If you believed the pundits and world-class financial analysts a few months ago, China was caught in 'the biggest financial bubble in history' and was heading towards a painful hard landing. But, after a while (and probably after somebody somewhere made a killing and somebody else lost their shirt), its economic crisis mysteriously disappeared.
Taken with the recent publication of the speeches of former premier Zhu Rongji, I was reminded of the equally mysterious disappearance of billions of yuan of 'triangular debt' around 1992 when Zhu was vice-premier and responsible for this remarkable feat.
The Western world has been burdened with a severe debt crisis for some time now. As I see it, the most suitable cure is a Washington Consensus prescription of belt-tightening and balanced budget. This is known to be excruciatingly painful but, after a few riots and several changes in governments, their economies would be restored to normal and, in Russia's case, to half its previous size. At least, this was their standard prescription for developing economies when they were suffering similar afflictions. If you consult the International Monetary Fund or the World Bank, they will guarantee that it works.
For obvious reasons, no Western country has so far taken this bitter pill - highlighting their double standards - and that is why their situation is worsening. It is perhaps a good time to try some alternative medicine, this time a Chinese tonic, by learning the lesson of how China wiped out its huge 'triangular debt'.
When Zhu was put in charge of cleaning up this astronomical amount of debt, he found out the simple fact that, when A owes money to B, who owes C, who in turn owes A, the trio will be locked in, all unable to move. But when the loans are set off against one another, the net amount of outstanding debt is much lower, rendering the problem a lot easier to solve. Easing the money supply a little, then, does the trick.
While I don't have the exact figures, I'm sure quite a substantial amount of debt owed by ailing European Union economies is owed to other EU members. If the cross-debts are set off against each other, the outstanding would be reduced to a much more manageable dimension. Nobody would be hurt by crossing them out, since these are only accounting figures.