Call me Ishmair

Before all is said and done, the United States may very well play Captain Ahab to China's Moby Dick. We're both going down together:

In another sign that China's slump is serious enough to evoke crisis responses from the officialdom, banking officials there announced that they were relaxing rules on bank bad debt ratios. The objective is to encourage banks to continue to extend credit to borrowers experiencing short-term difficulties who have viable businesses. (Link)

I don't know what to say except that its always a good day when deregulating Republicans and Communist Chinese see eye-to-eye on policy.

My alternative is to encourage new lending by lowering capital requirements at the margin. Tell banks that loans issued after September 1, 2009, require half the capital of similar loans issued before September 1. (Link)

Maybe the case of China is a bit different. Digging yourself out of a standard economic slump in a country with a so-called "savings glut" by encouraging the expansion of credit may seem a bit less perverse than digging yourself out of a subprime mortgage crisis in a country with a virtual zero savings rate by encouraging the expansion of even more subprime lending. It's worth noting anyway.