How to Create a Chinese Economic Crisis in Three Easy Steps
…a response that becomes more expensive the the tighter Fed policy becomes…
Note that devaluing the yuan will be costly too. Many Chinese firms, previously expecting the dollar peg to hold, have taken out lots of dollar denominated debt. So either China burns through its reserves or it increases the private sector’s real debt burdens. There are no easy choices here.
China, in short, has backed itself into a corner because it has attempted to do all three goals of the impossible trinity…
P.S. For a broader perspective that makes the same point see this post by Lars Christensen.
Source: http://macromarketmusings.blogspot.com/2015/08/how-to-create-chinese-economic-crisis.html
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