Sunday, August 30, 2015

A Quick Run Around the Web -- August 30, 2015


China has bungled its attempt to slow the economy gently and is sliding into “imminent recession”, threatening to take the world with it over coming months, Citigroup has warned.
Willem Buiter, the bank’s chief economist, said the country needs a major blast of fiscal spending financed by outright "helicopter" money from the bank to avert a deepening crisis. 
Speaking on a panel at the Council of Foreign Relations in New York, Mr Buiter said the dollar will “go through the roof” if the US Federal Reserve lifts interest rates this year, compounding the crisis for emerging markets.
Professor Zhiwu Chen from Yale University told the same event that China will be doing well if it can contain its slow-motion crisis to mere stagnation for the next 10 years, given the dangerous levels of debt in the system.
 
“If the Chinese government is able to manage a Lost Decade with very low growth - or no growth - without an economic crisis, it will be a policy achievement,” he said. 
Prof Chen said a Western-style financial collapse in China is “highly unlikely” since the banks are largely government-owned and losses will be absorbed by the state. 
There is a loose parallel with Japan, where the economy slid into a deflationary quagmire and lost its economic dynamism but never suffered a full-blown financial crash. In Japan’s case the denouement was averted by keeping "zombie banks" on life-support. 
The colourful Mr Buiter - a former UK rate-setter - said China has bungled both fiscal and monetary policy, and is now “sliding into recession”. This would be fall in growth to less than 4pc on the “mendacious” figures published by Beijing, but in reality lower. 
 “They will respond too late to avoid a recession, which is likely to drag the global economy with it down to a global growth rate below 2pc, which is in my definition a global recession,” he said.

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