Tuesday, January 26, 2016

Stephen Roach — False Alarm on China


Stephen Roach discounts the China "crisis."

Project Syndicate
False Alarm on China 
Stephen Roach, former Chairman of Morgan Stanley Asia and the firm's chief economist, pressently a senior fellow at Yale University's Jackson Institute of Global Affairs and a senior lecturer at Yale's School of Management



7 comments:

mike norman said...

So, wait a minute...Stephen Roach is going to get something right for once?

Tom Hickey said...

That was my thought, too. Most analysts are concluding that China will fail because it isn't being liberal enough. Roach recognizes the bias this exhibits. China's management team has been exceeding its publicly announced goals for some time.

But I think that he is off on his assessment of China's financial crisis and the government's managed approach to it. He assumes that China should adopt a liberal posture regarding finance in spite of just admitting that China has been every successful economically with its managed approach.

China is determined to take a managed approach in finance also. They clearly don't buy into the EMH. They will try to do what it takes to manage animal spirits and also dampen excessive speculation.

NeilW said...

The private debt fans struggle with the concept that a private debt is only a burden if you demand interest and you're prepared to call in the debt if the borrower doesn't pay and cash in the collateral.

If you have a state that realises banks are just a distribution mechanism for state money, then you can convert debt to equity at will.

Those doing debt dynamics I don't think have a handle on debt at all. They only have a handle on debt where there are banks with some sort of pressure on them in a private sector setup.

Ignacio said...

Well Neil, fairly speaking that's how it works in most cases, in most places, unless you are a member of the elite in which case the state will make all it can to convert financial liabilities into equity by the power of fucking the rest of the population (Italy next in good ol' Europe!).

Not saying that economists understand the true nature of the dynamics at play, they clearly don't, that's because they fail at defining clearly the terms before writing down their hypothesis, but in practice, most of the time, in this case they are right to model it like that (I guess you have in mind S.Keen model etc.).

mike norman said...

The only potential problem that I envision and it was voiced, surprisingly, by Kenneth Rogoff of all people, is that the Chinese authorities may not want to engage in further credit expansion. Not because they can't since, obviously, they can, but because of all the ruinous and inapplicable Western economics they have allowed themselves to be influenced by.

Tom Hickey said...

That is possible and it is Russia's problem. There are two many neoliberals still in hight places that Putin hasn't axed yet. See The Saker, Putin's Biggest Failure

The head of the Central Bank of Russia is one of them and the prime minister is another. There are many more. It is called the Fifth Column.

Neoliberals are nowhere near as powerfully entrenched in China at this point. So there is hope.

Tom Hickey said...

See also Pepe Escobar, Rumble in the ruble, fire in the markets/

A serious case can be made that Russia does not need much Western foreign investment. That was mostly encouraged by the Central Bank, who held interest rates higher in Russia than the US and EU, naturally leading Russian companies to borrow abroad in US dollars or Euros.

The responsibility of Russia’s Central Bank is to create domestic credit to build the industries that have been cut off from Russia by the falling ruble. This is not inflationary; the increased production out of these investments would nullify the inflationary implications on the newly created credit.

The Russian Central bank instead went for tight money to fight inflation. It would have been much more profitable for Russia to fight inflation by creating credit at low interest rates to finance the construction of the industries necessary to replace the import of foreign products.A serious case can be made that Russia does not need much Western foreign investment. That was mostly encouraged by the Central Bank, who held interest rates higher in Russia than the US and EU, naturally leading Russian companies to borrow abroad in US dollars or Euros.

The responsibility of Russia’s Central Bank is to create domestic credit to build the industries that have been cut off from Russia by the falling ruble. This is not inflationary; the increased production out of these investments would nullify the inflationary implications on the newly created credit.

The Russian Central bank instead went for tight money to fight inflation. It would have been much more profitable for Russia to fight inflation by creating credit at low interest rates to finance the construction of the industries necessary to replace the import of foreign products.


He also comments on China.