U.S. Founding Father Invoked as China Debates $4 Trillion Debt Pile
Although the government wants to avoid moral hazard of a bailout
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Alexander Hamilton, as the first U.S. Treasury Secretary, honored state-government liabilities, believing the revolutionary war debt was the price the newly formed republic paid for its liberty. His philosophy has a following today in China, as it grapples with the massive debt its provinces have racked up in the pursuit of economic prosperity.
The Ministry of Finance under Lou Jiwei has allowed local governments to swap 1 trillion yuan ($160 billion) of high-cost debt into low-yielding local government bonds -- a move that’ll help save up to 50 billion yuan in interest payments each year. What about the rest?