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Except all the borrowing is in Yuan and People's Bank Of China prints all the money they want to, hands it to the banks, tells them what industries to lend to a

Except all the borrowing is in Yuan and People's Bank Of China prints all the money they want to, hands it to the banks, tells them what industries to lend to and on what terms and shoots corrupt bankers. The government, and eventually the taxpayer is not on the hook for the bailout like they are in the west. In China, banking is basically partially privatized central planning. This difference in how Chinese banking works vs western banking is a source of endless cognitive dissonance in the western financial press. They can't understand how a capitalist financial system could be set up differently where the government's finances aren't subject to the whim of the private financial industry. As James Carville once quipped : "I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 basball hitter," he said. "But now I would like to come back as the bond market. You can intimidate everybody. [1] http://www.nytimes.com/1994/06/12/weekinreview/ideas-trends-the-bondholders-are-winning-why-america-won-t-boom.html?pagewanted=all http://www.nytimes.com/1994/06/12/weekinreview/ideas-trends-...

markdown 11y ago
> In China, banking is basically partially privatized central planning. Isn't the US Federal Reserve an organisation made up of and governed by the private sector (banks).
- Gibbon1 11y ago
  Difference is in China the central bank is wholly under the thumb of the communist party. Also: When you read the word 'Ponzi' in the context of macro-economics, as opposed to criminal prosecution, you should stop reading right then an there because the author is spouting drivel.
  - markdown 11y ago
    > Difference is in China the central bank is wholly under the thumb of the communist party. Is that supposed to be worse? Is it better if it were under the thumb of a handful of powerful private banking corporations whose primary goal is the pursuit of profit? At least within the communist party you might find an idealist or two who cares about the role of the banking system in raising the standard of living of the poor.
    - Gibbon1 11y ago
      It's better, what we've seen with the politically independent central banks in the US and Europe is policies during the crisis to protect the banking systems balance sheets at the expense of the real economy. That's pretty much backwards, since a banks balance sheets can be easily fudged as needed and there is no physical limits in play. Vs the real economy where you can do real damage. My gut feeling is you can compare the United States 1929-1935 with China 2009 to 2015 and here we are. Notable China has managed to totally avoid a depression via the very policies bloomberg article rails against. They'll be sorry!!! Real soon now the chickens will come home to roost. And it'll be curtains for China!!! After six years of this, spare me please.
  - rsync 11y ago
    "Also: When you read the word 'Ponzi' in the context of macro-economics, as opposed to criminal prosecution, you should stop reading right then an there because the author is spouting drivel." You know ... metaphor is a fairly powerful and useful tool ... I feel like maybe, it might be possible for someone, somewhere, to usefully and accurately draw a comparison between a macro-econ concept and a ponzi scheme ... Call me crazy...
    - Zigurd 11y ago
      I have to agree that calling it a Ponzi scheme is inaccurate and tendentious. China lacks transparency, and that's why they can get into a bad loan situation that US companies and banks can't. But it isn't a Ponzi scheme. Also, $1.2 trillion Yuan is about $200billion. N.B. the headline uses a dollar sign but the article denominates that number in Yuan.
      - ScottBurson 11y ago
        No, it says right in the second paragraph: 7.6 trillion yuan ($1.2 trillion) as being the amount of new debt forecast to have been issued in 2015. Later on it gives 1.2 trillion yuan as the amount of bad debt -- loans that are already non-performing.
