Uln

Can China Take Up Consumption Slack From the U.S.?

Dear professor Pettis,

I have seen Nouriel Roubini mentions you (but doesn't link you) in his latest article about crisis, and in particular about the fiscal policy. www.japanfocus.org/pro...

Finance is a bit my weak link in economics so I would like to ask you, how is China's fiscal policy limited by the government liabilities? Doesn't China have a large amount of reserves (as opposed to the US) and therefore it should be easier for China to apply aggresive fiscal policy without fear of deficit?

I suspect the main problem has to do with most of China's reserves being denominated in dollars, and by selling them to spend in RMB they would be pushing the RMB up and harming their own export economy. Is this the reason?

I would really appreciate it if you could give us some explanation on this point. Thanks!