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Let's take a look at a single bank in China which had a 22.49% bad loan rate in 2002. The government just bought the loans with some electronically printed mone

Let's take a look at a single bank in China which had a 22.49% bad loan rate in 2002. The government just bought the loans with some electronically printed money and everything just kept chugging along. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apBROzexbOpQ http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apBRO... "Bank of China said it had loans and overdrafts of 1.74 trillion yuan ($210.3 billion) at the end of 2002. The bank's bad loan ratio stood at 22.49 percent or 409 billion yuan at the end of last year. The Beijing-based lender in 1999 transferred 352 billion yuan of bad loans to China Orient Asset Management, one of four companies set up by the government to dispose of banks' bad assets, and has disposed of 63.7 billion yuan of those." Now in the U.S for that bailout to take place the government would have to borrow that money from the Fed and the taxpayer would have to pay it back eventually. In China, nobody borrows it and nobody pays it back.

crdoconnor 12y ago
>Let's take a look at a single bank in China which had a 22.49% bad loan rate in 2002. The government just bought the loans with some electronically printed money and everything just kept chugging along. THAT part of the economy will keep chugging along, but shadow lending (which is growing at a fantastic rate and now comprises about ~60% of GDP) will not. The government isn't about to buy THEIR loan books. China's shadow banking system could well go nuclear. >Now in the U.S for that bailout to take place the government would have to borrow that money from the Fed and the taxpayer would have to pay it back eventually. In China, nobody borrows it and nobody pays it back. In principle the US kind of did the same thing actually: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=axKqzNUV06Dw&pos=3 http://www.bloomberg.com/apps/news?pid=newsarchive&sid=axKqz... Bad assets -> liabilities on the public balance sheet -> turned into cash (via QE) It wasn't quite to the same extreme as China, obviously. That QE cash created also didn't get spent on goods and services, it was just piled into higher yielding investments. The cost of clothes didn't go up, but the NASDAQ and luxury apartments in Manhattan bloody well did. In China the state banks just kickstart lending again (usually to SOEs) no matter what the losses. This cycle of never ending debt-driven keynesian investment stimulus with no market discipline leads to some of their more spectactular white elephants - like entire mini-cities full of housing where nobody lives, malls where nobody shops and weird theme parks that nobody visits. Since the people employed to build all these things are still getting paid and spending their paychecks, inflation on goods and services in China is pretty high.

crdoconnor 12y ago

>Let's take a look at a single bank in China which had a 22.49% bad loan rate in 2002. The government just bought the loans with some electronically printed money and everything just kept chugging along. THAT part of the economy will keep chugging along, but shadow lending (which is growing at a fantastic rate and now comprises about ~60% of GDP) will not. The government isn't about to buy THEIR loan books. China's shadow banking system could well go nuclear. >Now in the U.S for that bailout to take place the government would have to borrow that money from the Fed and the taxpayer would have to pay it back eventually. In China, nobody borrows it and nobody pays it back. In principle the US kind of did the same thing actually: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=axKqzNUV06Dw&pos=3 http://www.bloomberg.com/apps/news?pid=newsarchive&sid=axKqz... Bad assets -> liabilities on the public balance sheet -> turned into cash (via QE) It wasn't quite to the same extreme as China, obviously. That QE cash created also didn't get spent on goods and services, it was just piled into higher yielding investments. The cost of clothes didn't go up, but the NASDAQ and luxury apartments in Manhattan bloody well did. In China the state banks just kickstart lending again (usually to SOEs) no matter what the losses. This cycle of never ending debt-driven keynesian investment stimulus with no market discipline leads to some of their more spectactular white elephants - like entire mini-cities full of housing where nobody lives, malls where nobody shops and weird theme parks that nobody visits. Since the people employed to build all these things are still getting paid and spending their paychecks, inflation on goods and services in China is pretty high.