I have been a "China is unlikely to keep its model going for more than another five years—a decade tops" perma-bear since 1988. All I understand is that I do not understand the Chinese economy. I wish I did understand it:
Arvind Subramanian and Josh Felman: R.I.P. Chinese Exceptionalism?: "Over the past few decades, China’s growth has appeared to violate certain fundamental laws of economics.... China’s debt keeps on rising.... For any normal country, the build-up of extensive surplus capacity would lead to sharp declines in investment and GDP growth. And that, in turn, would produce financial distress, followed by a crisis if the warning signs were ignored. But China has had a different experience...Ha ha ha. Maybe they aren't laws?
Grasping Reality
I have been a "China is unlikely to keep its model going for more than another five years—a decade tops" perma-bear since 1988
Brad DeLong | Professor of Economics, UCAL Berkeley
“I do not understand the Chinese economy. ”
ReplyDeleteHe doesn’t understand the USA economy either...
The first comment in DeLong's thread was interesting -
ReplyDeleteQuote:
The base differences in communist and capitalist systems is in who creates money and distribute it. In communism, the state is the only one that can create money while banks only do payment system, can not create money. In capitalist system it is mostly private banks that create and distribute the money through the debt. Hence, from the economic type we can deduce that China's money system consist of State owned and directed banks offer the debt to anyone. Basically all China's banks operate as Development banks just as FDR's Development banks do, with cancellation of debt as needed. These banks with the state money creation can not fail but their managers can and they will be executed while bank continues without limits.
Translating into western economy system, will be like Bear Sterns or RBS collapse never happened, never allowed to crash but their managers were executed for allowing the institution under their management that can create money at will yet collapsed.
In other words, there is no standard regulation on banking institutions, there is no reserve requirement which can make a bank insolvent. The only regulation is if those funds were used properly; for economic development.
“there is no reserve requirement which can make a bank insolvent. ”
ReplyDeleteWhat he means is that if the bank doesn’t have enough reserves to lend out then they become insolvent ..... which the opposite is true ie reserves are assets which thru policy can exceed regulatory ratios and then the bank is insolvent...
China is operating the same way... they have been adding reserves to lend out and asset prices are continuing to go down...
ReplyDeleteBear Stearns was a broker-dealer when it lost access to credit system ... not a depository institution...
ReplyDeleteDelong is unqualified....
Matt
ReplyDeleteI wrote that comment to DeLong article. I am aware of inconsistencies to the true mechanics of but why should i write about that to unknowable while that is not the central point. The central point is that China does not allow for a bank to get into credit freeze by not enforcing constraints that are also arbitrary in the west.
If FED prevented collapse of Bear Stearns as they did with other bank post Lehman, there would be no chain reaction that ended up with credit freeze.
Lets stay on topic instead of going sideways indefinitely with those unaware of MMT details. The topic is a difference in China and Western economic systems.
“The central point is that China does not allow for a bank to get into credit freeze ”
ReplyDeleteChina has had continuous fiscal support .... till now...
Lately they have been adding reserves into what they perceive as a hostile trade environment and risk asset prices have correspondingly fallen 25-30% with the add of those non-risk assets (capital is constant). . .... let’s see what happens if this continues imo they will cause a banking crisis (credit system over there will shut down) and will eventually have to put capital into their banks .... which also may not be a big deal for them because they don’t have near the libertarian morons like we do who will go all around saying “bailouts!” all the time...
Here:
ReplyDeletehttps://www.marketwatch.com/story/asian-markets-battered-as-trade-tensions-escalate-2018-09-16
Here:
ReplyDeletehttps://www.cnbc.com/2018/08/03/kudlow-says-chinas-currency-fall-is-money-leaving-the-country.html
“Kudlow said it looks "like the China economy is declining in growth" and, as a result, "the People's Bank of China is trying to pump it up by adding high-powered money”
China has never seen need to do this before so they’ve ofc been ok due to constant rising fiscal spending.... They should stop doing this .... it can cause a credit system shutdown like US did in 2008.......