Yanis on Donald

They were creating a bubble of unsustainable investment to give Europe and the US a chance to get their act together.

Yanis Varoufakis mentions this in his recent contribution to ‘Project Syndicate’. ‘They’ refer to China. There is no proof for this and there are equally valid alternative interpretations. I believe that China did it (massive economic stimulus) because it panicked at the collapse of its export markets. It unleashed a stimulus. It cared two hoots about saving the world. It subsequent actions – political and economic – expose the fallacy of the hypothesis that Mr. Varoufakis floats and has repeated.

As for the Renminbi’s overvaluation, as some have already commented, it is not clear that on fundamental economic grounds, it is overvalued. Risk premium arguments can justify the case for its depreciation, even a significant one, given the massive debt and deficit – much of it unaccounted.

What is China’s private debt? It is largely public debt. Loans taken by local government vehicles and State-owned enterprises are not private debt.

Mr. Varoufakis also misses the point about Trump’s economic strategy – it involves de-regulation about which the nation’s small businesses are most enthusiastic. Job creation is done mostly by SMEs. That is why the index of confidence of small businesses perked up sharply in December. Not for nothing.

Perhaps, Trump is (wrongly, in my view) trying to revive the Minotaur by not reining in financialisation and by giving too much of influence and role for Goldman Sachs Alumni. But, let us wait and see what Mnuchin does rather than commenting on our fears. We should be commenting on their policy decisions and actions.

Well, if at all, that could be the worrying part of his policy agenda. Not his China policy reset.

(Postscript: I noticed that I had commented on the article by Yanis Varoufakis already, here. But, this one is a different angle. So, I am letting this stay).


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