Chinese fiscal recklessness

From Michael Pettis:

“New lending was 1.53 trillion yuan ($224 billion), the central bank said on its Web site today, bringing total lending this year to 7.4 trillion yuan”…ballpark $1 trillion at current exchange rates. Pettis says:

“I guess it is time to introduce something that I might call the Pettis Rule of Banking (although I am way, way down on the list of people who first thought of this): “It is not even theoretically possible that in a banking system in which bankers are given unlimited liquidity, tremendous pressure to make loans, and an implicit guarantee against losses, that enormous amounts of bad loans will not be made.”

Me:

Blowing out monstrous amounts of money supply might keep the masses content in the short term, but could eat through China’s dollar reserves in a hurry down the road. It looks like “extend and pretend” on a massive scale to me.  To me what the Chinese govt is doing is far more reckless than any actions taken to date by US or European governments and financial institutions. In my mind, the Chinese leadership know that when the economic boom collapses, the jig will be up for them. They are just stalling the inevitable.

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