Dr. Hunt explained that 45% of the businesses in China are owned by the government. Once government gross debt reaches 90%, bad things happen. An economy slows. China's government debt is 165% of GDP. The US's government debt is 100%. The expansion of debt in China put investment spending to 70% of GDP. Hunt points out eloquently, "Studies have shown that once gross government debt moves above 90%, bad things start to happen... that economic growth begins to slow, and materially so, and you can produce economic instability. In China's case, I think that the risk is quite great, because this big expansion in debt pushed investment spending to 70% of GDP. Consumer spending is only 30. In the United States, consumer spending is 70 and investment is 16. To have an investment spending to consumer spending of 70 to 30 is not sustainable." The private debt totals in China are about 16%; the US's. In the US, consumer spending is 70%; consumer savings is about 17%. The worry about inflation is that interests rates will rise with inflation. If the federal government has 16 trillion dollars in debt and they're financing that debt, higher interest rates on 16 trillion dollars makes paying that off impossible. Lacy does say that the only way out of the debt crisis is shared sacrifice with the Federal Reserve, meaning that they're going to have to stop printing money on projects like social programs and war. It will require austerity, he says, to get the US back on its financial feet. More than once Hunt pointed out how debt and lack of productivity hurt the demographics. People don't have families if the economic outlook is bleak. A replacement population cannot emerge. Fewer people are coming to the United States for work and currency advantages.
Interest rates are indicator of economic activity.
Here is the full text of this indispensable interview. He references an article on China 2030 in the Wall Street Journal. That is here.
Another great interview of Dr. Lacy Hunt one week before the one above. I can't believe that I have not found this man earlier. Enjoy the learning experience.
He makes a point that discriminating money pulls money out of the system first, sending signals to the rest of the population. When the rest of the population begins to pull money out, that's what Kidleberger calls revulsion. Charles Kindleberger is best known for his 1978 book Manias, Panics, and Crashes. The savings rate during WWII was 25%? I need to fact-check that.
