Uln

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

OK, I get it now.
I have taken some time to get back to the basics last night. Even undusted my old Samuelson. Too long time not dealing with economics and some concepts were starting to swim in my head. Thanks for your help!

Anyway, from you posts I understand that we don't have a very clear picture of where The MoF stands today in terms of liabilities. So any prediction of when or how much all this will affect the state budget is little more than a guess. Right?


On Nov 11 07:12 AM M. Pettis wrote:

> Chinayouren, that's part of the answer. China cannot use foreign
> currency reserves for domestic investment without pushing the RMB
> through the roof and effectively killing off the export industry.
> But there is also the fact that reserves aren't unencumbered wealth.
> They are simply assets against which there are liabiltiies, in the
> same way that Citibank has a trillion dollars of assets but is not
> worth a trillion dollars (it also has nearly that much debt).

>
>
> In other words the PBoC had to borrow RMB to buy the reserves, and
> some people think the rise in the value of RMB liabilities may have
> already wiped out the PBoC's capital cushion. Giving the government
> reserves as a 'gift' is no different than having the MoF borrow the
> money domestically, with the difference being that it would result
> in a rise in PBoC domestic liabilities rather than MoF domestic liabilities.