In some senses, that is true. Rising Chinese leverage will not produce a 2008-style financial crisis. Most of the debt is owed within the state system – for example, by state-owned enterprises (SOEs) to state-owned banks – and the government could simply write off bad debts and recapitalize banks, financing the operation with either borrowed or printed money. Alternatively, the banks could perpetually roll over existing debt, forever extending new loans to repay old debts.No, debt casn not be rolled over indefinitely without causing deflation.
In the case of China, the positive interest payments flow from state owned enterprises to the central bank, a gain and withdrawal of bit error from the economy.
To avoid deflation, the gains from the flow have to be lent out, but to where? Either back to the SOE, and their debt increase; or into another sector in which case we have loss making SOE pay rates to profitable sectors. The SEW goers bankrupt.
What about prices?
If the central bank loans to the SOE at zefro, the the SOE is disconnected from the pricing ring, prices for their goods is undetermined. All of these error do not involve quantization, which will happen, and the flows get jammed, the whole system re-quants atround the central bank. Helicopter time, and we know its coming.
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