Need China turn into Japan? No. Might it turn into Japan? Yes. Martin Wolf

Japan has had near-zero interest rates for three decades and its net public debt is 159 per cent of GDP. Just as is true of China’s policies now, this was the result of an underlying condition of “underconsumption”, or structurally deficient demand. 

Given that condition, demand needs to be stoked. Huge property bubbles are a feature of such economies, not a bug, as is the desperate need to intervene manically when they burst.

In both cases, monetary policy was loosened, credit exploded and a huge boom in real estate was unleashed, again in the 1980s in Japan and the 2010s in China. 

The huge defect of the “let us have a real estate bubble” solution to excess savings is that its bursting leaves a residue of falling asset prices, unpayable debt, damaged finance and unhappy people. 

Worse, it also leaves still weaker demand, as the impact of the collapse further undermines investment and so exacerbates excess savings. Without strong policy action, the latter is almost certain to deliver a deep depression.

Martin Wolf 15 October 2024

https://www.ft.com/content/553b106c-2bba-4f90-86d6-8496fc9cf902

China; the new Japan John Mauldin

https://englundmacro.blogspot.com/2024/10/china-new-japan.html

Tillbaka till WoS 1 November 2024

https://englundmacro.blogspot.com/2024/11/wos-1-november-2024.html