Jake's ViewNever mind the debt; grab the loot courtesy of cheap money

The Bank for International Settlements, said China’s credit to gross domestic product gap reached a record 30.1 per cent in the first quarter of the year, far above the 10 per cent level thought to present a risk to the country’s banking system.

Business, Sept. 20

For this 70 trillion yuan economy we are then given a total debt figure 168.5 trillion yuan, which yields a credit to GDP gap of 140.7 per cent, not 30.1. Hmmm.

Of course our inputs may be wrong here. GDP is always an uncertain number in the mainland and there is a big woolly cloud of different estimates for credit, within which the 168.5 figure floats near the upper end.

This, however, is not the reason for the disparity. The reason is that the “credit to GDP gap” is actually a derivative academic ratio based on the work of a professor Hyman Minsky and is meant to measure deviations from normal patterns within any one economy.

I won’t bother with the Minsky equations and for the same reason that I won’t plod my way through the Thomas Piketty book on how we have all gone wrong by not listening to French socialists. It’s Patrick O’Brian for me every time for my reading hours. He’s closer to real world.