Following weeks of stock market turmoil, China has confounded expectations that its economic growth would slow further in the second quarter, with gross domestic product rising by 7%.
Analysts had widely predicted that economic growth would dip from 7% in the first quarter to around 6.8% in the second.
However, GDP held steady, officials from China’s National Bureau of Statistics claimed on Wednesday morning. The figure still represents the lowest level of growth since the 2009 global financial crisis but is in line with Beijing’s official target for 2015 of “around 7%”.
“The national economy has been running within proper range and the major indicators picking up steadily, showing moderate but stable and sound momentum of development,” China’s National Bureau of Statistics said in a statement.
Western economists flummoxed.
9 comments:
Western economists flummoxed.
In other words, the status quo prevails.
Western economists flummoxed
The same economists who preach the economic version of taking fuel out of the engine, to make a machine work better.
It's the oil they take out. Western economists always want to starve the engine of oil and then wonder why it uses so much fuel to do anything and is so inefficient.
They are specialists at tuning seized up engines.
Who would have guessed that from a nation that actually has some sense of how a soft currency works? Somebody call the IMF, we have to get this under control ASAP! Get Lagarde a push up bra or... SOMETHING!
Could these asshats really be that blind?
What is paradoxical is that the private sector and/or corrupt officials are the "USD zombies" as Matt puts it, a lot of them trained in Western universities like Harvard. A lot of them have been claiming how China would collapse and hence moving their ill-gotten gains oversees for years, buying property etc.
But the party has devoted itself to maintain stability, and for that they need economic development above anything else. From an overarching position of power comes the pressure to hold it at all costs and the elites need to be committed to this idea at all costs for it's self-interest.
But in the West we got all this devoted elite cadre to the idea of "free markets", "bond vigilantes" and how "we cannot do anything", first of all politicians and their economic advisor, hence losing any edge over the more focused elites in countries like China, who can discern what is real from what is accounting.
Not saying that China system is a paradise, that malinvesting doesn't exist, that corruption is not bad, etc. But there the elites cannot blame the "free markets" for their mistakes and get away with it, and the mere fear of losing control and devolving into chaos (as historically has happened to China over some periods) makes them focus on what matters, if it's by mere accident or a by-product of self-interest or self-enlightenment is not that important.
Who would have thought that a sovereign currency using Govt can always maintain GDP growth? Anyone who knows how to do simple arithmetic, thats who. If you create lots of money and spend it you are guaranteed to get lots of GDP growth. The official federal Govt deficit numbers are irrelevant in China's case, as they do lots of spending injections through their state-owned banks. Think about it this way, if the Fed had a congressional mandate to lend X amount of money to state and local Govts and the state and local Govts had a congressional mandate to borrow and spend all this money then we'd get all the fiscal impacts of the spending without the deficit numbers from the TSY dept.
Interesting to think about this from an MMT POV. If we separate fiscal and monetary policy based on the impact the activity has on NFAs instead of the name of the dept (TSY does fiscal, Fed does monetary), then I guess technically we would have to call this active monetary policy? I think this is probably what the Market Monetarists have in mind with their NGDP targeting by the CB.
One good thing about this lending being done by the Govt's banks is that if they ever have to do a debt-writedown, then there wont be any large negative impact on the broader economy. And if the banks simply forgive the local Govt debt then it would go back to being fiscal policy as now the money would have been created and spent, leaving that financial asset in the economy but eliminating the corresponding debt liability?
China really is an interesting and real world example of MMT in action. China is probably the only country on Earth that is practicing MMT economics in principle, and we should be proud that they are proving us right each and every day.
One good thing about this lending being done by the Govt's banks is that if they ever have to do a debt-writedown, then there wont be any large negative impact on the broader economy. And if the banks simply forgive the local Govt debt then it would go back to being fiscal policy as now the money would have been created and spent, leaving that financial asset in the economy but eliminating the corresponding debt liability?
Right. Debt owed to oneself can always be cancelled. Some including Ron Paul, IIRC, have been calling for the Fed and Treasury to simply cancel the US debt that the Fed was purchasing in QE. But that is a no-no under neoliberal rules, since it would be "fiscally irresponsible." The Chinese know better.
Tom-
Man wouldnt that be hilarious? If the Fed, Tsy, and President were to all come out at a giant press conference and proudly announce that they were officially reducing America's "debt" by $2.5 Trillion today, people's heads would be exploding all over the country! "OMG, why did we cut our university funding because of our enormous "debt" burden when they eliminated trillions of that debt at a press conference!!!" Of course, as we MMTers know, making that announcement wouldnt really change anything as the outstanding number of Govt IOUs would still be the same. Just because the rest of the world considers balances in one type of Govt bank account "debt" and balances in another type of Govt bank account "money" doesnt make it any truer. But it would be great fun to see people wrestle with the implications of that big nothing burger (economically speaking)
The data is very noisy (so individual points will be off), but generally in the information equilibrium model we should continue to expect high growth for several years from China that only ever so slowly declines ...
http://informationtransfereconomics.blogspot.com/2014/08/the-economic-future-of-china-is-so.html
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