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When even ‘Communist’ China gets it… I found this quite interesting:
On the face of it, China’s central bank has room to cut interest rates to try to lift the economy, but sources say evidence companies and banks are hoarding cash has reinforced policymakers’ view there is no major benefit in easing policy further.
The reluctance has also been shaped by the experience of Japan and the European Union. Despite much more aggressive easing policies than China, including negative interest rates, they have struggled to lift their economies out of the doldrums, these sources said.
And my reaction was to marvel… can it be true ‘Communist’ China is the only state to finally figure out the absurdity of modern mainstream thinking regarding interest rates? Every time Bank of England Governor Mark Carney opens his mouth, I am reminded of Albert Einstein’s purported definition of insanity. Is China really the only place the penny fen has finally dropped?
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China is really a fascist economy not a communist one. A fascist economy is much less efficient than a free market one, but it’s much more efficient than communism.
I wonder whether the reluctance of Chinese banks to reduce interest rates is driven as much as anything by the absurdly-high rate of savings by Chinese citizens – north of 30% of their incomes, on average, IIRC. Reducing interest rates would have a much-greater impact on a lot more citizens in China than it would in most Western countries, many of which have (effectively) negative average savings rates.
llater,
llamas
Thank you for that, I thought I was the only one to notice that the zero rate in Japan has not helped one iota. And they have had it for over 20years with no good result. Sack Carney!
This is good news, of course, but perhaps it is not so surprising that a regime at least nominally based on Marxian economic theory, rejects the new-fangled Keynesian orthodoxy.
Why do you think I wrote ‘Communist’, Lee? 😉
Traditions, even though almost imperceptibly at times, linger on in the development of societies. China, diverse as it is, is no exception.
Tradition: The conceits of the intelligentsia.
We can visualize the composition of China’s authority structure made up of intelligentsia organized in coalitions to exercise their various conceits, which we tend to call “planning.”
But, among those conceits is a drive to be preeminent.
So, there may be a recurrent shifting of preeminence amongst those planning coalitions, and those who would direct through the “monetary” system are currently relegated and can not exercise their conceits as freely as those in other societies (e.g., France) because of conflicts with others currently better positioned in the power structures.
So, it maybe that (due to those internal competitions) the Chinese who would do things known to have stupid results are just unable to act freely or fully; whereas, some of their European and North American counterparts have a sort of public Viagra to maintain their capacities for mischief.
China is sitting on a huge fraud induced real estate bubble that has leaked out across its borders to HK, Vancouver and other jurisdictions. It’s common place for a tire company, for instance, to take out loans from a local bank for projects that never get started; those funds are then, instead, invested in real estate or, if the ties to the bank are strong enough, secreted out of the country through complex commodity purchase order schemes to be invested in real estate in London, Hong Kong or Canada. The Chinese CB and Central Government knows this is going on and is sort of trapped between the devil and the deep blue sea here because if they could shut down this looting (not certain), it would lead to a crash in luxury good consumption and real estate investment, as well as rock a lot of boats.
Sensible CB policy by a Communist CB? More like trying to not put gas on the fire (and anyway, every CB is essentially a Communist institution).
The Japanese numbers are reducing, so that could explain their failing economy. I think it was Harry Dent, a writer of economic books, who pointed out that if your population is increasing, then you must innovate to survive. Such innovation would keep driving the economy. With less and less people, you don’t need a growing economy. In fact, the last survivors would be the beneficiaries of all those wills and inheritances, and wouldn’t need to do anything, and could still enjoy a happy life. (Until someone else invaded, or the robots took over.)
Smart money is suggesting that China will devalue sometime after the American election. China will already be in the IMF SDR by October A big devaluation is coming.
That will be the trigger for a world wide equity sell-off. China’s CB is just as screwed up if not more so than other CB’s. The OECD countries are almost all bankrupt and the CB’s are the enablers by keeping rates at ZERO so fiscal insanity can continue for some more years.
Hugh Hendry on outcome of Chinese Yan devaluation: “That will be the end of the world”
Sounds about right – look for a 1987 type decline (2 to 4 months), not a 2007-2009 drawn out thing.
I wonder if coming from a non-western perspective permits the Chinese central bankers to see the inherent absurdity of Keynesian economics. Western economists are so inculcated in it that they cannot see that the emperor truly has no clothes, but perhaps a Marxist could see at least that much.
I think, on closer examination, we will note that the current crop of monetary (and “banking”) policy planners of China are NOT Marxists, but are U S schooled, and less attuned to the Marxist framework for the “purposes” of production.
Unfortunately, RRS, I suspect that you are correct. But perhaps there is a sufficiently large “rump” element within their banking leadership to at least provide a different perspective?
Laird,
I had begun to conclude we had practically all the rumps in the U S, UK and Euro systems.
🙂
I do not know about China Perry – although their banking system is wildly thought to be a mess (who really knows).
However, I certainly agree that Mark Carny, and the rest of the Western Central Bankers (and the governments who appoint them) are demented.