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Economics

El superciclo de la deuda llega a China

Aug 17, 2023 Kenneth Rogoff

CAMBRIDGE – La crisis financiera de 2008 en los Estados Unidos dio inicio a un superciclo de deuda, que en 2010 se extendió a Europa y hace poco envolvió a muchos de los países de ingresos bajos y medios inferiores. ¿Serán los problemas financieros de Country Garden, la megaempresa china de desarrollo inmobiliario que enfrenta pérdidas por miles de millones de dólares, un preanuncio de la próxima fase del ciclo?

La respuesta todavía es incierta. Las autoridades chinas tienen un historial notable en lo referido a contener crisis económicas, pero la combinación actual de una desaceleración significativa del crecimiento junto con altos niveles de endeudamiento (en particular, en los gobiernos de nivel local y el sector de bienes raíces) es un desafío inédito.

Los problemas actuales de China tienen sus orígenes en el inmenso programa de estímulo a la inversión que aplicó después de 2008 y del que una parte significativa terminó impulsando un auge edilicio. Tras años de construir viviendas y oficinas a toda marcha, el inflado sector inmobiliario (que equivale al 23% del PIB chino, o 26% si se cuentan las importaciones) ha comenzado a generar rendimientos decrecientes. No sorprende, ya que China está al nivel de muchas economías avanzadas en cuanto a infraestructura y stock de viviendas, mientras que su ingreso per cápita sigue siendo comparativamente bajo.

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Kenneth Rogoff

Writing for PS since 2002
243 Commentaries

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly (Princeton University Press, 2011) and author of The Curse of Cash (Princeton University Press, 2016).

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0 Comments on this paragraph, 23 Comments on this article

Ajay Chhibber Aug 23, 2023

The debt super cycle is a much better answer than secular stagnation for expalining the global economy over the last 20 years or for that matter the last 100 years. Prof Rogoff is absolutely right.

The next global super cycle should be created by India given its demographics, if it gets its act together as I argue in a recent book article .
A new reply to this comment has been posted.
vic lai Aug 23, 2023

What currently appears to be quite strange to the foreigners has been the ongoing observation that China's Beijing government seems to be feeling not very urgent in resolving the country's bursting debt supercycle.
If this is really the case, why ?
---
China's current popping debt bubble should be divided into 2 parts : China's foreign debts and China's domestic debts.
-
(a) Defaults of the foreign debts (debts denominated in US dollars owed to the foreigners) is more problematic for China, since, unlike the US Fed, she can't print new US dollars out of thin air to help repay those debts.
The probable result may be increasingly more and more debt-defaults or debt-repaying haircuts unilaterally initiated by the Chinese debtors, hurting mostly the foreigners but not quite the Chinese debtors themselves.
-
Doing so will of course hurt the reputation of China's money-borrowing companies in the eyes of the foreign creditors in the coming years, but this may exactly be what the Beijing government wants, to further discourage the Chinese companies' propensity to borrow from the foreigners once the PBOC practises more stringent domestic bank-lending policies, since those foreign borrowing will temper or even negate the expected contractionary effects of the central bank's rate-hiking tightening monetary policies, just like today's dollar-yen carry trade will also lower the intended contractionary effects of the Fed's rate-hiking cycle.
-
In a sense, the Beijing government's coming probable deliberate choice of widespread defaults of foreign debts is a reciprocal kind of China's wealth-extraction of the foreign creditors represented by the US Wall Street, given the fact that Wall Street et al had extracted so much wealth from China in the past.
-
(b) As for China's defaulting domestic debts, which is comprising mostly of the vast, high-interest-paying, and maturing debts of the big property developers in the country, the situation is more complicated there, since many different economic and political groups with differing self-interests are involved.
Like what'd been happening in the US during the GFC of 2008, today's Beijing central government may also discriminately choose which domestic big property developers to salvage.
-
In particular, the vitally important SOE commercial banks in the formal banking sector may mostly be saved (say, by suffering from less debt haircuts), but their de-facto-owned shadow banks may mostly be ignored, and so,
(i) those wealthy and speculative rich people in China this time around, through their past investments in the supposedly safe trust products of those shadow banks, may not be able to get most of their money back,
(ii) the future development of China's mysterious and hard-to-control shadow banking sector will further be discouraged by Beijing.
---
Debt without default is like capitalism without bankruptcy, or Catholicism without hell.
---
- vic lai Aug 23, 2023
  
