January 09, 2012
That’s a good question, but Robert Samuelson doesn’t shed much light on the topic in his column today. He notes the considerable evidence of a housing bubble in parts of the country, which may now be deflating. In considering consequences he acknowledges China’s successful stimulus 3 years ago, but then comments:
“Finally, China’s government will have a harder time deploying a stimulus than during the 2008-09 financial crisis. Government debt rose from 26 percent of gross domestic product in 2007 to 43 percent of GDP in 2010.”
This one must have readers all over the world scratching their heads. A country with a debt to GDP ratio of 43 percent, that is growing at an annual rate close to 10 percent, has trouble borrowing money to finance a stimulus? That’s not true on this planet.
The United States had no problem financing its stimulus even when its debt to GDP ratio was over 60 percent, with a prospective growth rate of less than 3 percent. And Japan pays less than 1 percent interest on its debt even though it has a debt to GDP ratio of more than 200 percent of a trend growth rate under 2 percent.
It might also be a good idea if Samuelson relied on someone other than Nicholas Lardy as his expert on China’s economy. Lardy is known for predicting that China would suffer a crippling banking crisis more than a decade ago. That has not happened yet.
Comments