There is a good opinion piece in the Wall Street Journal a couple of days ago with an interesting title - China’s Reform Canary, a clever statement of the purpose in having the Governor of the People’s Bank of China say what needs to be done with the economy the week before the Communist Party’s annual conference. This canary will not be dying anytime soon, in case you were wondering.
He is talking about debt - lots of debt built up over years of lending to keep state-owned companies afloat. He is talking about business debt unrelated to productivity. “This combination, known as financial repression, has contributed to the massive increase in lending over the past decade. Total debt in the economy soared to 280% of GDP by some estimates.” Debt to GDP ratios in the U.S. are about 105% and getting worse. The two largest economies in the world are in debt up to their ears.
I don’t know about you, but spending seems to be a problem neither one of us can solve. They think it is OK to be in debt up to your ears, and don’t know how to say no to increases in spending. Do we think that can go on forever?
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