  It's said that, during the ongoing bursting of China's debt super-bubble, it's obviously and naturally been politically correct on the part of President Xi for him to mainly salvage those big Chinese creditors that belong to his own Shaanxi political clique, at the expense of all those
  (i) who are not "his own people,"
  (ii) who had already made too much money in the past, and
  (ii) who had already laundered much of their past accumulated vast wealth out to the foreign countries.
  -
  According to a Chinese Youtuber, if
  (a) today's Beijing government led by Xi is "bold" enough to practise US-Fed-like money-printing QE, by buying out all the still-in-construction and unoccupied new and old houses in every urban city of the country, and allow the country's non-house-owning young people, university students, and married couples to first cheaply rent those houses, and then voluntarily and cheaply buy them sometime in the future, then most of the harmful externalities coming from the near-full-popping of the country's current debt superbubble will easily and quickly be reduced to a minimum, so that business will soon be as usual for China in the foreseeable future,
  -
  (b) the Beijing government also declares immediately that
  (ia) all the Chinese house-buyers will have no need to repay their house-mortgage monthly repayments to their banks for the whole of the coming 1 or 2 years, because the Chinese government will pay for them,
  (ib) all the school-students in the country, from kindergarten to university, will not be required to pay any school fees in the coming 1 or 2 years,
  (ic) all sick Chinese patients will receive free public hospital medical services, treatments, and medicines of all kinds for the coming 1 or 2 years,
  then China's domestic consumption in the near future will prop up immediately by a world-growth-promoting extent.
  ---
  - vic lai Aug 26, 2023
    
    Many western China watchers seem to me to be failing to fully understand the realpolitik of today's real-estate-bubble-bursting China.
    -
    The coming end of China's Debt Supercycle, if any, shouldn't be regarded as the Lehman-Brother-like eventual arrival of the Minsky moment in the country, but instead should more appropriately be seen as a debt-bubble-bursting waiting game played by Xi's new ruling oilgarchs in their country, who have been preparing patiently and well for the eventual arrival of the Day of Reckoning ------ the eventual harvesting, not by the always-bargain-hunting Wall Street scavengers this time around, but by they themselves instead, of the remaining precious assets of those crumbling not-their-own-people big property developers, for only a few cents on the dollar.
    ---
    A new reply to this comment has been posted.
  - vic lai Aug 23, 2023
    
    The timing of the courageous Beijing acts suggested upstairs, if any, is also very important for China.
    -
    (ai) If they are performed by Beijing when the US economy is still overheated and her inflationary pressure is still there, the US's everything bubble may soon eventually pop as a result of the Fed's required higher-for-longer rate-hiking cycle.
    (bi) If they are performed when the US economy is already in recession and her inflationary pressure has already subsided, then China will probably be de-facto helping the US recessionary economy to recover more quickly and easily.
    ---
    - vic lai Aug 25, 2023
      
      Will today's China be able to repeat, in the rest of this decade, the success story of South Korea near the end of the 20th century, when South Korea quickly emerged virtually unscathed from the Asian Financial Crisis through at least the following 2 channels ?
      ---
      (A) "Most countries in Asia managed to recover so quickly from the Asian currency crisis of 1997, when the sudden flight of foreign capital from Asian markets triggered a plunge in domestic asset prices, and led to potentially devastating balance sheet recessions.
      (South) Korea, which was running a large trade deficit when the crisis broke, saw its currency fall by 73 percent from its peak.
      Although not by design, the won's plunge provided a huge boost to external demand, which was more than enough to offset the contraction in domestic demand brought about by falling domestic asset prices.
      (South) Korea's trade balance quickly moved into surplus, and its economy recovered in just a fraction of the time that the IMF and the U.S. treasury department had originally predicted would be required.
      (Thailand and Malaysia also benefited greatly from the fall in their currencies, which boosted exports, and helped them to overcome the slump in domestic demand triggered by balance-sheet problems.)"
      (From a book by Richard C. Koo)
      -
      (B) After the Asian Financial Crisis, South Korea greatly opened up her domestic bond market, by allowing the foreign investors to participate in the markets of treasuries, public debts, special debts and short-term corporate debts.
      Her direct financing channel, represented by her stock and bond markets, was promoted by the government.
      The loan structure of her banks was also adjusted to transfer funds away from big enterprises towards small and medium enterprises and individuals.
      After the end of the 1990s, the country's share of direct financing significantly increased and later became greater than that of indirect financing.
      Now South Korea's corporate bond market is the largest in Asia.
      It can be said that South Korea's recent rise in the global stage also owes quite a lot to her increasingly sophisticated bond markets.
      ---
      - vic lai Aug 25, 2023
        
