Comments on: Is Governor Zhou a closet Bernanke-ite?

By: Scott Peterson

Scott Peterson — Wed, 13 May 2009 18:51:15 +0000

What? Chinese citizens complain that the US has outsourced its polluting industries to their country? Chinese firms could have built low-emission plants, but chose not to for cost reasons. This is a self inflicted problem.

By: Dr.Frank Loo

Dr.Frank Loo — Thu, 16 Apr 2009 12:05:32 +0000

Johan – “what forced American people to borrow for consumption..?”

They believe tomorrow will not come!!

By: Johan

Johan — Tue, 14 Apr 2009 21:02:22 +0000

Regardless of policy, what *forced* american people to borrow for consumption and not investment?

By: No name

No name — Mon, 13 Apr 2009 21:32:54 +0000

Michael, thank you for replying to my previous comment. Now how about these numbers: While it may be impossible to give the total cost of Iraq and Afghanistan, various “special budget items” have already added up to about 1 trillion. This cost has to be financed somehow. Again, using rough estimate, say China holds 2 trillion US debt. The “war on terror” along can account for 50% of that total debt. Using this simplified model, the chimp’s effect in last 8 years is at least equal to the cumulative effect of 20 years of trade imbalance. I am exaggerating as it is really a group of monkeys, but the “chimp” just sounds cooler.

By: reader

reader — Mon, 13 Apr 2009 00:12:43 +0000

Thanks for answering; but i thought this rationale would only hold true in a high inflationary scenario, when the household can count in a diferential return of its interest income, big enough to become an real (or imaginery?!) income. Otherwise lower interest rates should encourage the abandon of savings and induce highers spending. Check it with your friend Arminio Fraga. Thanks for your time.

By: Dr.Frank Loo

Dr.Frank Loo — Sun, 12 Apr 2009 15:56:02 +0000

It appears that the political unrest in Thailand will not calm down until its prime minister steps down and this will further hurt its economy which is already bad. Looking back the last Asian financial crisis started from Thailand and in view of what is happening right now I am not surprised Thailand will trigger off another Asian financial crisis before the the global crisis is fixed. If it happened we will be back to a square one when many people are saying we will soon bottom out. Situation around the world is so unpredictable and delicate.

By: Dr.Frank Loo

Dr.Frank Loo — Sun, 12 Apr 2009 06:41:27 +0000

Do economists know more than us?

http://www.independent.co.uk/news/business/analysis-and-features/do-economists-know-any-more-than-us-1667301.html

By: Michael Pettis

Michael Pettis — Sun, 12 Apr 2009 06:39:07 +0000

Twofish, before you discuss the shortcomings of Martin’s book you might want to read more than my two paragraph excerpt. Actually he does discuss a “world blows up” scenario.

Reader, no, I meant keep interest rates low, which by the way is what has generally happened. In China, and in most Asian countries, lower interest rates tend to increase savings. This is probably because the high savings rate means that interest income is a significant portion of total household income, and since a reduction in interest rates has a notable effect in reducing income and savings, it therefore leads to a reduction in consumption.

By: Michael Pettis

Michael Pettis — Sun, 12 Apr 2009 06:38:56 +0000

Richard, yes you are probably right, and I think that was one of Martin’s points. The Fed could have engineered tighter policies, but that might have come at the cost of rising unemployment. As for your second point, US household savings for most of the past 80 years has stayed within a range of 6-10% of GDP (one major exception was in the late 1970s when it rose, if I remember correctly, to around 12-13%, and the other was in the mid-1980s when it decline to around 4-5%). By the time the US trade deficit it 7-8% of US GDP, US household savings was around 0%. One could make a superficial argument that foreign savings wholly substituted for US savings. And thanks for the nice comments on my book. I guess it had to happen after a crisis of this magnitude but it seems I am finding ever more people who have read it.

By: Michael Pettis

Michael Pettis — Sun, 12 Apr 2009 06:38:46 +0000

TM, as you point out the US tends to be pretty good at rapid adjustment. Just as the truly awful 1970s set the stage for a massive restructuring, I suspect that it will happen again.

Twofish, you are right that there may be positive impacts of bubbles and booms, but that doesn’t change the analysis of what happened and what will happen next. I personally am impressed by the fact that every major stage of the industrial revolution occurred in the midst of a financial bubble. Perhaps excessively high risk appetite is bad for investors and bad for stability but good for the spread of productivity-enhancing innovation.

As for your next point, Twofish, I applaud your many innovative views of recent history but I am afraid that these most certainly were China’s policies. Perhaps we should make the useful distinction between the publicly proclaimed aims of policy and the actual policies and their impacts. As for your next point, of course Beijing can bail out the ship-building industry by placing huge orders for aircraft carriers and guided missile destroyers, but since they didn’t do that, and instead did what the Bloomberg article said they did, I am not sure why that is a valid objection.