1/7 The idea that there is some specific debt-to-GDP ratio above which debt levels are "too high" has always been nonsense, and only suggests how poorly economists understand balance sheet dynamics (and how little they have read of Hyman Minsky).
2/7 It is not just the amount of debt and the coupon that matter but, as any finance specialist can explain, just as important are the structure of the debt relative to assets, the underlying volatility of operating earnings, overall liquidity, the purpose of the debt, and...
3/7 other conditions which together determine whether a business or country has "too much" debt. And of course this doesn't mean that because interest rates are low there is no threshold above which the debt burden starts to weigh on the economy.
4/7 There certainly is, in which case it starts to generate financial distress costs that slow economic activity, but once a country discovers that level, it is usually too late not to suffer from the consequences.
5/7 There is a debt threshold, in other words, but we don't want to discover what it is. I suspect that we reach that level once economic agents believe there is significant uncertainty about how real debt-servicing costs are to be allocated and begin changing their behavior...
6/7 in ways that protect them from being forced to absorb these costs.
I'd argue that as long as the growth in debt directly or indirectly leads to growth in the real productive capacity of the economy, we won't reach that threshold, but if the former exceeds the latter long...
7/7 enough, the growth in debt can eventually become a problem. I think the US is a long ways away from this threshold, and of course to the extent that government borrowing is used to fund productive infrastructure or a redistribution of income, we are not getting any closer.
1/5 While much of the foreign press announced spectacular Q1 GDP results, Caixin, characteristically, recognized that part of the reported growth simply represented an expansion of the domestic imbalances.
2/5 Their headline: "China’s Rapid GDP Growth Falls Short of Expectations". As they note, "Both household income and consumption grew slower than GDP."
This matters. While I expect China's reported GDP growth to be strong this year (although not nearly as strong as...
3/5 the 8.6% consensus), much more important is that it will mostly be what Beijing refers to as "high-quality" growth, which means that consumption, exports and private business investment will collectively outpace GDP growth.
China’s National Bureau of Statistics reported today that GDP grew by 18.3% year-on-year in the first quarter of 2021, although on the back of a sharp contraction in the first quarter of 2020, and driven – unfortunately but not...
surprisingly – by a 25.6% year-on-year expansion in fixed asset investment. Given how useless year-on-year data can be, especially after exceptional periods, many analysts are also reporting that first-quarter GDP rose 0.6% from the fourth quarter last year.
3/14
But while this helps, it ignores appropriate measures of seasonality, which are especially problematic in a period like ours. The best way to consider the data might be to see how close we've arrived at some kind of “normalcy”, perhaps by comparing it with 2019 data.
which Huarong was dogging itself — among friends of mine who worked with the big four AMCs, none of whom were notorious for excessive prudence, Huarong managed nonetheless to elicit shock and surprise for its behavior, especially its seemingly reckless acquisitions.
3/5
This particular line in the article reminded me of a conversation I had in 2018 or 2019: "According to people familiar with the matter, Huarong has proposed a sweeping restructuring. The plan would involve offloading its money-losing, non-core businesses. Huarong is still...
Beijing plans to make it easier for migrants to apply for household registration in the cities in which they live and work. This is good news, and the benefits are fairly obvious: by raising the real income of migrant workers — allowing them...
access to the same municipal services and work protection as hukou residents — it will sustainably boost domestic demand
But while this benefit has always been there, it has taken very long for Beijing to reach even this very preliminary step. Why? Because the benefits...
3/8
come with real costs, and until we know how these costs will be allocated, it isn't clear how serious they are about implementing hukou reforms.
To the extent that the welfare of migrant workers improves, the associated costs have to be absorbed by some other sector for...
Good blog piece by @andrewbatson on China's "new rhetoric" on reducing inequality, which (and Andrew decides sensibly to skip the obvious irony) begins with: "The Chinese Communist Party is now ideologically committed to reducing income inequality."
In his piece he points out some of the steps Beijing says it will take to reduce inequality within the household sector, and he notes the limited success it has had in the past. I would add another point, which is that there are two very different types of inequality...
3/8
within China, both of which have the same economic effect on China's very low consumption rate and (which is the same thing) its excessive savings rate.
One type, which most of us typically mean by "inequality", is the highly concentrated distribution of income within...
Apologies in advance for this very long thread, but as regular readers know, I worry greatly about common misunderstandings of the role of reserve currencies. The author seems to assume that what makes a currency a dominant reserve currency is...
its low frictional trading costs, which is why, he believes, digital currencies, with China in the lead, will dominate international trade.
But while a low frictional trading cost is a necessary condition, it is not nearly sufficient. A quick glance at the role of the...
3/19
US dollar over the past 100 years, the period during which it achieved dominant status, makes this clear: when the world was short of savings relative to its investment needs, during the first fifty years of that period (a period characterized by the global need to...