        "The initial condition the country finds itself in affects the choice of policy when fighting a balance sheet recession.
        -
        (a) If the country experiencing a balance sheet recession is running a current-account deficit ----- that is, it is short of domestic savings ------ the proper response is to bring the exchange rate down to tap external demand.
        (b) But if the country experiencing a balance sheet recession is running a current-account surplus, the correct solution is to use (expansionary) fiscal policy to mobilize surplus domestic savings."
        (From a book by Richard C. Koo)
        ---
        So, today's China, unlike South Korea near the end of the 20th century, should mainly use non-trivial deficit spending mainly by the central government to help prop up the domestic steam-losing economy.
        -
        But unlike Hong Kong, which is constantly being bounded by her Currency Board system, China can also practise some degree of yuan devaluation vis-a-vis the US dollar, if she chooses to do so, to help fight domestic recession.
        ---
        After the Asian Financial Crisis, many affected Asian countries, together with China which had newly entered the WTO, started to accumulate more and more US-dollar-denominated FX reserves, partly to avoid the stringent post-crisis borrowing conditions imposed by the IMF, thereby starting or accelerating the latest Debt Supercycle of the US (et al).
        -
        This US Debt Supercycle had also been aggravated by
        (i) the persistent near-zero-lower-bound interest rate environment in the US as a result of the US Fed's various rounds of QEs after the GFC of 2008 ------ in particular, by the US's latest round of Covid-related unlimited new-money-printing QE,
        (ii) the unabated over-extension of the US global empire on this planet.
        ---
        
        vic lai Aug 27, 2023
        
        That a relatively large external devaluation of the yuan relative to the US dollar, though being at odds with China's current supposed goal of faster yuan internationalization, will help much reduce the extent of the ongoing necessary and highly-painful internal devaluation of today's bubble-popping Chinese domestic economy, is again nothing new in China.
        -
        In January 1994, the massive one-step devaluation of the yuan vis-a-vis the US dollar was chosen and practised by the Chinese policymakers then, and as a result, China had become so incredibly competitive that, according to Russell Napier, she began to mobilise hundreds of millions of rural (and urban) workers and capital of its own, which helped create the subsequent economic miracle of China in the past decades.
        -
        Near the middle of the 2010s, China's yuan at that time, like today's, was also massively overvalued, but the gradually allowed ------ instead of being in one big step ------ and controlled devaluation of the yuan had caused the country to eventually lose around a trillion US dollars of her precious FX reserves.
        Time will tell whether this time around China is also going to lose another trillion of her FX reserves at the end of the current round of internal devaluation artificially accompanied once again by much-overvalued yuan.
        -
        The US can "facilitate" China's repetitive tremendous loss of her still-massive FX reserves, if today's US Fed maintains her high(er)-for-longer rate-hiking cycle for a longer period of time than commonly expected in the near future, since the resulting aggravating depreciating pressure of the yuan will induce more and more clever foreign capital to leave China en masse during China's ongoing too-slow two-steps-forward-one-step-backward controlled devaluation of her own currency.
        -
        But will the Fed's doing so ------ by maintaining her current sustained stringent monetary policy for a longer period of time than otherwise ------- helps plunge the US domestic economy into a harder landing ?
        Yes, the possibility is always there, but this time is different, because the Fed's policy interest rate persistently maintained at a high(er) level for a longer period of time will also be
        (i) creating more and more interest revenues to the US's commercial banks and money market funds, through the brand new QE-induced monetary arrangement after the GFC of 2008,
        (ii) increasing the recession-preventing deficit spending of the US Treasury through her higher and higher fiscal-deficit-induced interest expenses.
        -
        Which means, the Fed's coming widely-expected new round of landing-preventing rate-cutting cycle will as a result be less urgent than in the previous non-QE good old days.
        ---
        
