What Alan Greenspan thinks of China's ills

The humbled former Federal Reserve chairman thinks the Chinese economy needs a healthy dose of creative destruction.

Alan Greenspan, the longest serving chairman of the US Federal Reserve, was considered the greatest central banker who ever lived until the spectacular meltdown of the American housing market three years after his 2005 retirement.  

Bob Woodward, the famous Washington Post journalist who brought Richard Nixon down, described Greenspan as the maestro in his hagiography. Mervyn King, the former governor of the Bank of England, said Greenspan’s "departure from the central banking scene will deprive us of a source of wisdom, inspiration, and leadership", according to Neil Irwin’s The Alchemists: Inside the Secret World of Central Bankers.  

Under his watch, the US experienced one of its longest uninterrupted periods of growth during the 1990s and early 2000s, known as the Great Moderation. But he failed to foresee one of the biggest financial events in his long career -- the great crash of 2008.  

Many commentators and analysts are increasingly drawing parallels between the US before the meltdown and the current economic woes in China. It has become quite fashionable to use doomsday terms from the great crash -- like "Minsky moment" or "Lehman moment" -- to describe the Chinese economy.

So what does Greenspan make of the debt problem in China now? The humbled former maestro admitted to Chinese media that something was fundamentally wrong with his conceptual framework of the way the economy works. Then he went on to provide his diagnosis of China's ills.

Greenspan on Chinese debt

"The problem with the Chinese economy is, as I see it, that you had a very major expansion in debt in the so-called shadow banking system that has been well beyond anything which is stable and continuing," Greenspan told Sina Finance.

He explains that the greatest problem is the implicit guarantee that the government and the central bank will bail out banks and other institutions if they are in trouble -- even though they are making commercial loans and engaging in off-balance sheets lending.

{{content.question}}

Free Insights Membership Premium 15 Day Free Trial
Create a free account, and get access to Insights, Research Tools & Portfolio Manager. Create a Premium account, and enjoy 15 day free trial, with unlimited access to all our research & services.

{{ twilioFailed ? 'SMS Code Failed to Send…' : 'Enter your SMS code' }}

A text message with your verification code was just sent to {{user.DayPhone}}

We cannot send you a code via SMS to {{user.DayPhone}}

Hi {{ user.FirstName }}, please provide your mobile number.

{{ content.trialHeading.replace('{0}', user.FirstName) }}

We'll send you a text message with a verification code to start your free trial.

Log in

{{ content.upgradeHeading.replace('{0}', user.FirstName) }}

The email address you entered is registered with InvestSMART.

Login or to reset your password, select Forgotten password

Thank you

We have sent you an email with the details of your registration.

Email is required.
Email must be a valid email.
Password is required.
First name is required.
Last name is required.
Mobile phone number is required.
Mobile phone number is invalid.
You must accept the terms and conditions.

Already a an InvestSMART member? Log in

SMS code cannot be sent due to: {{ twilioStatus }}

Please select one of the options below:

OR

Looks you are already a member. Please enter your password to proceed

You have entered an incorrect email or password

Email is required.
Email must be a valid email.
Password is required.
Please untick this box when using a public or shared device

Not a member? Sign up

Forgotten password? Click here

{{ upgradeCTAText }}

Updating information

Please wait ...

Your membership to InvestSMART Group recently failed to renew.


Please make sure your payment details are up to date to continue your membership.


Having trouble renewing?

Please contact Member Services on support@investsmart.com.au or 1300 880 160

You've recently updated your payment details.

It may take a few minutes to update your subscription details, during this time you will not be able to view locked content.


If you are still having trouble viewing content after 10 minutes, try logging out of your account and logging back in.


Still having trouble viewing content?

Please contact Member Services on support@investsmart.com.au or 1300 880 160

Please click on the ACTIVATE button to finalise your membership

You have entered an incorrect email or password

Email is required.
Email must be a valid email.
Password is required.
Please untick this box when using a public or shared device

Not a member? Sign up

Forgotten password? Click here

Upgrade Today
No lock-in contract. Cancel anytime.
Billing type
Monthly Yearly
Billing information
You will now be charged AUD {{ priceInDollar }} as a recurring {{ intervalText }} payment (includes GST). Cancel anytime.
Membership Price ({{intervalText}})
{{priceInDollar}}
Discount
-{{productDiscount}}
GST
{{productGST}}
Remaining credits from your existing subscription will be used towards your new subscription. You will now be charged {{ productPrice }}.
TOTAL   (inc. GST)
{{productPrice}}
Card Details Edit
visa
visa

Unsuccessful registration

Registration for this event is available only to members. View our payment options for more information.

{{eventFunction.Name}}
{{eventFunction.EventTypeName}}
{{eventFunction.StartDate}}
{{eventFunction.EventTimings}}
{{eventFunction.VenueName}}
{{ t.Cost === 0 ? "FREE" : "$" + t.Cost.toFixed(2) }}

Forgotten password

Please enter your email address below to request a new password

Email is required.
Email must be a valid email.

Not a member? Sign up

Already a an InvestSMART member? Log in

Related Articles