On Tue, Aug 20, 2013 at 7:41 AM, Marv Gandall <[email protected]> wrote:
> On 2013-08-19, at 5:30 PM, raghu wrote: > > This is really a two-part argument: (a) a lot of Chinese debt is just > obligations of one government entity to > > another, and (b) therefore high levels of debt is not really a problem. > > > > I don't see why (b) follows from (a). > > -raghu. > > > Let me turn the question around: When do high debt levels of a sovereign > government awash in foreign currency reserves become a problem? Since the > debunking of Rogoff and Reinhart, the subject has become a matter of wider > controversy extending beyond the academy. I am not aware of anyone making the argument that China *in the aggregate* has a debt problem. > In China, there's no reason to believe the PPOC and Ministry of Finance > would not, if necessary, bail out the large state-owned banks and companies > as they previously did in 1997 and 2009. They have the monetary and fiscal > firepower to do so with little effect on the yuan. This is true and again I don't think there is any dispute on this point whatsoever. Look, China is not Greece, just the opposite. China does not have an *external* debt problem. That does not mean it does not have a debt problem. The debt that Pettis, Krugman et al worry about is internal i.e. some Chinese entity holding large paper claims on some other Chinese entity. It is true that these claims "net out" if you look at China as a monolithic entity. So these debts can effectively be nullified by the stroke of a pen in theory. But so what? Aren't you ignoring the politics and competing interests within China? There are going to be BIG winners and losers in any such bailout. You think the losers are just going to sit back and take one for the team? Do you have a politically plausible story for how such a bailout may work in practice? This is what has Pettis, Krugman et al worried. I mean these guys are not stupid; they are well aware that China is not Greece. It'd be nice to see someone actually take a shot at addressing their actual concerns rather than the same old strawmen. -raghu.
_______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
