Friday, 12 December 2014

China mollycoddles its banksters.

So given a need for stimulus, a “communist” country hands money to banksters rather than the people. Don’t you just love it? 

According to the WSJ article, the Chinese government wants to "help its banks lend out money to reinvigorate slowing growth". Now whence the assumption that growth will come or ought to come exclusively or mainly via lending rather than via non-lending based activity? There's absolutely no reason for that assumption.
Moreover, if the state simply puts spending power into consumers’ pockets and consumers and businesses think the best way of allocating those additional resources is to engage in more borrowing and lending, that’s what they’ll do. To be more specific, businesses will tend to invest more in areas of the economy where sales rise particularly sharply as a result of that stimulus. A bank rarely goes wrong extending loans to a business with a decent cash flow.
In short, the job of the state is ensure adequate demand. As to the PROPORTION of that demand allocated to borrowing / investment / advertising you name it, widget producers do not need advice or inducements handed out by central bank staff or economically illiterate politicians.

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