        vic lai Aug 28, 2023
        
        Popular market rhetorics regarding the economic performance of a country has sometimes, or even often, been at odds with the objective statistical data recorded and published recently by the country.
        -
        Currently, the US's seemingly no-landing or even goldilocks-like domestic economy seems to have been contradictory to the country's lately-published objective statistical figures :
        -
        (i) According to US's Energy Information Administration, from January to May this year, US's power generation dropped by 3.5%, which was both larger than the drop of 2.7% recorded from January to April and also an across-the-board drop :
        from January to May, the drop in power generation in the US's
        (a) household sector : 5.8% yoy, for a proportion of the total of 37.19%,
        (b) commercial sector : 0.6% (35.76%),
        (c) industrial sector : 1.9% (26.86%),
        (d) transport sector : 1.6% (0.18%).
        On the opposite side of the Atlantic, for the first 7 months in China, power generation increased by 4.1%, and the figure in each month was normally increasing for every sector of the country, showing that at least the power-generation figures of China was much better than that of the US during that period of time.
        -
        (ii) The US Treasury announced on July 14 that the fiscal revenue in June was only 418 billion dollars, a drop of 9% yoy, but the fiscal expenditure in June increased to 646 billion dollars, a big jump of 18%, resulting in a deficit of 228 billion dollars in that month, which was only second to that during the 2008 GFC, and was an increase of 156% yoy.
        US's fiscal revenue dropped by 10% in the first 7 months of this year.
        -
        In principle, the growth of US's GDP in the first half of this year should have been accompanied by both a rise in the country's fiscal revenue and a rise in power generation (or consumption).
        So, this time around, the recent "goldilocks-like" US economic performance should mostly have been artificially manufactured by an increase in GDP coming mainly from new-money-printing-fiscal-deficit-supported growth in domestic consumption expenditures in the post-Covid years.
        So much for the so-called Democratic "Bidenomics," which also looks a bit like Republican Reaganomics in the last century.
        ---
        
        vic lai Aug 28, 2023
        
        As for the exports sector,
        China's exports in July this year recorded a drop of 9.2%, or a drop of 14.5% in terms of US dollar, in comparison with that of
        (a) India : -16.0%,
        (b) South Korea : -16.5%,
        (c) Vietnam : -3.5%,
        (d) Taiwan : -10.4%,
        (e) Indonesia : -18.0%,
        (f) Japan : -4.7%.
        -
        Relative to the first half of last year, China's exported container boxes as a proportion of the world's total increased from 32.5% to 32.7%, and so the proportion kept on rising.
        While China's exports had dropped in the first half of this year, other countries had also dropped even more relative to her, and so China's such proportion had actually ended up increasing.
        The drop in exports in so many exporting EM countries at that time can easily be explained by the over-replenishment of the US's goods-inventories immediately after the opening-up of the US's Covid-affected economy in recent years ------ it has had to take a longer time this time around for the US to digest those more-than-normal remaining inventories in her warehouses, leading to the recently recorded high-base-caused laggard exports performances of China et al.
        -
        The above should have been the true(r) recent comparison of the relative performance of the economies (or Debt Supercycles) of the US and China.
        It's been really hard for many US economists to properly explain their country's recent better-than-expected economic performances, despite the Fed's aggressive rate-hiking cycle, since the US's overall energy efficiency couldn't have suddenly propped up during that period of time.
        -
        So, either
        (i) those American statisticians had once again changed their statistical measuring methods (like what had probably been done to the country's CPI index), or
        (ii) their statistical figures were simply fake.
        And so, in actuality, China's economy has recently been (much) more solid than that of the US.
        The latest western widespread economic propaganda of China's coming crumbling domestic economy must therefore be taken with a grain of salt by the world's hopefully-profit-making investors.
        ---
        
        vic lai Aug 28, 2023
        
        According to a Chinese Youtuber, the lingering psychological symptom of PTSD ------ Post Traumatic Stress Disorder ------ in today's China, as a result of the almost-3-years-long Covid disease and accompanying lockdown policies "militarily" enforced in the country, may still have been adversely affecting many Chinese urban consumers recently, thereby resulting in the observed non-appearance of the country's US-like revenge-spending in the first half of this year, and also contributing to the earlier-than-expected arrival of the tail-end of the country's current Debt Supercycle.
        -
        This again is nothing new.
        Shortly after the end of WWII in the last century, many residents in then defeated Germany and Japan also seemingly started to suffer from a similar PTSD symptom, and it took around 3 years for those peope to be able to fully escape from the long and dark shadow of their countries' wholesale military defeat.
        ---
        On the other hand, shortly after the sudden breakout of the deadly Covid pandemic in the US, an "over-reaction (has-to-do-something) disease" also seemed to have been committed by both the well-intentioned US Congress and the bipartisan (perhaps-vote-buying) ruling administrations, which in turn had led to the currently observed wartime-like massive peacetime deficit government spending during the country's post-Covid years, and so making the ongoing runaway inflation look more like the one in the 1940s than the one in the 1970s.
        ---
        
