Comments on: Chanos: “We’re not calling for an impending crash of China” http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html Finance, Economics and Markets Fri, 10 Feb 2012 00:37:00 +0000 hourly 1 By: Marshall Auerback http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58395 Marshall Auerback Sat, 06 Feb 2010 15:27:00 +0000 http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58395 In a message dated 2/6/2010 05:05:49 Mountain Standard Time, writes: I am also sympathetic to Richard Koo's balance sheet recession theme. But I do think he needs to talk about resource allocation and toxic bank debt more. These are issues that contributed to the long malaise. I think the toxic bank debt is an effect of insufficient aggregate demand, rather than a cause. Koo has many excellent points in this book, but he believes in a government budget constraint (GBC) – automatically associated deficit spending with borrowing (even when he is talking about economies with near zero interest rates and therefore no need to borrow to maintain interest rate targets). He is a deficit-dove in this regard and via the GBC he thinks the government is borrowing the funds from the savings and then spending them to keep money returning back into the income-generation stream. This is backwards reasoning. The money that the private sector uses to buy the bonds comes from the government net spending (deficits). The same deficits provide the funds to ensure that the private saving desires can be realised. If the deficit did not expand to meet these desires then, as above, the paradox of thrift, would drive income (and output) down and a crisis would emerge. For a good explanation see: _http://bilbo.economicoutlook.net/blog/?p=3225_ (http://bilbo.economicoutlook.net/blog/?p=3225) In a message dated 2/6/2010 05:05:49 Mountain Standard Time,
writes:

I am also sympathetic to Richard Koo’s balance sheet recession theme. But
I do think he needs to talk about resource allocation and toxic bank debt
more. These are issues that contributed to the long malaise.

I think the toxic bank debt is an effect of insufficient aggregate demand,
rather than a cause.
Koo has many excellent points in this book, but he believes in a
government budget constraint (GBC) – automatically associated deficit spending with
borrowing (even when he is talking about economies with near zero interest
rates and therefore no need to borrow to maintain interest rate targets).
He is a deficit-dove in this regard and via the GBC he thinks the government
is borrowing the funds from the savings and then spending them to keep
money returning back into the income-generation stream.
This is backwards reasoning. The money that the private sector uses to buy
the bonds comes from the government net spending (deficits). The same
deficits provide the funds to ensure that the private saving desires can be
realised. If the deficit did not expand to meet these desires then, as above,
the paradox of thrift, would drive income (and output) down and a crisis
would emerge. For a good explanation see:
_http://bilbo.economicoutlook.net/blog/?p=3225_ (http://bilbo.economicoutlook.net/blog/?p=3225)

]]> By: Edward Harrison http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58391 Edward Harrison Sat, 06 Feb 2010 12:05:00 +0000 http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58391 I am also sympathetic to Richard Koo's balance sheet recession theme. But I do think he needs to talk about resource allocation and toxic bank debt more. These are issues that contributed to the long malaise. I am also sympathetic to Richard Koo’s balance sheet recession theme. But I do think he needs to talk about resource allocation and toxic bank debt more. These are issues that contributed to the long malaise.

]]> By: Marshall Auerback http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58383 Marshall Auerback Fri, 05 Feb 2010 21:27:00 +0000 http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58383 I am very sympathetic to Koo's views. I am very sympathetic to Koo’s views.

]]> By: barryschaeffer http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58380 barryschaeffer Fri, 05 Feb 2010 18:45:00 +0000 http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58380 Edward and Marshall, I'd also be interested in your respective opinions about Richard Koo's Balance Sheet Recession model and his views for going forward from here. Barry Edward and Marshall,

I’d also be interested in your respective opinions about Richard Koo’s Balance Sheet Recession model and his views for going forward from here.

