Monday, September 14, 2009

Stimulus Watch: China went overboard, do the Math

Now that the world economic situation has turned up many are looking for a sustainable environment to allocate investment. Yet is it really a meaningful recovery or just a meaningful temporary stimulus?

The total GDP of China $4.3T USD and the amount dispursed through loose credit policies through the first seven months of this year amounted to over $1T USD. This is equivalent to 25% of GDP lent to domestically to increase consumption.

In comparison the US GDP is close to $14T USD and the stimulus program directly related to the federal budget amounted to $1T USD (Stimulus package + Cars for Clunkers + Chrysler Bailout + GM Bailout + TARP + AIG Bailout). This is a total of only 8% of GDP.

IMHO it is obvious that China has created malinvestment and guided resources into frivilous causes in fear. Considering the size of the error, it will only be a matter of time before this causes problems in their financial system.