        vic lai Aug 28, 2023
        
        Which of the following countries is both economically and geopolitically more prospective in the rest of this century, relatively speaking ?
        -
        (i) a country already mainly producing at the topmost parts of the current bifurcating global value-added chains, but without (full) political and military independence of her own, like today's Japan or many of the western EU-Nato European countries, or
        (ii) a country now mainly producing only near the middle- and/or lower-parts of the current bifurcating global value-added chains, but with relatively full political and military independence of her own, like today's China ?
        -
        The more prospective country should be able to eventually resolve her own Debt Supercycle, if any, in both a quicker and a less economically and socially damaging manner.
        ---
        
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vic lai Aug 20, 2023

Why is it so cold in our home ?
Because we can't afford to buy any coal.
Why can't we afford to buy it ?
Because the coal-mining company your father was working in has recently laid him off.
Why did the company lay him off ?
Because there's been too much coal.
---
- vic lai Aug 21, 2023
  
  The tail-end of China's Debt Supercycle has seemingly arrived in the country today, and the front-end of which can be traced back to the aftermath in China of the US's GFC of 2008.
  ---
  (i) 2008 was the year when China started quickly leveraging and hence her new credit expansion in a massive scale.
  Her 4-trillion-yuan stimulative plan at that time required the SOE-banks to vastly expand their new-credit-creation quota, and so in 2009, China's total social financing scale reached 11.6 trillion yuan, an increase of 34.1%.
  The banks' new domestic loans reached 9.6 trillion yuan, an increase of 31.7%.
  Those loan money mostly flowed to infrastructure construction, real-estate development, and expansion of SOEs, thereby forcing the local governments, the
  government-related SOEs, and the private and public property-developing enterprises to leverage up en masse.
  -
  (ii) 2015 was the year when the growth of China's economy slowed down, and was also the year when China's households started to leverage en masse through incurring more and more debts.
  That year, a series of money expansion and real-estate-market-stimulating policies was enacted by the Chinese government, requiring the SOE banks to lower non-trivially the interest rate level and the house-buying first down payment.
  As a result, in 2016, China's total social financing reached 17.8 trillion yuan, an increase of 12.8%, of which, the medium and long term loans of the Chinese households reached 4.5 trillion yuan, an increase of 35.7%.
  Most of the new loan money went to the country's housing market, causing a massive rise in housing prices there.
  -
  (iii) Then came 2020, when the Covid pandemic fully broke out in China.
  2020 was also the year when it became the Chinese government's turn to releverage and to further expand her debt level, to help cope with all the adverse economic effects from the Covid's severe blows to China's economy.
  At that time, a new series of fiscal stimulation and infrastructure-investment plans was propagated by the government, requiring the SOE-banks to massively increase their loan credits.
  And so, in 2020, China's total social financing reached 35.6 trillion yuan, an increase of 13.3%, of which the government-sector debt reached 7.3 trillion, an increase of 59.6%.
  The new loan money mainly flowed to the infrastructure projects financed by the Local Government Financing Vehicles.
  ---
  So, from 2008 to 2020, China had gone through 3 major cycles of accelerated credit expansion, during which each credit-expansion cycle was started in the name of the need to either cope with a newly-cropped-up economic crisis in the country or stimulate economic growth, but in reality, they had all resulted in accelerated releveraging of the overall domestic economy, and each credit-expansion cycle centered mainly on one particular sector of the economy : the enterprise sector, the household sector, or the (local) government sector.
  Each cycle of credit expansion therefore resulted in a different kind of bubble : productive-capacity bubble, housing bubble, or debt bubble.
  -
  The above explains China's latest series of bubble-popping events that we all witness today.
  Will those bubbles keep on bursting now and in the near future ?
  The answer is yes, because every such bubble is unsustainable itself without continuous Ponzi-scheme-like injection of new loan credits to prevent it from popping when the party-throwing music finally stops and the Minsky moment arrives.
  According to Koo's balance-sheet-recession model, the only remaining non-highly-indebted sector in today's China ------ China's central government in Beijing ------ should therefore more quickly come to the rescue.
  ---
  - vic lai Aug 21, 2023
    
