The recent IMF Report predicts China’s growth will be 6.5% in 2009 while the advanced economies will drop by -3.8%. This is a huge difference.
China’s growth is holding up because the Chinese government control the money supply. The rest of the world is in a mess because the banks have created too many loans for non productive purposes. The banking system adjusts itself by reducing lending until the bad loans are removed from the system. This slows economic activity. The IMF suggests stimulus packages to put money into the system. Unfortunately governments – except the Chinese – still use the same mechanism to increase the money supply that got us into the mess. That is, governments increase the money supply by allowing the banks to lend money, they do not have, back to the government who now spend it on stimulus packages.
There is a better way. We can increase the money supply by the Reserve Bank giving money to the general population but requiring the money be invested on productive assets. We have two obvious candidates where we need to invest massive amounts of money. One is investment to reduce ghg emissions and the other is the National Broadband Network. The government can tell the Reserve Bank to increase the money supply by issuing money, giving it (not loaning it) to the population and requiring the money be invested in ways to reduce ghg emissions and in the Broadbank Network.