China s excess capacity problem reveals a serious defect in its socialist market economy.

The liver mitochondria could not keep up with the energy onslaught, and had no choice but to employ a little used escape valve called de novo lipogenesis (new fat making) to turn excess energy substrate into liver fat.

Given the high levels of excess capacity and unemployment in Europe and America, quantitative easing is unlikely to trigger a bout of inflation.

China s Excess Capacity Nightmare

The government, well aware of the overcapacity problem, focused the country s stimulus package on investment in infrastructure, rather than new factories.

If there is unused capacity in the economy, part of any increase in the quantity of money will be spent on increasing output rather than just buying existing output.

Although oil accounts for a smaller part of the energy mix nowadays and spare capacity is currently well ensured, chiefly by Saudi Arabia, a price shock would still have global effects as such shocks have had in the past.

There are still a few million surplus workers in Central Asia.

Finally, Spaniards could borrow excess German savings and increase consumption and investment.

In normal times, there are valid reasons for paying interest on excess reserves.

NATO has been involved in the destruction of a number of surplus stockpiles.

China s investment rate is extremely high in comparison with other major economies, and has been increasing steadily since 2001, creating first overheating and then overcapacity. Until the global financial economic crisis that began in 2008, however, strong export performance concealed China s overcapacity problem, which, thanks to the stimulus package, is now set to become more serious.

As a result, China now faces the problem of short term excess capacity.

Investors might choose other places for their excess cash, like banks.

This is slowing the absorption into the economy of the excess resources in the construction industry.

(vi) Proceeds from the sale of surplus property are credited to the miscellaneous income of the respective funds.

The interest rate on these totally safe and liquid deposits induced the banks to maintain excess reserves at the Fed instead of lending and creating deposits to absorb the increased reserves, as they would have done before 2008.

But the more immediate problem remains deflation, given high unemployment and excess capacity.

But the new Fed policy of paying interest on excess reserves meant that this increased availability of excess reserves did not lead after 2008 to much faster deposit growth and a much larger stock of money.

As a result, all of this excess liquidity is flowing to the financial sector rather than the real economy.

China now stands ready to absorb some of that surplus saving to promote a shift toward internal demand.

The only way to sustain economic growth in the face of such an imbalance is to borrow surplus savings from abroad.

Given China s massive stock of surplus labor, this trend will not reverse itself soon.

The link between bond purchases and the money stock depends on the role of commercial banks excess reserves.

Through this control and manipulation of surplus resources, the elite's power continued to grow until about AD 950.

The surplus assets (due to the phasing down or closure of an operation, awaiting redeployment) were not reported.

But, by raising the consumption share of its GDP, China will also absorb much of its surplus saving.

Excess capacity and falling growth are mutually reinforcing. Not only does excess capacity have a negative impact on growth perhaps more important, sharply declining growth also contributes to massive redundancy in some industries (especially resources and the heavy and chemical industries).

But, as John Maynard Keynes never stopped pointing out, the Quantity Theory of Money is true only at full employment. If there is unused capacity in the economy, part of any increase in the quantity of money will be spent on increasing output rather than just buying existing output.

A nuclear power phase out is the discontinuation of usage of nuclear power for energy production.

To correct China s excess capacity problem would require the relevant enterprises, whether SOEs or private firms, to exit the market.

Even if real wages increase in some coastal cities, surplus labor could keep the national average flat.

More approaches like this and concerted efforts to find markets or uses for surplus food are needed.

The Federal government has thrown fiscal prudence out the window. The country as a whole is absorbing an astounding three quarters of global excess savings.

The only way to meet growing demand was to use OPEC s spare capacity and commercial inventories.

The larger deficits would also eliminate all of the excess saving that now underpins the current account surplus.

But, as long as Germany does not absorb its excess savings and accommodate the desired rise in Spanish savings, Spain is still faced with the same options.

The US government s loss of its AAA rating is a first sign that the most important outlet for excess Chinese savings might be losing its luster.

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To raise these extra amounts, the Obama administration could levy an excess profit tax on Wall Street to make up the budget gap.

The latter category includes income from sales publications, interest earned on surplus funds and other sundry items for which details are provided in a separate section.