    Today in China, economics should trump politics, and so Xi's central government in Beijing should quickly
    -
    (i) restore the good old full economics-fine-tuning power of Li Qiang, the Premier of the State Council of China, inside which both the People's Bank of China and the Ministry of Finance are running,
    (ii) and boldly start issuing lots of new longer-term central government treasuries in the primary market at risk-free (and perhaps also tax-free) nominal interest rates which are now much lower than that of today's new-debt-issuing US Treasury, and allow the treasuries to be freely transacted in a tax-free manner in the secondary market,
    (iii) , suitably and conditionally transfer some of the newly-raised money to today's highly indebted local governments, SOEs, defaulting big property developers, and shadow banks, and
    (iv) spread today's sky-high total cost of debt-repayments over many years in the future, to buy time to fine-tune the domestic steam-losing economy, just like she's also been using her dominant rare-earth global position to buy more time for the country's chips industry to hopefully catch up with that in the West.
    ---
    - vic lai Aug 22, 2023
      
      Alternatively (or also), learning from the debt system pioneered by the Venetians in the second half of the 13th century, today's Beijing government can temporarily nationalise the country's major highly-indebted or defaulting big private property developers, turn their short-term (maturing) debts into consols (bonds which only pay interests but have no maturity dates), and sold them to the country's bond-buyers (like China's non-spending households, say through the help of their commercial banks' wealth management products) in the primary market, at say 75% of their face value (meaning a real rate of returns or interest rate of 6.67%).
      Those consols should be allowed to be freely and actively transacted in the secondary market.
      The consols' prices will go up and down in their daily transactions, according to the demand for and supply of them in the market, and the corresponding interest rate will also inversely go down and up accordingly.
      Since all such trading consols have the same maturity date (which is infinity), the calculation of interest rate will be very simple, and any newly-issued circulating consols will belong to same market as the old consols which are already being transacted in the market, and so they will have the same price.
      So long as the interest rate remains the same, every issuance of a new batch of consols can be regarded as a new issuance of additional company shares to the market.
      -
      Note that the free buying and selling of the consols in the market will create a new type of sorely-needed market liquidity in the country.
      When the country is accumulating more and more debts over time, it's exactly this kind of market liquidity that will keep supporting the normal daily functioning of both the government's fiscal system and the market's debt system.
      -
      When the debt-storm calms down one day in the (near) future, those property developers can be privatised by the Beijing government.
      ---
      A new reply to this comment has been posted.
    - vic lai Aug 21, 2023
      
      Besides the title of "Chimerica" used to describe the past and present bilateral trade relationship between the US and China, during which China has always been the net-exporting surplus country and the US the net-importing deficit country, such a thesis-anti-thesis relationship between these 2 countries is also manifested in at least the following 2 areas :
      ---
      (i) Today's still-overheating US economy requires the US ruling administration to practise (non-vote-buying) fiscal austerity, by tempering her more-than-average yearly deficit spending now and probably also in the next financial year, to
      (a) help reduce the economy's aggregate demand to equality with the economy's contemporaneously recovering and rising aggregate supply, and so
      (b) help the inflation-fighting US Fed to more quickly force the inflation genie to go fully back into the bottle.
      -
      On the contrary, today's steam-losing Chinese economy requires China's non-highly-indebted central government to stimulatively deficit-spend much more than before in the current financial year, and perhaps also in the next few financial years, to
      (ai) help prop up the economy's aggregate demand to equality with the economy's falling aggregate supply, and so
      (bi) help the disinflation-fighting PBOC to more quickly eliminate the otherwise persistent disinflationary or even deflationary pressure in the local economy, and to
      (ci) help the country's local governments, SOEs, private and public property developers, and commercial banks and their shadow banks to more quickly and easily repair their injured balance sheets.
      ---
      (ii)
      (A) Today's US Treasury, when issuing a new batch of government treasuries to be sold in the primary market, should no longer rely too much on the foreigners, but rather should rely more on, or even require, the country's (big) commercial banks (and their shadow banks) to buy more and more of the newly-issued government treasuries (mainly using the banks' ample "excess reserves"), since, doing so can replenish the country's quicky-dwindling and recession-preventing excess household savings that then will keep circulating in the Main-Street real economy, after the federal government has quickly spent the newly-raised money back to the private sector,
      while
      (B) today's Ministry of Finance in China should issue a new batch of much-lower-denomination government treasuries, to be sold
      (aii) mostly to the Chinese households and SMEs in the primary market (after which the treasuries should be freely transferable in the secondary market), instead of
      (bii) mostly to the country's commercial banks (and their shadow banks) as before, to prevent the newly-issued treasuries from always sleeping soundly thereafter at the banks' balance sheets,
      since, doing so, the Chinese central government can help re-inject the country's aggregate-demand-leaking and hence recession-causing excess private household and SME savings back into the precariously fast-contracting circular flow of national income of the country.
      ---
      - vic lai Aug 21, 2023
        
