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There is no need for a zombie China. Japan became a zombie due to terrible monetary policy. Ben Bernanke wrote a big paper about it: Japanese Monetary Policy: A

by hibikir 13y ago

There is no need for a zombie China. Japan became a zombie due to terrible monetary policy. Ben Bernanke wrote a big paper about it: Japanese Monetary Policy: A case of self Induced Paralysis? So even if China found itself in the exact same situation as Japan was that day, we'd only see the equivalent of a lost decade if the Chinese monetary policy was as backwards as that of the Japanese back then, and after that, and the latest world financial crisis, I'd be shocked if China repeated the behavior of yesteryear. This is especially true due to China's love of playing with the country's exchange rate. The Chinese central bank would not bat an eye if it had to devaluate the Renminbi forty percent. So while the article describes the current situation very well, the predictions aren't really necessary given the premises.

dageshi 13y ago
Aren't they following the same path already? The massive dump in credit (cheap money) into the Chinese Banking system after 2008 seems to be following the same path that America/UK took after 2001. A recession causes the central bank to ease and real estate/asset bubbles begin to blow up but external factors (chinese export deflation in the 2000's, and weak global demand today) keep inflation low. The cheap money effectively subverts large parts of the economy because they become dependent on it, but it only works while there are asset classes that can continue to rise and can be easily traded into and out of e.g. real estate. Mr Bernanke as you quoted wrote a paper about this and yet in the end the Central Bank alone in the US could not contain the fallout when the bubble could blow no bigger. The US government had to absorb the losses by writing cheques to bailout the institutions that were failing until they reached a point where it was no longer politically feasible. I don't see an easy solution to this, the issue is not just bad debt, it's that there won't be an asset class to bid up anymore, there won't be a practical way to get that easy credit into the system anymore.

by hibikir 13y ago

dageshi 13y ago

Aren't they following the same path already? The massive dump in credit (cheap money) into the Chinese Banking system after 2008 seems to be following the same path that America/UK took after 2001. A recession causes the central bank to ease and real estate/asset bubbles begin to blow up but external factors (chinese export deflation in the 2000's, and weak global demand today) keep inflation low. The cheap money effectively subverts large parts of the economy because they become dependent on it, but it only works while there are asset classes that can continue to rise and can be easily traded into and out of e.g. real estate. Mr Bernanke as you quoted wrote a paper about this and yet in the end the Central Bank alone in the US could not contain the fallout when the bubble could blow no bigger. The US government had to absorb the losses by writing cheques to bailout the institutions that were failing until they reached a point where it was no longer politically feasible. I don't see an easy solution to this, the issue is not just bad debt, it's that there won't be an asset class to bid up anymore, there won't be a practical way to get that easy credit into the system anymore.