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10 August 2015


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Their banking system can create credit out of thin air and has. And that includes PBoC.



Xi Jinping and the Communist politburo are facing an acid test. Their banking system is insolvent and confidence in the omnipotence of the politburo is beginning to get questioned. Large portion of their foreign reserves are illiquid like invested in Venezuela. Capital flight is accelerating. More so after they lifted their currency peg.

There was this guy from China who posted some time back extolling the virtues of MMT, like the guy MRW noting that untrammeled government spending would lead to an economic utopia. Well China is going to prove or disprove their theory in the next 10 years. My own bet is they will desperately try to reflate their credit edifice to kick the can down the road. But sooner or later the fundamentals will force a shift in psychology and all those nice ivory tower economic theories will go the way of the dodo. The communist party may not survive the outcome. I would be cautious about all the certainties being expounded on Chinese supremacy. Don't count out the resilience of the US economy when government interventions are removed.

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