Wednesday, July 20, 2011

China tells U.S. to get debt under control

Oh really?! Story here.

If we had government leadership that knew what they were doing, they would simply tell "China" that if they didn't like our Treasury Bonds, they could just stop exporting to us at any time and that would take care of that "problem" for them right away.

Instead we have failed leadership that actually takes heed of these statements from the "country" that runs the largest external deficit with the U.S. and has been building up external debt at a pretty good clip themselves.

Leadership that currently is probably influenced and motivated by these types of statements coming out of China, and is right now in Washington DC negotiating fiscal austerity measures among themselves to see which political party can be seen as the most "fiscally responsible" to among other things appease China.


Neil Wilson said...

The reason the export countries can get away with 'exporting their unemployment' is because people won't call their bluff.

Of course countries with exports to sell are going to want you to restrict your domestic consumption of money. It's in their interest that you do that.

Anonymous said...
This comment has been removed by a blog administrator.
wh10 said...

So which is it- is this a case of the blind leading the blind, or is China being subversive?

They could be thinking a lot of things.

If they are "blind" and concerned about high debt = currency devaluation, then they would want to probably encourage austerity, right?

If they are not "blind" (in MMT paradigm), then would fiscal stimulus work in their favor? It maintains the health of our economy to export goods, but Neil, are you suggesting it turns consumption inwards? On the other hand, does a depressed economy work in their favor as people look for cheaper goods?

Crake said...
This comment has been removed by the author.
Crake said...


I do not understand

“Of course countries with exports to sell are going to want you to restrict your domestic consumption of money. It's in their interest that you do that.”

If money were in fixed supply, I could understand that a foreign exporter would not want an importing country to increase domestic consumption because it would take money that would go to the foreign exporter but that is a horizontal perspective and we are discussing a vertical action. If the importing nation’s central bank/government vertically increases money (which is the action they are protesting), then there is more money to spend on both domestic consumption and on the foreign exporters goods. Therefore, to me, it seems is in China’s best interest for us to have growing deficits, no?

Tom Hickey said...

wh10, China thinks it is in its interest for the US to adopt austerity to prevent the tsys it is holding lots of from depreciating, but it is not China's interest for the US to adopt austerity if that results in economic contraction and a decline in China's exports to the US. They don't seem to get this, it appears, unless they believe in "expansionary fiscal contraction," which is an oxymoron.

Crake said...

So their fear is a falling dollar which would make their goods more expensive or mean they would have to devalue the Yuan to keep current parity and then bring more inflation home. I guess this is where austerity comes into play. By lowering aggregate demand, it would lower prices, which would tend to increase dollar value, right (cash would be king) and they could keep their percentage share of goods sold in the US. But the cost of that would be lower total consumption in the US, which would likely lower their exports to the US.
So basically it sounds like they want a large percentage of a smaller pie, instead of a smaller percentage of a larger pie even if the latter would likely be bigger. Either ‘That don’t make no sense.’ on their part or their fear of importing inflation is overtaking their desire to grow exports in total terms.

Matt Franko said...


It seems most likely that "China" is out of the MMT paradigm as most are.

Your point is what Ramanan has been commenting about wrt MMT and the external sector.

R's point (at least one) seems to be if you have an import economy (like the US) when you make a fiscal adjustment there is just more income to buy the foreign made goods or nat resources and the external deficit keeps going up and perhaps can get 'out of control' (my words) and to that extent you dont help the domestic employment situation.

MMT perhaps in response would say then the fiscal deficit should be even higher... to provide full domestic employment...

SchittReport said...

its actually $586 billion by end march, 2011 - an increase of 35%+ in a year + 3 months.

it was $549 billion at end 2010, which means it grew by $37 billion in the 1st 3 months of 2011.

china is in the middle of a credit-fueled expansionary cycle. it is doing exactly what the US should be doing, which is developing / upgrading its infrastructure across the energy, communications, transport (and other key) sectors; and investing in strategic industries - thereby creating jobs.

its not how much you spend, its how you spend it.

Matt Franko said...

The numbers for "China" are more interesting if you include Hong Kong in the calculations. If you do, I believe a combined "China" external debt is well over 100% of GDP:

Cue The Prospector: THEY"RE A DEBTOR NATION!!!!!


TomatoBasil said...
This comment has been removed by the author.
Matt Franko said...


Actually not quite 100% Ill look further into it:

China: $546B
HK: hk$6,349T = $849B

Tot: $1.395T

Or Approx 30% China <$5T GDP...

Hong Kong data here:

So not as bad as I feared... 30% ish... still not negligible but perhaps not 'DEBTOR NATION!" status.

Global data:


SchittReport said...


hong kong's debt is at 334% of GDP by itself - actually, this will rise further by year end since the government decided to hand out HK$6,000 (US$750) to every HK citizen this year as a 'rebate' - after people took to the streets to protest against the HK government's budget (and the US$277 billion it holds in reserves just sitting there). this is a prime example of how NOT to spend it - instead of using reserves for a productive purpose, the HK government decides on payola for mass appeasement.

maybe moody's needs to downgrade HK to triple junk status? :O

Matt Franko said...


Right! HK is at twice the % gdp as Greece so how do they get off so easy???? And all of the borrowing in HK probably ends up being deployed in mainland.....


Tom Hickey said...

HK was the financial center before Shanghai and still is central to the PRC. It's sort of like the City and the Street in the West.

Shaun said...

Hi I have a question.

Assume that the government does what the people want. Then is taxation good for the economy ?

I would argue that taxation creates a base level of 'consumption'. If the tax dollars are spent on things that reflect the demand of the community then this will lead to economic growth.

BTW I stubbled upon this blog after viewing a youtube video with Mike Norman explaining the debt crisis. What Mike said seemed to confirm a thought I had today. That the debt-crisis is a non-issue and the fact that the debt-ceiling is denominated in absolute dollars rather than a % of GDP means that debt in America will be a perpetual issue.

Ralph Musgrave said...
This comment has been removed by the author.
Ralph Musgrave said...

Neil and Crake, If the US boosts demand, the dollar devalues a bit, which does not suite Chinese exporters. But the additional demand would tend to increase Chinese sales to the US. It is hard to say without knowing the elasticities of supply and demand for Chinese exports to the US etc, which of the two effects predominate. But for the US to deliberately keep unemployment higher than it need be so as to enable those with jobs to buy Chinese stuff a bit cheaper is absurd. So I would always go for full employment, and if that suits Chinese exporters, then OK. If not, then that’s just tough luck Chinese firms.