        One can also write another article titled "The Debt Supercycle will soon come to the US."
        Today's seemingly recession-proof and Goldilocks-like US economy may possibly be hiding the gradual formation of a more pessimistic economic and geopolitical future trend for Pax-Americana in the rest of this century.
        Why ?
        ---
        Today's still-not-landing US economy has most probably been artificially propped up by the US federal government's non-receding fiscal-deficit spending, at a time when her remaining total debt is already bigger than the country's GDP and is also expected to further rise quite quickly in the future.
        -
        Today, the expenditure of the US federal government has already reached 25% of the country's GDP, and was maintained at a high level during the past Covid years, second only to that prevailing in the WWII years of the last century.
        If a full quarter of the country's yearly economic activities has to be supported by the central government's expenditures, there must have been something wrong with today's US economy.
        -
        Almost everyone knows that at least some, if not most, of the government's money is being spent in an inefficient (rent-seeking or wasteful) manner, simply because the money, according to Milton Friedman, is gotten from other people and then spent on still other people ------ it's said that the US Military once spent 6 million US dollars to buy 6 sheep in Afghanistan !
        (If this is true, it's most probably done to use up the Military's lavish yearly spending quota.)
        -
        So, on the surface, the US's GDP keeps on growing every year, but, as in China, the total waste invovled is also tremendous.
        This kind of non-trivial waste per se is also inflation-prone, and so the US Fed has recently had a hard time explaining why today's US inflation is so sticky, and the central bank has probably failed to find out the root cause of those stickinesss.
        ---
        
        vic lai Aug 21, 2023
        
        Actually, according to a Chinese Youtuber, from a macroeconomic standpoint, the explanation is actually quite simple.
        At such a high proportion of GDP, if the government expenditure fails to drop non-trivially in the near future, the US's inflation will remain sticky and so the country's inflation problem will remain unsolvable.
        The rising wage-price double helix will pursue and will continue to be a symptom, not really the cause, of this sticky-inflation disease.
        The cause is the too-high ratio of government expenditure/GDP, or the too high fiscal-deficit-spending/GDP ratio.
        The relatively inefficient and wasteful government expenditures will continue to fail to prop up quickly and non-trivially the country's aggregate supply to help fight real-economy inflation.
        ---
        
        vic lai Aug 21, 2023
        
        In the second quarter, while the US's GDP grew by 2.6%, the government's tax revenue on the contrary dropped by 4% y-o-y.
        Normally, when an economy is growing, the tax revenue should also be rising in tandem, since the enterprises are making more profits and the workers are earning higher wages.
        Only when the economy is in a recession will tax revenues end up dropping.
        And so, the above (+2.6%, -4%) combination occurred when the US's economic growth during that quarter relied mainly on the US government's (increased) deficit-spending.
        The wasteful nature of those government spending hasn't enabled the US workers and enterprises to make more money during that period of time.
        This is already happening while the country's nominal GDP keeps on rising, imagine what will happen when the US economy is in a recession ------ the drop in government revenues will be even more severe.
        ---
        In the coming 3 years, the US government's expenditure will most likely keep on rising, but today's government revenue is already dropping, and so, adding also the government's quickly-propped-up interest expenditures from her higher-interest-paying government treasuries, it'll be a must that the government's deficit will continue to deteriorate further.
        ---
        
