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Ironically China's Central Bank is to blame for the enormous, and questionably productive, private debt... the true extent of which is opaque. For more info th

by icu 9y ago

Ironically China's Central Bank is to blame for the enormous, and questionably productive, private debt... the true extent of which is opaque. For more info the Aug 2017 IMF report is worth a read: http://www.imf.org/en/Publications/CR/Issues/2017/08/15/People-s-Republic-of-China-2017-Article-IV-Consultation-Press-Release-Staff-Report-and-45170 http://www.imf.org/en/Publications/CR/Issues/2017/08/15/Peop...

danmaz74 9y ago
On the other hand, if China had tried to reign in its bubbles during the crisis from 2008, that would have been bad for then and the whole world economy.
- seanmcdirmid 9y ago
  Perhaps, but it would have been better for china itself in the long term. The worldwide crash would have also provided political cover for its leaders, while if it crashes now, they are pretty much on their own in taking blame. I don’t envy the spot they put themselves in, can kicking can only last so long.
  - fooker 9y ago
    Their leaders are not as answerable as you might expect.
    - seanmcdirmid 9y ago
      They have pressure and really care about their face. They are like concrete: they break much later, but can’t bend and there are no pressure valves. Their is only catostrophic failure, nothing in between. They still have to scapegoat like other politicians.
  - danmaz74 9y ago
    Of course, you can never know the "ifs" of history, but crashing your internal demand at the same exact time when your external demand is collapsing looks to me like a perfect recipe for depression.
    - seanmcdirmid 9y ago
      I was there at the time. It would have just been a minor correction, they could have pushed through more reforms at the same time. Instead they decided to to go full turkey on bubble expansions.
eru 9y ago
The debt doesn't have to weigh on the economy, even if people were to deleverage their investments: China's Central Bank just has to 'print' enough money to keep nominal GDP stable.
- enkid 9y ago
  Then the peg to other currencies would be wrecked and external investment would be destroyed, and the banks would not be able to profitably push out new loans.
  - eru 9y ago
    Yes, there would be side-effects. The classic formulation in economics is you can at most pick two out of three for your monetary policy: control over domestic variables like GDP, open capital markets, control over exchange rates. I was suggesting to leave the capital markets open and stabilize GDP, but to give up on control over exchange rates. That's basically how the Bank of England reacted after the Brexit referendum: they let the pound take the hit so that the real economy wouldn't have too. Not sure what you mean by 'external investment would be destroyed'?

by icu 9y ago

danmaz74 9y ago

On the other hand, if China had tried to reign in its bubbles during the crisis from 2008, that would have been bad for then and the whole world economy.

seanmcdirmid 9y ago
Perhaps, but it would have been better for china itself in the long term. The worldwide crash would have also provided political cover for its leaders, while if it crashes now, they are pretty much on their own in taking blame. I don’t envy the spot they put themselves in, can kicking can only last so long.
- fooker 9y ago
  Their leaders are not as answerable as you might expect.
  - seanmcdirmid 9y ago
    They have pressure and really care about their face. They are like concrete: they break much later, but can’t bend and there are no pressure valves. Their is only catostrophic failure, nothing in between. They still have to scapegoat like other politicians.
- danmaz74 9y ago
  Of course, you can never know the "ifs" of history, but crashing your internal demand at the same exact time when your external demand is collapsing looks to me like a perfect recipe for depression.
  - seanmcdirmid 9y ago
    I was there at the time. It would have just been a minor correction, they could have pushed through more reforms at the same time. Instead they decided to to go full turkey on bubble expansions.

eru 9y ago

The debt doesn't have to weigh on the economy, even if people were to deleverage their investments: China's Central Bank just has to 'print' enough money to keep nominal GDP stable.

enkid 9y ago
Then the peg to other currencies would be wrecked and external investment would be destroyed, and the banks would not be able to profitably push out new loans.
- eru 9y ago
  Yes, there would be side-effects. The classic formulation in economics is you can at most pick two out of three for your monetary policy: control over domestic variables like GDP, open capital markets, control over exchange rates. I was suggesting to leave the capital markets open and stabilize GDP, but to give up on control over exchange rates. That's basically how the Bank of England reacted after the Brexit referendum: they let the pound take the hit so that the real economy wouldn't have too. Not sure what you mean by 'external investment would be destroyed'?