China: It's The Debt

President Obama might still be blaming George Bush for current economic conditions and voters love to blame presidents (and PMs), but they don't control the business cycle. China has far more control over the economy and we know exactly who passed the 4 trillion yuan stimulus that is directly responsible for the severity of China's economic slowdown.Yet in China, there is no criticism of the prior regime.

Allow Steve Keen to show you exactly what the boneheads at the Ministry of Finance cooked up seven years ago.

China Crash: You Can't Keep Accelerating Forever
China’s resilience against credit crises came to an end in 2009, when in a response to government directives, Chinese banks began lending to anyone with a pulse. As Figure 3 in last week’s post showed (reproduced below as Figure 3 below), the growth in private debt rocketed from 17% per year at the beginning of 2009 (versus nominal GDP growth of 8% at the same time) to 37% per year by the beginning of 2010 (nominal GDP growth peaked six months later at 20% per year). By the beginning of this year, private debt had hit 180% of GDP and had grown by over 80% of GDP in the previous seven years.

This was the fastest growth in credit in any country, EVER. It dwarfs both Japan’s Bubble Economy and the USA’s combination of the DotCom and Subprime Bubbles. China’s bubble drove private debt up by as much in 5 years as Japan managed in over 17 years, and more than the USA’s debt rose in the entire Clinton-Bush debt bubble from 1993 until 2010 (see Figure 1).

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