chinese debt problems unsustainable, page-8

Keynes used a great analogy, if thre is a downtrun in the economy central banks should put bank notes in sealed jars and bury the jars in coal mines, people knowing the notes were there would invest in diggers, miners and trucks, when they found the bank notes the money would flow into the economy, creating growth............Schumpeter who was Keynes competitor at the time throught this kind of stimulus was nonsense, he suggested malinvestment would take place diverting the economy from true wealth creation into areas that created no real net wealth, he suggest it would divert the economy into investing in diggers, miners, and trucks we didnt need, which when all the jars were recovered would stop because there wasnt anymore jars to find, this in turn would force the economy into burying even more jars of banknotes.

As soon as the government failed to bury jars of bank notes the part of the economy that relied on this activity would fail. this is what is happening at present, all this stimulus is just governments burying banks notes , the longer they do it the more malinvestment occurs. Eventually even the government cant afford to bury anymore bank notes.

The Chinese credit bubble is worse than the American one, when it bursts its likely to be one of the most catastrophic in civilizations history.