The IMF on overinvestment @ China Financial Markets in his latest post Michael Pettis comments a recent report on China, by the IMF, in which it is argued that China’s economy, whose present investment levels stand at 50% of GDP, is and has overinvested significantly. This has been Mr. Pettis’ thesis for quite a few years, and only recently it is starting to gain wider acceptance. One of the consequences of this overinvestment is that the household sector (citizens) and Small & Medium Enterprises (SME) have been “forced” to subsidize growth at a rate of 5 to 8% per year, for many years. Mr. Pettis concludes that “the extent of Chinese overinvestment – even if we assume that it has not already caused significant fragility in the banking system and enormous hidden losses yet to be amortized – requires a very sharp contraction just to get back to a “normal” which, in the past, was anyway associated with difficult economic adjustments. It is hard to imagine how such a sharp contraction in investment will itself not lead to a sharp drop in GDP growth”. Something to keep in mind when so many in the West rely on a continuation of strong chinese growth as a support to their own economies.
Decline, Decay, Denial, Delusion & Despair @ The Burning Platform “I despair for my country that has chosen to eat, amuse and borrow itself to death. But my despair is deepest for my children and their future. The greed, corruption, myopia, selfishness, and disregard for the well-being of future generations by current and past generations has left a barren and bleak landscape for my children. The Huxley vision of America consuming and amusing itself to death is coming to a painful conclusion, as the limits of a fiat currency and debt based lifestyle become evident. Those in power are preparing the masses for a more Orwellian vision of America when they are forced to pull the plug on the existing paradigm.”
What’s Your Number at the Zero Bound? @ PIMCO The FED’s policies force the elderly to work longer… “low interest rates go hand-in-hand with high labor force participation among the elderly.”….”Work a little longer. Save a little more. Get by with a little less. It’s like each of our numbers is tied to a hot air balloon that seems to rise higher as we get a little closer.”