        Gibbon1 11y ago
        I keep thinking that Bloomberg is trying to scare the readers with big numbers. 1.2 Trillion Yuan is about $188 billion. China's population is about 1.35 billion, China GDP is about $9.25 trillion. So non-performing loans are $188b/9240b = 0.0203 or 2% of GDP. This isn't anything the Central Banks can't deal with. The article is drivel.
  - ysilver 11y ago
    >> Also: When you read the word 'Ponzi' in the context of macro-economics, as opposed to criminal prosecution, you should stop reading right then an there because the author is spouting drivel. Ponzi borrowing is actually a concept in macro-economics, first explained by the economist Hyman Minsky. From Wikipedia: The "Ponzi borrower" (named for Charles Ponzi, see also Ponzi scheme) borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; Ponzi borrowing could be restated in terms of borrowing when your model does not take into account the possibility of asset stagnation/depreciation. This phenomenon became a popular topic in 2008, because the housing market had began behaving as though returns on real estate never dropped below 0.
- conistonwater 11y ago
  > Isn't the US Federal Reserve an organisation made up of and governed by the private sector (banks). In short, no: http://www.federalreserve.gov/faqs/about_14986.htm http://www.federalreserve.gov/faqs/about_14986.htm
  - markdown 11y ago
    Not exactly an unbiased source there. http://www.factcheck.org/2008/03/federal-reserve-bank-ownership/ http://www.factcheck.org/2008/03/federal-reserve-bank-owners... The stockholders of the US Fed Reserve are private banks. The majority of the board of governors are appointed by the president of the United States. He of course appoints the leading experts in the field... the bosses of those very same private banks. The Fed exists because Congress created it, but it doesn’t enact policy measures with any Congressional or Presidential approval.
partiallypro 11y ago
Your post doesn't make a lot of logical sense. Government finances are subject to the private financial industry in China. If the PBOC keeps printing money, it sinks the Yuan and effects international trade, capital inflows/outflows. You can't escape economic realities. China has been allowed to do so largely because its growth rate has been astronomical...that is no longer the case. People made similar nonsensical claims about Japan in the 80s.
- conistonwater 11y ago
  Not just the growth rate, but also the very high savings rate, which is a consequence of demographic policies as well as restricted available investment options, allows those banks and SOEs to borrow much more cheaply - who knows how long that will last.
- narrator 11y ago
  China has strict capital controls. You can only get $50,000 per year in and out of the country. Otherwise all the bank money would flood out of the country into hard assets since it doesn't always have to be paid back. The borrowers would also leave the country, knowing that bank fraud isn't treated lightly by the authorities in China. They actually prosecute people for things like illegal loans in China.[1] http://www.scmp.com/article/625045/23-arrested-probe-93b-yuan-illegal-loans http://www.scmp.com/article/625045/23-arrested-probe-93b-yua... >"The audit office found that the banks had lent money to fictitious individuals and companies with insufficient capital." >"They also lent more money to certain developers than they were entitled to, it said." Can you ever imagine arrests and hundreds of employees of a bank disciplined for something like that in a western country? Inflation is not caused by money printing. Inflation is caused by poor capital investment or capital destruction. Central planning can cause this if the planners are not careful to make bad investments fail on a regular basis and free up goods of higher orders for alternative investment. Japan has a western financial model where the government is on the hook for bank bailouts and has to borrow money from a central bank to fund spending so it obeys the western "economic realities" which are an artifact of that system.
  - georgeglue1 11y ago

