Hari Seldon wrote:Much as I admire sri chola's perspective, sri vikamS's queries do strike a chord.
So for instance, how to reconcile a few (seemingly) opposing factoids - (i) PRC superstate can make mango people eat losses at will implying people's trust in bank savings in the PRC must be low and dipping, and (ii) there's great consumption boom with 100s of millions buying costly cars and costlier homes on a cash down payment basis, (iii) PRC's 4 super banks, which are larger than the ASEAN's banks put together, have already been recapitalized at least once with the people's savings.
Now if the PRC state stole people's money to save its banks, how come the same people in their 100s of millions still have ample cash lying around to consume on a scale that puts the G7 to shame?
Reread what I wrote in an earlier thread. I can't explain it better by any kind of rewriting. The ability to make its people eat losses is just one of the reasons and probably the least paramount. The key is the ability to print money without inflation which basically comes down to the market's confidence in holding a particular currency.
It's funny how people talk about bad debt without understanding what it really means. Debt is simply credit that needs to be repaid. Credit is often never repaid and it leads to great and tremendous things. For example, the Marshall Plan which rebuilt Europe and the massive loans to Japan that made it into the world's second economy for decades were debt that the US simply forgave. It is the same the US did for itself in the post War era with the GI Bill and massive infrastructure building that criss-crossed the nation with highways. That, my friend, is free credit and they created wealth for both the happy recipients and the US (at least until the Japanese destroyed the US car industry.)
Debt to foreign entities is credit that usually needs to be repaid. Greece needs to pay Germany. California doesn't really need to prepay Washington. GM doesn't really need to repay Washington either. Obviously if a government gives out loans that can't be repaid and then prints more money to make up for it, it can lead to inflation. That's how Zimbabwe ends up with a hundred billion dollar bill that can buy maybe an apple.
The chinis are on the opposite end of that spectrum. Not only can its currency build highways and high speed rail with abandon but it is considered undervalued. Given the chance, the US, Japan and Europe would want it raised by upwards of 40%.
So the debt issue is meaningless to the PRC. It owes money to itself and it can print money without really much inflation. It has massive leeway in the value of it currency. And I have not even mention the three trillion in foreign currency yet that would cover what little external debt it has about several thousands times over.
To top it all off, the chini government can make its people eat losses. Debt is only a problem if you are forced to repay it. Or on a humanitarian level, you feel the need to repay it. Panda owes money to itself. It can print what it wants. And it if feels like it (say, to tamper down any spark of inflation), it can simply not pay and make its population eat the losses.