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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: mishedlo who wrote (20717)10/26/2004 10:17:10 AM
From: el_gaviero  Read Replies (1) of 110194
 
Mish, I don't know if the Gave argument is right or not but I do think it is worth considering.

Seems to me that you have misunderstood his argument. He is not saying that the value of Chinese assets will not drop. Rather, he is saying that even though they will drop, the government will not sell them. Instead, the government will keep such assets on the books, and cover their cost by printing money.

Now is this inflationary or deflationary?

THAT, it seems to me, is not clear, and I wouldn't be as confident as Gave seems to be that the process ends up in an inflation. After all, the assets (factories or whatever) are still there, still putting out product that cannot be sold at a price sufficient to cover cost. That sounds deflationary to me.

The value of the analysis to me is to get us thinking about how structures of ownership affect outcomes. Maybe such matters are obvious to others, but I am dense, and need to be hit with a two-by-four.

The real structure of property rights in China (((who actually in the end makes decisions about things))) is bound to make a difference, and to do so in ways outside our historical experience, therefore with unexpected outcomes from our perspective. We should be alert to such things.
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