markdown 11y ago

> In China, banking is basically partially privatized central planning. Isn't the US Federal Reserve an organisation made up of and governed by the private sector (banks).

Gibbon1 11y ago
Difference is in China the central bank is wholly under the thumb of the communist party. Also: When you read the word 'Ponzi' in the context of macro-economics, as opposed to criminal prosecution, you should stop reading right then an there because the author is spouting drivel.
- markdown 11y ago
  > Difference is in China the central bank is wholly under the thumb of the communist party. Is that supposed to be worse? Is it better if it were under the thumb of a handful of powerful private banking corporations whose primary goal is the pursuit of profit? At least within the communist party you might find an idealist or two who cares about the role of the banking system in raising the standard of living of the poor.
  - Gibbon1 11y ago
    It's better, what we've seen with the politically independent central banks in the US and Europe is policies during the crisis to protect the banking systems balance sheets at the expense of the real economy. That's pretty much backwards, since a banks balance sheets can be easily fudged as needed and there is no physical limits in play. Vs the real economy where you can do real damage. My gut feeling is you can compare the United States 1929-1935 with China 2009 to 2015 and here we are. Notable China has managed to totally avoid a depression via the very policies bloomberg article rails against. They'll be sorry!!! Real soon now the chickens will come home to roost. And it'll be curtains for China!!! After six years of this, spare me please.
- rsync 11y ago
  "Also: When you read the word 'Ponzi' in the context of macro-economics, as opposed to criminal prosecution, you should stop reading right then an there because the author is spouting drivel." You know ... metaphor is a fairly powerful and useful tool ... I feel like maybe, it might be possible for someone, somewhere, to usefully and accurately draw a comparison between a macro-econ concept and a ponzi scheme ... Call me crazy...
  - Zigurd 11y ago
    I have to agree that calling it a Ponzi scheme is inaccurate and tendentious. China lacks transparency, and that's why they can get into a bad loan situation that US companies and banks can't. But it isn't a Ponzi scheme. Also, $1.2 trillion Yuan is about $200billion. N.B. the headline uses a dollar sign but the article denominates that number in Yuan.
    - ScottBurson 11y ago
      No, it says right in the second paragraph: 7.6 trillion yuan ($1.2 trillion) as being the amount of new debt forecast to have been issued in 2015. Later on it gives 1.2 trillion yuan as the amount of bad debt -- loans that are already non-performing.
      - Gibbon1 11y ago
        I keep thinking that Bloomberg is trying to scare the readers with big numbers. 1.2 Trillion Yuan is about $188 billion. China's population is about 1.35 billion, China GDP is about $9.25 trillion. So non-performing loans are $188b/9240b = 0.0203 or 2% of GDP. This isn't anything the Central Banks can't deal with. The article is drivel.
- ysilver 11y ago
  >> Also: When you read the word 'Ponzi' in the context of macro-economics, as opposed to criminal prosecution, you should stop reading right then an there because the author is spouting drivel. Ponzi borrowing is actually a concept in macro-economics, first explained by the economist Hyman Minsky. From Wikipedia: The "Ponzi borrower" (named for Charles Ponzi, see also Ponzi scheme) borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; Ponzi borrowing could be restated in terms of borrowing when your model does not take into account the possibility of asset stagnation/depreciation. This phenomenon became a popular topic in 2008, because the housing market had began behaving as though returns on real estate never dropped below 0.
conistonwater 11y ago
> Isn't the US Federal Reserve an organisation made up of and governed by the private sector (banks). In short, no: http://www.federalreserve.gov/faqs/about_14986.htm http://www.federalreserve.gov/faqs/about_14986.htm
- markdown 11y ago
  Not exactly an unbiased source there. http://www.factcheck.org/2008/03/federal-reserve-bank-ownership/ http://www.factcheck.org/2008/03/federal-reserve-bank-owners... The stockholders of the US Fed Reserve are private banks. The majority of the board of governors are appointed by the president of the United States. He of course appoints the leading experts in the field... the bosses of those very same private banks. The Fed exists because Congress created it, but it doesn’t enact policy measures with any Congressional or Presidential approval.

partiallypro 11y ago

Your post doesn't make a lot of logical sense. Government finances are subject to the private financial industry in China. If the PBOC keeps printing money, it sinks the Yuan and effects international trade, capital inflows/outflows. You can't escape economic realities. China has been allowed to do so largely because its growth rate has been astronomical...that is no longer the case. People made similar nonsensical claims about Japan in the 80s.

conistonwater 11y ago
Not just the growth rate, but also the very high savings rate, which is a consequence of demographic policies as well as restricted available investment options, allows those banks and SOEs to borrow much more cheaply - who knows how long that will last.
narrator 11y ago
China has strict capital controls. You can only get $50,000 per year in and out of the country. Otherwise all the bank money would flood out of the country into hard assets since it doesn't always have to be paid back. The borrowers would also leave the country, knowing that bank fraud isn't treated lightly by the authorities in China. They actually prosecute people for things like illegal loans in China.[1] http://www.scmp.com/article/625045/23-arrested-probe-93b-yuan-illegal-loans http://www.scmp.com/article/625045/23-arrested-probe-93b-yua... >"The audit office found that the banks had lent money to fictitious individuals and companies with insufficient capital." >"They also lent more money to certain developers than they were entitled to, it said." Can you ever imagine arrests and hundreds of employees of a bank disciplined for something like that in a western country? Inflation is not caused by money printing. Inflation is caused by poor capital investment or capital destruction. Central planning can cause this if the planners are not careful to make bad investments fail on a regular basis and free up goods of higher orders for alternative investment. Japan has a western financial model where the government is on the hook for bank bailouts and has to borrow money from a central bank to fund spending so it obeys the western "economic realities" which are an artifact of that system.
- georgeglue1 11y ago