Bushwhacker Posted July 18, 2011 Share Posted July 18, 2011 In the event that the US defaults on its debt on 2nd August, US may consume less chinese goods, chinese may import less from oz etc.... Anyone know anything about this? I'm concerned on how it will affect the resources industry in australia It would be great to hear your view Link to comment Share on other sites More sharing options...
fleabo Posted July 18, 2011 Share Posted July 18, 2011 It will have very little effect on the resource industry. Link to comment Share on other sites More sharing options...
Bushwhacker Posted July 18, 2011 Author Share Posted July 18, 2011 Hey fleabo, Thanks for contributing. Can you expand on that at all? Link to comment Share on other sites More sharing options...
ozziepom Posted July 18, 2011 Share Posted July 18, 2011 It will have very little effect on the resource industry. Have to disagree with you there. Firstly I think the chances of a US default (this time, its very likely to happen within 5-10 years) are very low, a last minute compromise will be found. However if the US enters a protracted default I expect the entire world economy to take a hit and especially resource prices and the AUD which are seen as "risk" assets. There are so many critical faults our there (European sovereign debt, china housing bubble US debt, Japan etc) that we're far from through the economic storm that started in 2008, nothing has been resolved, debt has just been piled upon debt. Bottom line, Australia is not immune, especially the resource sector. Link to comment Share on other sites More sharing options...
newjez Posted July 18, 2011 Share Posted July 18, 2011 Have to disagree with you there. Firstly I think the chances of a US default (this time, its very likely to happen within 5-10 years) are very low, a last minute compromise will be found. However if the US enters a protracted default I expect the entire world economy to take a hit and especially resource prices and the AUD which are seen as "risk" assets. There are so many critical faults our there (European sovereign debt, china housing bubble US debt, Japan etc) that we're far from through the economic storm that started in 2008, nothing has been resolved, debt has just been piled upon debt. Bottom line, Australia is not immune, especially the resource sector. I agree. I saw a prediction of world stock markets losing a third of their value and a global recession. The truth is - no one knows what events could be triggered as a result - but it will be bad. Link to comment Share on other sites More sharing options...
thombatt Posted July 18, 2011 Share Posted July 18, 2011 The only thing that you can base it on is the last GFC, the only thing that has changed is that now governments can't pay, before it was individuals and companies. The last time it happened China was not affected that much, this time round they may well be. Look at the AUD in 2006-2011 and you'll quickly see what some of the effect will be. I also think there will be a last minute compromise. Link to comment Share on other sites More sharing options...
ozziepom Posted July 19, 2011 Share Posted July 19, 2011 I also think there will be a last minute compromise. I think the market is of that opinion too, for now - expect fireworks if there's no sign of resolution towards the end of next week. Link to comment Share on other sites More sharing options...
fleabo Posted July 19, 2011 Share Posted July 19, 2011 Hey fleabo, Thanks for contributing. Can you expand on that at all? Every month that passes, the Chinese economy gets less and less reliant on the US and the EU economies. During the 'Global' Financial Crisis, US GDP growth dropped from 2% to -6%. In China it dropped from 9.5% to 6%. That is, it continued to grow. Currently, GDP Growth in China is 10% even thought both the EU and the US are flat-lining. If anything, the US defaulting on 2 August may drive demand in the resource sector as China takes a strategic advantage over their (rapidly becoming) weaker global competitors. Its just one scenario. The reality is the US will 'sort' their debt issues out eventually. Link to comment Share on other sites More sharing options...
ozziepom Posted July 19, 2011 Share Posted July 19, 2011 Every month that passes, the Chinese economy gets less and less reliant on the US and the EU economies. During the 'Global' Financial Crisis, US GDP growth dropped from 2% to -6%. In China it dropped from 9.5% to 6%. That is, it continued to grow. Currently, GDP Growth in China is 10% even thought both the EU and the US are flat-lining. If anything, the US defaulting on 2 August may drive demand in the resource sector as China takes a strategic advantage over their (rapidly becoming) weaker global competitors. Its just one scenario. The reality is the US will 'sort' their debt issues out eventually. Well there's two sides to every discussion but I disagree with essentially all of that. Like never before trade is globalised and a protracted default of the worlds biggest economy will send shock waves across the planet. China is still, and will be for the foreseeable future an export economy, its 2 biggest markets are the US & Europe and its currency is pegged to the US dollar. Chinese internal demand is nowhere near enough to replace either of there external markets due to its large proportion of low paid workers. The Chinese government is currently trying to slow its overheating economy, it has a housing and construction bubble and inflation is getting out of hand, especially food prices. Many (including me) think the Chinese economy could well crash on its own without any help from the USA or Europe, indeed there are so many shoes looking ready to drop in the global economy I feel its a question of "when not if" the GFC continues and also which one of a number of looming events triggers it. Then again, I always was an optimist :biggrin: Link to comment Share on other sites More sharing options...
