Great post Peter. Especially noteworthy section on the economics profession’s perennial infatuation with and marriage to socialist command and control economics, and monetary policy. Makes one think again of all that has been gained and lost forever since 2008– great monetary crisis. As to China’s debt pile funded economic growth model you note “It just doesn’t add up”, yet the problem on both sides is that — It Does Add Up ! :) Exhibit A 36 Trillion US debt pile. Questions remain as to where and when the fissures may emerge triggering the cascade through and across markets inflated in price and leverage.
It's almost impossible to speculate on the trigger, and even harder to make money from!
The "doesn't add up" comment is in reference to the pub test being applied to the China success story...but you are right across the ocean it most definitely does add up.
We have little historical precedent for such large volumes of debt from 2 superpowers. Almost everything in modern life is concentrated in these 2 countries.
I believe that China's position is much more precarious than that of the US, and its only advantage is favourable popular opinion related to consumption of Chinese manufactured goods.
It will only be the politics that ends the dance. And I can't predict politics. I don't think anyone can!
Lustig makes some great points on price discovery, Fiscal discipline through bond markets, Fed interventions / suppression of market pricing and fiscal enabling.
The difficulty with maintaining that distance is the simple fact that people really love their cheap stuff, and to not have that cheap stuff made somewhere where it pollutes their environment.
For some it's difficult to see the longer-term cost past this fact.
Great post Peter. Especially noteworthy section on the economics profession’s perennial infatuation with and marriage to socialist command and control economics, and monetary policy. Makes one think again of all that has been gained and lost forever since 2008– great monetary crisis. As to China’s debt pile funded economic growth model you note “It just doesn’t add up”, yet the problem on both sides is that — It Does Add Up ! :) Exhibit A 36 Trillion US debt pile. Questions remain as to where and when the fissures may emerge triggering the cascade through and across markets inflated in price and leverage.
It's almost impossible to speculate on the trigger, and even harder to make money from!
The "doesn't add up" comment is in reference to the pub test being applied to the China success story...but you are right across the ocean it most definitely does add up.
Fantastic article. Thank you.
Great post.
With debt rising in both economies for different reasons...where do you think it stops? How long can it go before it breaks down under its own weight?
China's debt rise has no parallel in history that hasn't resulted in a deep crisis. How long can it pull off?
We have little historical precedent for such large volumes of debt from 2 superpowers. Almost everything in modern life is concentrated in these 2 countries.
I believe that China's position is much more precarious than that of the US, and its only advantage is favourable popular opinion related to consumption of Chinese manufactured goods.
It will only be the politics that ends the dance. And I can't predict politics. I don't think anyone can!
Yes both of them combined have $50 trillion economy...nearly 45% of world's economy.
Amazing work. Thank you for making your knowledge freely available.
Plumbers’ Crack :) https://www.hoover.org/sites/default/files/2025-05/Lustig-Hoover%20Monetary%20Policy%202025%20Comments.pdf
Lustig makes some great points on price discovery, Fiscal discipline through bond markets, Fed interventions / suppression of market pricing and fiscal enabling.
https://youtu.be/ymyAP90vFsM?si=iuavxbyHU9t7Tk3L
Well said.
The difficulty with maintaining that distance is the simple fact that people really love their cheap stuff, and to not have that cheap stuff made somewhere where it pollutes their environment.
For some it's difficult to see the longer-term cost past this fact.