Pardon this interruption, but has anybody noticed that the global economy is going down the tubes? There doesn't seem to be anybody looking at the global economy as a whole.
This post is not about Donald Trump.
There is some focus, and appropriately so, on China's Long Minsky Moment (The New Yorker, August 14, 2015). China is in big trouble. John Cassidy's article is quoted beneath the fold. The Minksy moment is
that dreaded moment, named after the late post-Keynesian economist, when euphoria is replaced by pessimism, asset prices start to plummet, lenders discover that their creditors can’t repay their loans, and an economic downturn begin.
Certainly China has been the global engine of growth in the post-meltdown period, but there are troubling signs all over the world. China's exports fell 8.3% in July. That's not a good sign. And as Cassidy points out, China's official growth numbers are fabricated bullshit.
Oil prices are at at six-year low. That's not a good sign.
Growth is anemic in the United States. Brazil is in recession. Russia is in recession. Canada seems to be going into recession. Europe is ... Europe (sucks). Japan is ... Japan (sucks). South Korea is losing its lustre. If we include China, I've covered most of global GDP in this paragraph. And none of the news is good.
The only "bright spot" I can find is India.
I'm not saying there's going to be a rapid meltdown of the global economy, despite ongoing currency wars, but if China is having a long Minsky moment, so is the world.
All of these developments are a predictable result of the reflation of the global economy after the 2007-09 fiasco. Such developments take time, but it looks like some global unraveling has finally arrived.
Here's some of The New Yorker text.
The decision to devalue the yuan, which will make Chinese goods cheaper abroad, hardly indicates that the authorities are feeling confident. It is only the latest in a series of moves designed to boost the economy. In the past nine months, the government has pumped more money into the banking system to try and stimulate lending, boosted its own spending on infrastructure projects, and, more recently, engaged in a desperate effort to prop up the stock market by buying stocks itself.
Underlying all of this is the fact that China is still dealing with the consequences of an enormous credit and real-estate bubble that has accompanied, and prolonged, the latter stages of the growth miracle. Between 2007 and 2014, total private debt in China rose from about a hundred per cent of G.D.P. to about a hundred and eighty per cent—a jump even larger than those seen in countries such as Ireland and Spain, which subsequently endured deep recessions. In 2010 alone, the amount of debt taken out by Chinese businesses and households jumped by about thirty-five per cent of G.D.P.
These figures, which I took from a paper published earlier this year by Steve Keen, an Australian-born economist who monitors debt closely, suggest that what we are observing in China is the unusually elongated aftermath of a “Minsky moment”—that dreaded moment, named after the late post-Keynesian economist, when euphoria is replaced by pessimism, asset prices start to plummet, lenders discover that their creditors can’t repay their loans, and an economic downturn begins. Or, as Deng Xioping might have put it, we have a Minsky moment with Chinese characteristics.
For quite a while now, it has been clear that the period of euphoria (and what Minsky referred to “Ponzi financing”) is over, and that the Chinese economy, left to its own devices, would probably suffer the same fate as those of Ireland, Spain, and Portugal. Its real-estate market would crash, many of its banks would become insolvent, and its government would be forced to rescue them, thus transforming much of the private debt into public debt. Indeed, Keen and other China skeptics have long been predicting a crash.
So far, however, the Chinese government, which enjoys the luxury of having relatively little debt of its own, plus enormous foreign currency reserves, has managed to avoid such a nasty outcome. By intervening in ways obvious and opaque, it has sought to substitute a managed deleveraging of the economy for a chaotic collapse. Until pretty recently, the consensus among economists and investors was that this policy was generally working. G.D.P. growth was falling, but not cratering. The Chinese shadow-banking system, which issued a lot of the dodgy credit, was shaky, but it hadn’t collapsed. And China’s stock market was soaring.
The events of the past months have prompted a reassessment of the true state of China’s economy, and of the competence of its policy makers...
Have a nice weekend.
What happened to that last comment? What did she predict?
Posted by: Pat Brown | 08/14/2015 at 01:40 PM