        vic lai Aug 21, 2023
        
        (a) If, at that time, the Fed chooses to keep raising the interest rate, the government's deficit problem will further be worsened, which is actually pro-inflationary, because the government's interest expense every fiscal year will become larger and larger over time.
        (b) If, at that time, the Fed chooses to lower the interest rate, the market's inflation expectation will reverse and crop up again, thereby propping up most of the energy and commodity prices in the world, and inducing the US's labor costs to further rise at a faster rate, meaning that the inflation rate will quickly rebound.
        -
        When means, the US will face a new catch-22 problem : whether the Fed raises or lowers the interest rate, the result remains inflationary.
        The inflation rate will rebound more quickly if the interest rate is lowered by the Fed.
        ---
        Which also means, Keynesian economics ------ the smoothing of the economic cycle through anti-cyclical fine-tuning government intervention ------ is a good medical cure only when the central government is not highly indebted.
        Under the situation of high remaining debt of the government, more government deficit-spending used to salvage the recessionary economy will become a toxic cure, since
        (i) the government's expenditure as a ratio of GDP will become higher and higher,
        (ii) nominal GDP keeps on rising,
        (iii) the labor market looks seemingly heated and quite healthy, but actually the worker's real wages drop, or fail to rise (quickly,) because of too-high inflation,
        (iv) the government's revenue keeps on falling, and her deficit spending is increasingly spinning out of control,
        (v) the inflation's stickiness is hard to eliminate,
        (vi) politically, the diminishing real wages of the workers will further worsen the country's bipartisan arguments and conflicts, leading to more and more political and social disorder.
        ---
        
        vic lai Aug 21, 2023
        
        All of the above pretty well summarises the ongoing situation in the US, which is different from that in the 1970s.
        In the seventies, the problem was called stagflation.
        At that time, the debt level of the US government was very low, so were the debt levels of the country's households and enterprises, which were at an average level much lower than that of today.
        So, stagflation at that time was manifested as a cold economy and hot inflation.
        Today's situation in the US, already with a very high average debt level for many households, enterprises and especially the government, is the opposite of the above, and so can be called "hotflation" ------- the economy is hot, while inflation is high at the same time.
        -
        This new situation in the US is actually nothing new.
        History books show that, in the past, a typical hegemon country before her relative decline had always experienced a period of over-expansion of her own (global) empire.
        The fiscal capability of the empire was ultimately limited, but her desire to further expand was nonetheless unlimited, and so, the outer boundary of the empire further marched forward, meeting and defeating more and more enemy countries in the process, and eventually the empire ran inescapably into the problem of diminishing returns ------ the rate of expansion returns became smaller and smaller than her quickly rising fiscal costs.
        -
        At that time, the empire's fiscal deficts became a bigger and bigger part of her GDP, and so quantity-crowding-out more and more otherwise efficient private investments and free-market activities of all kinds in the empire.
        The tax revenues would increasingly become insufficient to satisfy the empire's quickly rising expenditures.
        -
        The rulers at that time would usually shift the heavier tax burden more and more to the common people, and so the overall vitality of the economy would keep on dwindling, the fiscal position deteriorated further to an unrecoverable level, and the coins kept on debasing further and further, until both internal and external disturbances broke out at the same time, and the empire eventually fell into historical dust.
        ---
        
        vic lai Aug 23, 2023
        
        Whether the US's debt supercycle can be sustained in the foreseeable future, or whether Pax Americana can pursue in the rest of this century, depends crucially on the coming economic and technological capability of the US relative to the rest of the world.
        -
        The latest better-than-expected stock performance of Nvidia (et al) implies that, the US can possibly keep her relative technological lead over her closest rival countries in the coming years, and so,
        (i) the foreigners' confidence in the newly-issued debts of the highly-indebted US government will be maintained, and so the position of the whole of the US's treasury yield curve can be maintained at a relatively low level over time, especially if the US inflation tide further recedes in the future,
        (ii) the strength of the hegemon US dollar relative to most other currencies in the global currency market will be sustained in the future.
        ---
        The above will especially be the case if the 4th Technological Revolution on this planet can successfully be started mainly in the US alone one day in the far future, which I think paradoxically requires the more entrepreneurial US government to deficit-spend, both in the short run and in the right places, much more today than in the previous years, in collaboration with the innovative private US sector, to help nurture the eventual arrival of this Godot-like Revolution on our planet ------ even though doing so will mean further confidence-hurting deterioration in the US government's debt situation in the near future.
        ---
        
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