The Importance of Reserves

I think China was a little bit like the New York Fed, and the 1920s from 2002 to 2008. They suppressed the cost of sterilization by forcing the banks to hold dollars. The banking system was basically being held back, in my view, from 05 to 08. And then in the crisis, in the face of a huge shock to demand from the US, from Europe, the Chinese did see their export growth really tumble. We're facing a really profound shock to their model, and they just let the banks go crazy. I think part of it is that reserves are understated consciously, because China doesn't want more than three trillion reserves on its balance sheet. But it's also