Barry

]]> By: Marshall Auerback http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58374 Marshall Auerback Thu, 04 Feb 2010 21:53:00 +0000 http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58374 I agree with Ed. In fact, the just-released Q4 2009 GDP data (which is reported on a year over year basis) implies a giant sequential increase in nominal GDP growth for the second half and, in particular, the fourth quarter. Part of this reflects a weird practice by the Chinese statisticians of putting upward revisions to historical data into the fourth quarter of a calendar year. However, not all of the implied giant increases in Q4 2009 nominal GDP growth (ranging from 40% to 114% depending on the analyst) can be attributed to such a statistical screw-up. It may be that nominal GDP growth in China in the second half of last year was more than 20% annually on a sequential basis. If so, inflation in China may already be higher than is reflected in the government’s (massaged?) price indices. I More importantly, real economic growth may now be fast enough to create resource bottlenecks. Consequently, inflation in this quarter and coming quarters may exceed all expectations. Inflation actually erodes Chinese competitiveness. What if the big surprise is that we get a devaluation of the remnimbi? One aspect of this implies a loss of competitiveness amongst Chinese manufacturers, which might suggest future WEAKNESS in the yuan, not strength, as the West has been pushing for. This might actually explain the Chinese reticence not to revalue. In a message dated 04/02/2010 Mountain Standard Time, writes: ====== Edward Harrison wrote, in response to barryschaeffer: I think the Chinese will resist a large currency move, setting us up for some trade tension in 2010. Marshall Auerback also gets these comments and I would be interested to hear his view. Site URL: http://www.creditwritedowns.com/ IP address: 71.163.44.167 Link to comment: http://disq.us/aupzc ----- Options: You can moderate through email. Respond in the body with "Delete". Respond in the body to post a reply comment. Or use the moderate panel: http://disqus.com/comments/moderate/ To turn off notifications, go to: http://disqus.com/account/notifications/ I agree with Ed. In fact, the just-released Q4 2009 GDP data (which is reported on a year over year basis) implies a
giant sequential increase in nominal GDP growth for the second half and, in particular, the fourth
quarter. Part of this reflects a weird practice by the Chinese statisticians of putting upward
revisions to historical data into the fourth quarter of a calendar year. However, not all of the
implied giant increases in Q4 2009 nominal GDP growth (ranging from 40% to 114% depending
on the analyst) can be attributed to such a statistical screw-up. It may be that nominal GDP
growth in China in the second half of last year was more than 20% annually on a sequential
basis. If so, inflation in China may already be higher than is reflected in the government’s
(massaged?) price indices. I More importantly, real economic growth may now be fast enough to
create resource bottlenecks. Consequently, inflation in this quarter and coming quarters may
exceed all expectations. Inflation actually erodes Chinese competitiveness. What if the big surprise is that we get a devaluation of the remnimbi? One aspect of this implies a loss of competitiveness amongst Chinese manufacturers, which might suggest future WEAKNESS in the yuan, not strength, as the West has been pushing for. This might actually explain the Chinese reticence not to revalue.

In a message dated 04/02/2010 Mountain Standard Time, writes:
======

Edward Harrison wrote, in response to barryschaeffer:

I think the Chinese will resist a large currency move, setting us up for some trade tension in 2010. Marshall Auerback also gets these comments and I would be interested to hear his view.

Site URL: http://www.creditwritedowns.com/
IP address: 71.163.44.167
Link to comment: http://disq.us/aupzc

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]]> By: Edward Harrison http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58373 Edward Harrison Thu, 04 Feb 2010 21:26:00 +0000 http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58373 I think the Chinese will resist a large currency move, setting us up for some trade tension in 2010. Marshall Auerback also gets these comments and I would be interested to hear his view. I think the Chinese will resist a large currency move, setting us up for some trade tension in 2010. Marshall Auerback also gets these comments and I would be interested to hear his view.

]]> By: barryschaeffer http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58372 barryschaeffer Thu, 04 Feb 2010 21:22:00 +0000 http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58372 Edward, Do you agree with Geithner that the Chinese will let the Yuan appreciate significantly? If so, do you think that will cause significantly higher rates in USD investment grade bonds? Barry Edward,

Do you agree with Geithner that the Chinese will let the Yuan appreciate significantly? If so, do you think that will cause significantly higher rates in USD investment grade bonds?

Barry

]]> By: dansecrest http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58346 dansecrest Wed, 03 Feb 2010 19:05:00 +0000 http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-58346 Excellent! Keep the posts comin'. Thanks Excellent! Keep the posts comin’.

Thanks

]]> By: FT Alphaville » Chanos: ‘We’re not calling’ for a China crash http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-9400 FT Alphaville » Chanos: ‘We’re not calling’ for a China crash Tue, 26 Jan 2010 08:12:04 +0000 http://www.creditwritedowns.com/2010/01/chanos-were-not-calling-for-an-impending-crash-of-china.html#comment-9400 [...] CreditWritedown’s Edward Harrison notes: [Chanos] is bearish on China because of an unprecedented credit-induced bubble in Chinese real [...] [...] CreditWritedown’s Edward Harrison notes: [Chanos] is bearish on China because of an unprecedented credit-induced bubble in Chinese real [...]

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