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I'm assuming the debt problems are the corporate defaults on bond payments [0] for 2018 until July, were close to equal to the entire year of 2016. There's also

I'm assuming the debt problems are the corporate defaults on bond payments [0] for 2018 until July, were close to equal to the entire year of 2016. There's also consumer debt stuff that's blowing up as well (the whole p2p loan companies going bankrupt was linked on HN recently). As for the what are they responding to is the engine for economic growth is stalling out from knock on effects behind whats going on above, and I can only speculate that the "goal" of any kind of response will be to maintain some kind of economic "stability". [0] https://www.bloomberg.com/news/articles/2018-07-02/china-heads-for-record-defaults-and-downgrades-tip-further-pain https://www.bloomberg.com/news/articles/2018-07-02/china-hea...

nkurz 8y ago
I appreciate the answer. But I still don't see the connection between the proposed responses (the first four bullet points) and the stalling of economic growth. For example, how is "Reduce savings by letting unemployment rise" a response to slower economic growth, and how does this maintain economic stability?
- cinquemb 8y ago
  For that particular example I think economists usually see savings as bad because it means that there is unproductive capital (and eventually leads to deflation?) and therefore reduced savings means that capital that would typically be in savings would now be productive (an asset on someones balance sheet that can now be tallied for GDP instead of liability on a banks). Well I put "stability" in quotes because in reality, every economic actor will have their own perspective of what the goal is and how effective any solution will be in achieving such goal. Some people thought zero lower bound and real negative interest rates solved things, and others thought it was just kicking the can down the road… My issue with the first four bullet points is that the government now can point to instances where they say that they have been doing all of those things (because all these bullet points address things at such a high level), and all this is telling them to do is just do more of the same and expect different results.
- slv77 8y ago
  Letting unemployment rise is the least desired outcome but is what will happen by default in response to a declining trade surplus. Wide spread unemployment doesn’t contribute to economic or societal stability and so China will attempt to avoid that. The second option is wealth transfer through debt default; or government forced wealth transfer (taxes or inflation). China’s debt could be brought down from 300% of GDP to 100% of GDP overnight if creditors simply forgave 2/3rds of debt. That could happen though debt default (debtor bankruptcy) or taxing creditors and giving it to debtors. Having the bulk of your life savings disappear tends to make people angry and so China will attempt to avoid that. The last option is to kick the can down the road and increase domestic debt which is what they have been doing for the last 10 years.

nkurz 8y ago

I appreciate the answer. But I still don't see the connection between the proposed responses (the first four bullet points) and the stalling of economic growth. For example, how is "Reduce savings by letting unemployment rise" a response to slower economic growth, and how does this maintain economic stability?

cinquemb 8y ago
For that particular example I think economists usually see savings as bad because it means that there is unproductive capital (and eventually leads to deflation?) and therefore reduced savings means that capital that would typically be in savings would now be productive (an asset on someones balance sheet that can now be tallied for GDP instead of liability on a banks). Well I put "stability" in quotes because in reality, every economic actor will have their own perspective of what the goal is and how effective any solution will be in achieving such goal. Some people thought zero lower bound and real negative interest rates solved things, and others thought it was just kicking the can down the road… My issue with the first four bullet points is that the government now can point to instances where they say that they have been doing all of those things (because all these bullet points address things at such a high level), and all this is telling them to do is just do more of the same and expect different results.
slv77 8y ago
Letting unemployment rise is the least desired outcome but is what will happen by default in response to a declining trade surplus. Wide spread unemployment doesn’t contribute to economic or societal stability and so China will attempt to avoid that. The second option is wealth transfer through debt default; or government forced wealth transfer (taxes or inflation). China’s debt could be brought down from 300% of GDP to 100% of GDP overnight if creditors simply forgave 2/3rds of debt. That could happen though debt default (debtor bankruptcy) or taxing creditors and giving it to debtors. Having the bulk of your life savings disappear tends to make people angry and so China will attempt to avoid that. The last option is to kick the can down the road and increase domestic debt which is what they have been doing for the last 10 years.