The course of an economy is
determined by the course of that economy's money supply (broadly
determined). The relationship between money growth and nominal GDP
growth is presented in the accompanying chart. It is persuasive. Indeed,
money, not fiscal policy, dominates.
As I listen to all the ad hoc conjectures about the
state of China's economy and its near-term prospects, I am astounded to
never hear anything said about the most important determinant of nominal
economic growth: the money supply. The second chart tells the tale. The
picture is not a pretty one. China's money supply growth rate has been
slowing down since early 2012. It now is growing at an annual rate of
about 10%, which is well below the trend rate of money growth: 17.06%.
China is in trouble. Slower money supply growth means that slower
nominal GDP growth is already baked in the cake.
Post A Comment: