China plans to nullify all guarantees local governments have provided for loans taken by their financing vehicles as concerns about credit risks on such debt increases.
China's national leadership is taking a bold step that America's leadership is unwilling to take. Our state governments are very dependent on federal matching funds to fill gaping holes in their budgets (see my last post on California's budget woes). China's recognition that it has pumped too much stimulus juice into its economy will be painful to experience firsthand, but afterwards their economy should be cured of any hunger for more unproductive lending. Wringing bad debt out of an economy is a healthy step. China will emerge from this recession stronger than the U.S. because of this action.
Our own leaders won't pop their bubble wrap, but they certainly act like children.
