China Banks

[specuvestor]

Sometimes it's strange why they don't get it. Technically defaults will drive up credit spreads, not interest rates, but China has capacity to lower rates as their benchmark rate is still 6% and RRR at 20%. Neither will the big 4 banks default when China has US$3tr reserves. Nonetheless pain and adjustment will definitely be there: what the govt is doing is spreading it out rather than a shock. A US$1tr write-off in any year is gonna cause big trouble, spread it out over 10 years and it becomes manageable. This is actually different from kicking can down the road.

Academics have totally no idea there is a difference betwen a market induced crisis vs a policy induced slow down. China is just incrementally unwinding what they had imposed. 解铃还需系铃人