Brad DeLong's Semi-Daily Journal: Brad Setser on Similarities Between Amaranth and the People's Bank of China...:I think this falls into the category of "bizarre ways market systems route around structural anomalies". If we think of the market as a massive optimization algorithm, and we think of structural anomalies in infrastructure, law, resource allocation, etc as obstacles, then we can imagine China's subsidy of US consumption as the result of solving an allocation problem despite structural anomalies.
... The Politburo and State Council may understand it. They may be thinking as follows: 'We grow at 8% per year as long as we can keep export-led industriallization going. When export-led industrialization stops and we have to substitute domestic-demand-led industrialization, our growth rate is likely to fall to 5%. Thus each year we keep this juggling act going raises China's GDP--permanently--by about RMB 500 billion a year, an increment to the present value of China's total national wealth of RMB 10 trillion. To keep the juggling act going requires that we spend RMB 3 trillion a year buying dollar-denominated securities that will be worth only RMB 2 trillion when we sell them. That looks like a benefit-cost ratio of 10:1. So let's keep juggling as long as we can.
That maybe what they are thinking in the Politburo and the State Council.
Deviant, but gets the job done.
The Economist did a recent review of the rise of the 'developing world' (now greater than 50% of world output); I've not finished the series but it will be interesting to see how it intersects. The part I've read predicts greater upheavals than the 1st industrial revolution. This fits.