Is it about to pop?
If too many shadow lenders go under, China’s credit-dependent economy might slow down too much. Of course, this might happen no matter what the government does. Shadow banks have made so many loans the past five years that it’s hard to believe a lot of them won’t go bad. They can borrow more money to try to hide any losses, but that wouldn’t be easy if inflation and interest rates rise. The worst of the worst would go bust, and people might panic once they discover that their guaranteed returns were neither. They might already be. China’s biggest bank just announced that it won’t make investors whole after it sold them a trust product called “Credit Equals Gold #1″—yes, that’s really what it’s called—that looks likely to lose money. It’s China’s version of Wall Street selling people crappy CDOs it told them were risk-free.
Goody.
Why, exactly, do you think this would be a good thing?
“Goody” does not mean that I think it’s a good thing. It’s sarcasm.
But seriously, Rand, there is a sentiment that would like to see something that you know is going to fail to bad consequences, to see that thing fail sooner so we can deal with it rather than later when the consequences are more dire?
Yes, but either way, it’s not going to be pretty.
I think you are seeing a mixture of sarcasm and Manichaeism.
We don’t want this harm to come to China because it is going to effect everyone. Really.
On the other hand, there is an Ayn Rand strand to Libertarian polemics that kinda, sorta wants to see our dire predictions regarding Socialism come to their logical end — in this case, using debt to prop up a command economy failing in the end.
It is kind of like AA — heavy drinkers are “on the road to ruin”, a heavy drinker who thinks everything is AOK is “in denial”, and that some people drink a lot and stay healthy and prosperous ruins the narrative. In fact, if someone drinks a lot, you know they are on the road to ruin and it might be better for them if they crashed sooner and faced the moral consequences rather than later, where they are only putting off the inevitable.
So AA has elements of Manichaeism, a religion founded by some Iranian (Persian) dude that separates everyting into Good and Evil, Sobriety and Drunkenness, Liberty and Tyranny.
There might be something to “tough love” and “bitter medicine”, but politically speaking, it helped get Mr. Obama reelected.