF? I have 4 months and 4lakhs to invest, which one would you suggest that i invest in?

Also the stocks of many major companies are low, do you recommend i instead by shares and hold on till they go up?

its your call what all and where all you want to invest.

its a good time to invest for sure, for now it seems the markets have tanked out, and will regain, but dont take my word for it because in the stock market you never know whats waiting on the next curve.

what kind of a return are you looking at on that 4lack in those 4months?

 

[Yusuf]

GK this is what has happened in China. They created a lot of manufacturing capacity. Mow they had to run it. Get orders from the US. how do you sell to the US that does not have money? Finance it. So basically the Chinese financed US purchases from it's own factories so that they keep running and people don't revolt being jobless. Well may be not all of their manufacturing would go that way, but a lot of it.

How can the US come out of it? If it becomes really bad, print $$&, a lot of them. They have done it in the past.

 

[S.A.T.A]

Inversely the high external debt ration also positively on the economic dynamism of Industrialized west.Whatever capital the economic outside the industrialized world managed to generated was invested in the west,hence generated more capital in the west,non industrialized economy simply didn't,most still dont,have enabling economic environment to where these limited capital could be profitably employed.While the the much needed capital desperately required by the developing world flowed to the west,most developing countries themselves became indentured to an economic system, where huge debt serving, left very little for development.

A debt ridden economy is not any sign of economic decay,most of the global economy runs on the back of huge and ever increasing size of borrowed capital ,but what we do with it.West produced an economic class,including entrepreneurs,who helped build a growth oriented and self sustaining economy,the developing world ended producing economic elites,whose prosperity was directly proportional to the amount of capital they directed from the developing world to the industrialized west.

Capital,accumulated over many decades of dynamic economic growth,will not flee the west because they are having a crisis of confidence,most of the developing world,with odd honorable exceptions, is riddled with political instability and resultant economic uncertainty,capital is much safer invested in entities which may lack economic confidence,than where uncertainty rules.

Japan is dormant,SE Asia has slacked off,India and China are doing better,but their overall dynamism comes from very limited sectors of the economy, which cannot generate more than what it already is doing.The money is going nowhere,west is still the best bet.

 

[thakur_ritesh]

I have 4 months and 4lakhs to invest, which one would you suggest that i invest in?

if you can tell me what return you are looking at, i could then look at a few things. do let me know. if i forget checking out this thread, PM me.

 

[Godless-Kafir]

if you can tell me what return you are looking at, i could then look at a few things. do let me know. if i forget checking out this thread, PM me.

I looking at 50% return in 4 months? is that too much?

 

[thakur_ritesh]

I looking at 50% return in 4 months? is that too much?

50% return means what?

50% return yearly, ie is 16.67% or 150% annualized?

given the present market situation, you are expecting way too much. give me a more realistic figure. do you run a bisuness, generally asking.