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Digital Warlord.

A perspective on China

Recommended Posts

Digital Warlord.

Sometimes one can lose perspective about the situation in the US with the FED and such and lose sight of the fact that China is much more socialist/fascist/interventionist. China confronts a huge and complex Economic Calculation problem



This is an article in which the author contends China is blowing a huge Credit Bubble:



“China’s overall surge in credit in the first half of 2009,” an article in yesterday’s People’s Daily assures us, “is normal and healthy; however problems still exist in the structure, quality and flow of credit. China should continue to optimize credit structure and guard against potential risks.”


I would argue that new lending in 2009, running at 2 to 3 times the new lending over the same period in 2008, is not at all normal and is very unlikely to be healthy.


We are going to get 8% growth this year come what may. Since late last year I have been writing about how this everything-but-the-kitchen-sink strategy of throwing everything possible into countering the effect of the global contraction on the Chinese economy might result in higher growth this year and next but will make China’s necessary transition even more difficult and will almost certainly result in much slower growth over the longer term.


Worries about rising NPLs (non-performing loans)in the banking sector are often brushed off with the claim that the explosion in new lending is implicitly guaranteed by the government so there is nothing to worry about as far as the banks are concerned. Would that were so. Fitch, the ratings agency which seems to be distinguishing itself as the most prudent in its analysis of the banks, has already pointed out that the self-reinforcing relationship between bank credit quality and government credibility, and if government debt is really in the range of 50-70% of GDP, which I suspect it is, I am not sure how much room there is for an explosion in bad debt.


I am also currently reading Lords of Finance, and I believe that it was irving Fischer - a terribly smart man who nonetheless got 1929 very, very wrong - who pointed out that one reason we were very unlikely to see a crash and depression was that the new Federal Reserve Bank was in a position to guarantee the absence of systematically foolish behavior. It seems that few things are more dangerous than the belief that governments can eliminate or sharply reduce the risk of financial crisis. The idea that a country’s financial system can act as crazily as it likes as long as the government is willing to protect it from its folly runs not only into the problem of undermining government credibility as bad debts surge, but the very belief almost guarantees that the financial system will act in a crazy way.


Can I prove that the Chinese banks are systematically behaving the way banks always seem to under such liquidity conditions? I can’t, and won’t be able to for a few years, but the anecdotal evidence bears terrible resemblance to the same kinds of anecdotal evidence in previous banking crises.


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D- Ice

I wont for a second pretend I am an economic expert, and I wont even attempt to learn some of the terms you used as it's just not gonna happen, nor would I classify myself as anything but a failure in all math.


However, wasn't this whole credit problem BS started in the first place because of the US's highly unregulated economy?

Infact if anything, I find it hilariously hypocritical for a country like the US now to snub at China for having an overly economically interventionist government.


If American Capitalism was allowed to run as free and as unregulated as true capitalism should be, the government shouldn't have intervened so extensively to rescue all the failed corporations, so their ownership remains in the US. I mean now the US government owns like a majority share of the US's largest auto manufacturer GM - this is much more reminiscent of Soviet-era Moscowvic and Lada cars than anything the Chinese could throw at us.

The reason for that is that the whole point of a free-trade unregulated economy is that the good thrives and failures get sold cheap to new owners, thus cleverly giving them a much better chance of renewed success rather than bankruptcy. If tis was allowed to happen, the largest - if not only new buyers and investors in all those failed US firms would be Chinese parties. That is the whole point of an unregulated economy - continual renewal and rejuvenation rater than the failed Communist doctrine of strict state regulation which will always continue no matter how f*cked up and corrupt it was.

So if anything, the US government are the ones who have switched back to the communist strategies of state rescuing, regulation and ownership (nationalization) in order to prevent giving their biggest economic rival a leg-up on the ladder to becoming a new, rival super-power.


I'm on vacation in Turkey right now, but I will try to reply as soon as I get back. Take Care bro.

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