1/7
Very interesting and very timely book, although I'm not sure it has a sufficient explanation of the costs of debt.
On China: "The world’s second largest economy is in many ways a poster child of the dangers of credit booms gone bust."
voxeu.org/content/debt-e…
Very interesting and very timely book, although I'm not sure it has a sufficient explanation of the costs of debt.
On China: "The world’s second largest economy is in many ways a poster child of the dangers of credit booms gone bust."
voxeu.org/content/debt-e…
2/7
Although "barring major policy mistakes, there are convincing arguments why a ‘hot’ crisis can be avoided. The Chinese government remains in firm control of the financial sector and has ample fiscal resources to deal with any major fallout."
Although "barring major policy mistakes, there are convincing arguments why a ‘hot’ crisis can be avoided. The Chinese government remains in firm control of the financial sector and has ample fiscal resources to deal with any major fallout."
3/7
I think that's right: a crisis was always very unlikely, but, they continue, "the economic effects of a waning credit impulse, financial deleveraging and a resetting of expectations will likely have very real macroeconomic effects on the Chinese economy."
I think that's right: a crisis was always very unlikely, but, they continue, "the economic effects of a waning credit impulse, financial deleveraging and a resetting of expectations will likely have very real macroeconomic effects on the Chinese economy."
4/7
its a lot more than that. One of the points about debt adjustments that I think is too little recognized, including in this book, is that the cost of the adjustment is a function among other things of the amount of fictitious wealth created during the period of debt build-up.
its a lot more than that. One of the points about debt adjustments that I think is too little recognized, including in this book, is that the cost of the adjustment is a function among other things of the amount of fictitious wealth created during the period of debt build-up.
5/7
This ultimately must be implicitly or explicitly written down, and as it is, it creates enormous direct and indirect costs to the economy. In the case of China, real estate overvaluation exceeds that of any previous case in history except Japan in the 1980s.
This ultimately must be implicitly or explicitly written down, and as it is, it creates enormous direct and indirect costs to the economy. In the case of China, real estate overvaluation exceeds that of any previous case in history except Japan in the 1980s.
6/7
Add reasonable estimates of the amount of non-productive infrastructure which has been capitalized rather than expensed, and is implicitly carried within the banking system, and I think we are talking about Japan-levels of overvaluation.
Add reasonable estimates of the amount of non-productive infrastructure which has been capitalized rather than expensed, and is implicitly carried within the banking system, and I think we are talking about Japan-levels of overvaluation.
7/7
This matters a great deal, as I explain in the piece below. The creation of this fictitious wealth directly and indirectly boosted GDP, and as it is eventually reversed, so must its impact on GDP be reversed.
carnegieendowment.org/chinafinancial…
This matters a great deal, as I explain in the piece below. The creation of this fictitious wealth directly and indirectly boosted GDP, and as it is eventually reversed, so must its impact on GDP be reversed.
carnegieendowment.org/chinafinancial…
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