4,000,000,000,000

A caveat emptor first: I don't know what I am gotta talk about in this post. But the number is everywhere, so I decided the sheer size of it deserve a post.

Get Some Sense

Since we don't encounter numbers like this one everyday, let's try to make some sense out of it first. Chinese GDP '07 was a bit short of RMB 25 trillion. So the 4 trillion is something like 15% of GDP. Or look at it in another way: if doled out evenly, every citizen will get a good RMB 3,000. Way to go?

It seems we're already in a sense into the New Deal mode, which was an effort to cure the Great Depression. The conclusion? By the judgement of our beloved Party leaders, the situation is kinda really bad out there.

How It's Done

Macro policies has two channels - either monetary (a list of hot actions here) or fiscal (a proposal here). The TARP is targeting to save the financial system. I personally consider the monetary policies more fun (I don't know why).

The point of distinction is, putting aside what they can do, it decides how the money is distributed and who owns what.

According to my read into the 4-trillion plan, it sounds like a fiscal plan: standard op items like infrastructure, education, healthcare, environment, plus tax cut and housing and farmer subsidies. At the same time, monetary policy is of course expansionary (also here).

How It's Funded

I have a limited knowledge of the fiscal in China. However, my guestimation is: the major banks will loan the money to the government, at some interest rate. It'd be amazing to the capitalists, but we nationalized the banks long before the capitalist Europe and U.S.. Take that, capitalism!

Still, it bodes a big time government deficit. The federal spending is around 20% GDP in '06 with a deficit of 1%, and the treasury notes outstanding is RMB 5.2 trillion today.

I guess what I'm saying is, if a major part of the 4 trillion goes fiscal, it's not easy to pull off the funding. It'll be a war-time like public debt issuance.

And I keep thinking about its side effects, though things like this make my head explode..

Let's Wait and See

If you're interested in the early-wave spending, it's here. We'll wait and see for the rest.

Now ponder this: you're head of a government agency, and you're told that your budget have just been doubled, what will your reaction be?

It's tax payers' money. Spend it wisely, comrades.