Saturday, November 10, 2012
China Teaches Us
China has had phenomenal growth that slowed and now is continuing. The New York Times reports "the renewed growth has been fueled by rapidly mounting debt, as state-owned banks and the central bank have funneled hundreds of billions of dollars in additional lending to state-owned enterprises and government agencies to finance further investment projects." We could do this too. Our Federal Reserve could loan money to the national and state and local governments to build much needed infrastructure. We are mired in old thinking that austerity is the answer to unemployment. The debt of Chinese state-owned banks and the central bank is only a bookkeeping phenomena of no consequence. Central bank debt is just an accounting matter. It can go on until the economy can not produce further goods. The limit is the real capacity of the economy. Does anyone doubt that our economy can produce more?