Saturday, 13 February 2010

China's stimulus too large?

China’s stimulus was large compared to most countries’. On the other hand it wasn’t large compared to the U.S. stimulus – see here.

However, it seems that China’s stimulus was much too large – see here. Which might seem to suggest that the U.S. stimulus was too large. But the latter is clearly not the case. Why?

Is it because the source of the problem was largely in the U.S.? Put another way, the loss in aggregate demand in the U.S. as a result of the collapse of household balance sheets and bank jitters was presumably larger (as a proportion of GDP) than equivalent figure in China. That is, all China suffered was presumably just an inconvenient drop in export orders - nothing catastrophic.

Anyway, thanks to China for doing more than its fair share of stimulus. Seems we need to keep quiet about China's allegedly under valued currency for several months.

Natixis claims that both the shock and the size of stimulus was three times larger in the U.S. than in Europe. So the shock to stimulus ratio for Europe the U.S. seems to be similar, though clearly the stimulus has been too small in both cases.

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