#2, bingo:
Total banking deposits in China are around RMB 64 trillion. Around 60% of the total represent household deposits (an estimate, since there is some ambiguity in the numbers). Total GDP is nearly RMB 34 trillion. Inputting all of that into my trusty Excel Spreadsheet suggests that at a minimum, households have “paid” in form of excessively low rates on their deposits a minimum of 5% of GDP every year, and possibly up to two times that amount, during the past decade.
This is, to me, an astonishing number. Every year households may have transferred at least 5% of GDP to the banks, and possibly a lot more. Now of course they are paying for a many other things than simply recapitalizing the banks. They are also paying to keep the cost of capital low so as to make viable a whole series of investments – manufacturing investments, real estate investments, infrastructure investments, PBoC sterilization bills, other government bonds, etc – that might be considered non-economic investments and that would otherwise show negative returns (in fact excessively low interest rates, as the various recent US bubbles clearly indicate, almost always lead to misallocated investment). But since a lot of this investment occurs through the banking system anyway (for example banks directly or indirectly buy most sterilization bills), much of this ends up as part of the bank clean-up.
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Second, Portugal and Spain must do more to convince the markets they are not Greece.
Both have smaller deficits and less government debt. But now that the markets have awoken to sovereign risk, Portugal and Spain need to do more to narrow their deficits. Unfortunately, Portugal has announced only increases in capital gains taxation, which is weak soup in an environment where capital gains are scarce. Spain has done even less. Meaningful spending cuts are in order if the Iberians want to avoid becoming two peas in the Greek pod.
The more fundamental problem in Portugal and Spain is structural, a problem that the two countries do, in fact, share with Greece. They need to reform their labour markets, fast. Keeping their debt burdens manageable will require economic growth. It will require exporting. And without labour market reform, growth will disappoint. The days are over when the Iberians can grow on the basis of English expats’ appetite for beachside apartments.