fleabo Posted July 19, 2011 Share Posted July 19, 2011 We will have to disagree then. China's economy has demonstrated robustness to the two other major global economies heading South during the 'GFC'. We can all think of a myriad ways and reasons in which any economy can fall apart, but recent history tends to tell me that if the US defaults on its debt on the 2 August it is going to have very little effect on the Australian resource industry. As we speak, Gold is hitting new highs. Link to comment Share on other sites More sharing options...
ozziepom Posted July 19, 2011 Share Posted July 19, 2011 As we speak, Gold is hitting new highs. I'm well aware of it, 40% of my net worth is in Gold & Silver and another 20% in Gold mining shares, however Gold is not a commodity, it is (the ultimate) currency, Gold is Money, fortunately I've been buying gold for about 3 years so now have enough profit to survive a modest dip, I'm not necessarily suggesting anyone buy now, that everyone's individual choice. The ultimate industrial commodity, Oil on the other hand (which I own only a few litres of, in my car) is way below its highs and has been falling for a while, Australia's biggest export commodity (Iron Ore) is also down over the last few months. While I'm personally profiting from it, a rising gold price is not a signal of economic strength or confidence, quite the opposite. P.S. We'll agree to disagree - who knows - in 2 weeks we may find out! Link to comment Share on other sites More sharing options...
newjez Posted July 19, 2011 Share Posted July 19, 2011 I think the 22nd is the magic day - if they don't have agreement by then, they won't be able to put the legal stuff in time for the 2nd Aug. So this Friday / next Monday may be D Day. Link to comment Share on other sites More sharing options...
Guest The Ropey HOFF Posted July 19, 2011 Share Posted July 19, 2011 Its being said that if the USA defaults on its debt, the fall out will be felt massively in the uk and Europe and Nick - i haven't got a spine - Clegg said, that the current financial problems effecting the uk, will be dwarfed if the USA debt crisis isn't solved. Chances are the whole world will be effected, but the uk and Europe especially so. Just how bad can it get? Link to comment Share on other sites More sharing options...
Guest Bullion Baron Posted July 19, 2011 Share Posted July 19, 2011 In the event that the US defaults on its debt on 2nd August, US may consume less chinese goods, chinese may import less from oz etc. A problem with any asset or investment class these days is the amount of debt and leverage involved in all markets. Even if you're not highly leveraged yourself, you can bet most of the other market participants will be, and that makes for an unstable investment (through no fault of your own) when the global economy has another dip and all asset classes get the jitters. My biggest fear as an investor right now would be China. A drop in Chinese asset values would not only shake confidence in China's economic vitality, but it would also open debate about whether or not the global economy is over-leveraged and over-reliant on the success of China (which it is). Excessive leverage is partly what made the property bubble aftermath so devastating for Japan, America and Ireland. Many people are talking about the Chinese Property Bubble (Google it) and it's potential impact on the global economy. Several months ago, so-called Chinese 'expert' Nick Lardy dismissed worries about what he called the "so-called property bubble" - this was during a conference held at Peterson Institute in DC. However, he now concedes that says a real estate downturn may cause a significant in China, and this is an opinion shared by many other mainstream economic analysts. So what changed his opinion? I would suggest a dawning realisation that most of the massive Chinese stimulus, lending and spending during 2009/10 just ended up in property purchases, which drove real estate prices in an alarming and totally unsustainable manner. Also, a realisation that China's economic system frequently produces bubbles, and that's not very likely to change in the near future!! To understand why excessive debt and leverage is going to have a hugely negative impact on all asset classes going forward, read up on some of the work by Professor Steve Keen. He's the Australian guy who predicted the GFC, and he has also shown that unsustainable debt to GDP ratios in a country (which we definitely have in Australia, and same in the UK too) will always result in deflation or depression. Food for thought! BB Link to comment Share on other sites More sharing options...
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