3 ms·

Chinese "leaders" are in way over their head trying to direct the economy. Now they don't know what the people really know. Something tells me that clear and op

Chinese "leaders" are in way over their head trying to direct the economy. Now they don't know what the people really know. Something tells me that clear and open information is the best choice but they have already gone down the rabbit hole.

toss1 8y ago
Yes, and even if the are actually fully informed and very skilled, there are severe limitations on what "management" of press and psychology can do. In an economy, an excess must eventually be corrected. The problems are that it's a dynamic super-multi-variable system and tends to overshoot in both directions. Ideally, an excess would self-correct soon and gently, but many information loops have too long a lag. Hence, the warning that "markets can remain irrational longer than you can remain solvent". In cases where the bubble is moderate, 'management' may well keep the psycology from falling too far and overcorrecting, buying time, so that the situation can correct without a crash. However, it also continues the excess for far longer, and often allowing a far greater degree of excess. So, if the excess breaks through the management, the crash will be _much_ steeper and deeper, overshooting far on the downside. I'm not sure if the PRC doesn't understand this risk, or if it does and is just in too deep to do anything else. Either way, it is a seriously growing risk for them and globally.
- datavirtue 8y ago
  They way to prevent irrational markets out running your solvency is to avoid easy lending/borrowing in the good times.
  - toss1 8y ago
    Of course, but the Chinese needed to do that a decade ago -- it is way too late for that now... Usually the central banks serve that function by raising interest rates in better times as the economy heats up. China's? Not so much. Seems they might need to learn this lesson the hard way.

3 ms·

Chinese "leaders" are in way over their head trying to direct the economy. Now they don't know what the people really know. Something tells me that clear and op

by datavirtue 8y ago

toss1 8y ago
Yes, and even if the are actually fully informed and very skilled, there are severe limitations on what "management" of press and psychology can do. In an economy, an excess must eventually be corrected. The problems are that it's a dynamic super-multi-variable system and tends to overshoot in both directions. Ideally, an excess would self-correct soon and gently, but many information loops have too long a lag. Hence, the warning that "markets can remain irrational longer than you can remain solvent". In cases where the bubble is moderate, 'management' may well keep the psycology from falling too far and overcorrecting, buying time, so that the situation can correct without a crash. However, it also continues the excess for far longer, and often allowing a far greater degree of excess. So, if the excess breaks through the management, the crash will be _much_ steeper and deeper, overshooting far on the downside. I'm not sure if the PRC doesn't understand this risk, or if it does and is just in too deep to do anything else. Either way, it is a seriously growing risk for them and globally.
- datavirtue 8y ago
  They way to prevent irrational markets out running your solvency is to avoid easy lending/borrowing in the good times.
  - toss1 8y ago
    Of course, but the Chinese needed to do that a decade ago -- it is way too late for that now... Usually the central banks serve that function by raising interest rates in better times as the economy heats up. China's? Not so much. Seems they might need to learn this lesson the hard way.