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The United States thought the same thing and when through a housing crisis during 2008 and has been paying for it ever since with a frail economy and anemic gro
by infamia 5y ago
The United States thought the same thing and when through a housing crisis during 2008 and has been paying for it ever since with a frail economy and anemic growth. What China is doing now with Evergrande is exactly the approach the US took in 2008. Simply put, bad debt must be written off if you don't want to zomibify parts of your economy. Pretending that you can grow your way out of debt is fantasy as clearly evidenced by Japan and the US over the past 30 years. The fact that China has chosen to sweep this problem under the rug by rescuing Evergrande will be a drag on future growth and encourages future moral hazards. I don't predict doom and gloom for China, only that this will be a millstone around it's economic growth with additional systemic risk.
If an asset depreciates or isn't worth what you paid for it, refusing to write down the asset and take your medicine sooner rather than later just drags out the pain. Better to take your medicine and get the pain over with so your economy can quickly reallocate and quickly bounce back. The losers must lose. This approach does not go down well with politicians, but is the best medicine for a sick patient.
- jkhdigital 5y agoThe reason it doesn't go well with politicians is because, in a massively complex modern economy, the "losers" in an unexpected default are nearly always a wide swath of average citizens and public institutions. Why? Because they are the ones who dump all their savings into "safe" mass market investments like blue chip stocks and corporate debt ETFs.
- cinquemb 5y agoYeah, I said "fuck it" when they started buying corp bonds… DeFi only now, and just finished getting an audit for a decentralized derivatives protocol that was seeded funded with a decentralized incubator. We're planning on the protocol being able to lend liquidity into existence out of thin air (well more accurately, taking advantage of collateral dynamics and protocol stablecoin flows) and packaging that debt into decentralized stablecoins denominated in $… Thanks to the moral hazards, they've have motivated me and others to pursue alternatives that in their eyes have systemic risk, and I'd agree, very risk to their bailoutistan system :D