Comment by dnomad | Hacker News Reader

Comment by dnomad | Hacker News Reader

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Eh it's absolutely sustainable. China is a monetary sovereign. All of this debt is issued in a currency that they can literally create out of thin air. There is zero possiblity that China will default on this debt. And China has been very careful to avoid externally denominated debt.

The only real risk here currency revulsion. At some point there is a risk that nobody will want the currency. But the risk of internal revulsion is low. Chinese citizens have to pay taxes and many other kinds of fees and fines in the currency. They have no choice. External revulsion is a threat but here again the Chinese have opted to buy out their external dependencies. This is why China wants to own all that farmland in Brazil. It never wants to find itself in a situation where it must buy dollars in order to buy soybeans and other critical food stuffs.

People will go on and on about China's sovereign debt. They just don't get it. This is basic MMT (modern monetary theory). The bigger risk for China is that they grow too slowly not that they grow too fast.

Creating currency out of thin air also creates inflation.

Inflation must be kept in check or bad things happen.

Maybe the current levels are sustainable. But not all increases in deficit are sustainable.

That's now how any of this works. That's certainly not how inflation works.

At some point, particularly given the last 40 years of evidence to the contrary, people need to simply accept that monetary expansion does not "cause" inflation [1]. Inflation is not a monetary phenomenon at all. Inflation is a price level [2] phenomenon largely driven by trade imbalances. Inflation is about market power, or what some call pricing power. The common case here, btw, is when your external partners from whom you need to import critical goods get even a little bit pricing power then you will get inflation. China is seeking to own all its externals and deliberately suppress any such pricing power not driven by its own banks.

[1] https://www.bloomberg.com/news/articles/2018-03-22/the-great...

[2] http://bilbo.economicoutlook.net/blog/?p=10554

If there's more money, and the more money circulates, and the velocity doesn't change, and the real economy doesn't grow (that is, more stuff is not being produced), then what possibility is left but inflation? Or, in your theory, which of the "outs" that I stated is the one that you think is operating in the real world?

From where I sit, the past 40 year have shown that, if you grow the money supply only a little bit faster than the real economy grows, then you only get a little bit of inflation.

There is still risk of hyper-inflation though.

"monetary sovereign"

It still requires them to get many other rich countries to generally buy into their story.

As long as you keep buying cheap (And a few expensive) things made in China, you're buying into the story.

Where do you think your iPhone is built?

Not rich countries' consumers; rich countries' governments, economists, and academics.

What does their belief or disbelief have to do with whether or not China is a monetary sovereign?

I mean, I suppose they can all imagine that spherical cows exist, but wishing won't make it so.

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