China's 'Problem': Too Much Money

It is becoming quite humorous watching the continual efforts of Western commentators (mostly American) to bash the Chinese economy. The accusations these pundits make are as numerous as they are ludicrous.

Perhaps the most-frequent criticism is that because it is the U.S.'s largest foreign “creditor” (i.e. lender), that China has a serious “problem” due to the fact that the U.S. is totally unable to repay what it has borrowed from China. Frankly, it is hard to imagine any adult without a severe mental disability reaching such an idiotic conclusion.

For anyone who places any credence in this assertion, I suggest that you do a little private research. Go to the bank who holds the mortgage on your house, and say to them, “I can't pay my mortgage payments, which means that you have a serious problem.”

Once the bank's loan officer finishes laughing, he or she would reply, “No problem. We'll simply take your house.” In short, it is obvious that defaulting on debt is almost always a much more serious problem for the party defaulting than for the creditor.

Now, if China had racked-up massive, national debts, and then been foolish enough to lend the United States trillions of dollars, then the dynamics could be much different. However, as an economy with a large operating surplus, even if it had to write-off every penny of U.S. debt, China could make up those losses through future surpluses.

Conversely, as the largest debtor in the history of the world, and as a nation with a huge “structural deficit” (a deficit which exists even at the peak of economic cycles), defaulting on its debts (again) would have devastating consequences for the U.S.

To start with, the U.S. would be immediately cut-off from any more foreign lending. While international agencies created to help the world's poorest nations might be willing to provide the U.S. with with a limited amount of “emergency funding”, any assistance of that nature would come with many strings attached (as it does for all other countries).

First, no international agency would lend the U.S. money to fund its military occupations. Thus, such panhandling would require the U.S. to immediately end those military occupations. In fact, with the U.S. still spending more on its military than all the rest of the world combined, it would likely be ordered to dramatically slash all military spending as one of the conditions for receiving funding.

There would likely be many more economic conditions attached, however, given the U.S.'s warmonger-tradition, this stipulation alone would cause the U.S. government to refuse assistance. This would leave the U.S. government being forced to simultaneously severely slash government spending and print up unprecedented amounts of new money – the very definition of “hyperinflation”. So let's end all the idiotic commentary about how the U.S.'s insolvency is “China's problem.”

The next criticism of China is somewhat related: it is “too dependent” on exports to nations with much weaker economies. Once again the critics are attempting to turn reality upside-down. Whose shoes would you rather be in, those of a country with a huge, trade surplus, producing vast amounts of manufactured goods – and sitting on a mountain of those trading profits? Or, would you rather be in the U.S.'s position, where it has abandoned most of its own manufacturing – and now cannot afford to pay for many of the basic, consumer goods which it had been importing in vast quantities, while drowning in trillions upon trillions of dollars of accumulated debt?

The only long-term solution for the U.S. is to re-invent its manufacturing sector, so that its economy begins to produce wealth again, rather than just more debt. However, thanks to two decades of short-sighted, self-destructive economic policies (including dismantling most of its existing manufacturing), the U.S. has neither the capital to fund such an economic expansion, nor the spending-power amongst its consumers to pay for those goods, once produced.

Conversely, the solution to China's much less ominous problem is to simply buy more of their own goods domestically. This is exactly what is occurring in China, with a domestic economy which has been growing at a phenomenal rate of 20% (or more) per year – which implies doubling in size every four years.

However, China's critics never let reality get in the way of their ranting. They point to China's massive pool of savings and miniscule amount of debt and claim China has a big “spending” problem – despite the fact that China already has the world's 5th largest domestic economy (measured in dollars).

The critics counter that China 'only' has a consumption-to-GDP ratio of 36%, versus roughly 50% for Europe and Japan, and more than 70% in the United States. The U.S. has spent itself into hopeless insolvency, while both Japan and many European nations have serious debt issues, which begs the question: who really needs to alter their consumption behavior?

The Chinese people currently have a savings rate of roughly 25% - six times higher than in the U.S., after the large, recent jump in the U.S. savings rate. Total individual debt for Chinese consumers amounts to only 3% of GDP, compared to 12% in Brazil and 7% in Russia (two other “BRIC” economies). These numbers are also cited as “problems”.

In fact, with vast savings and virtually no debt, what this means is that the phenomenal rate of growth in China's domestic economy can be sustained for many years – before even beginning to become leveraged with debt. Conversely, it will take decades for U.S. consumers to reduce their debt-leverage to a point where they are capable of increasing spending again (in real, inflation-adjusted dollars) – without immediately careening toward personal bankruptcy. Yet these idiot-critics refer to China's growth (backed by real savings) as a “bubble” - while claiming that the U.S.'s debt-saturated economy would “lead the world out of recession”.

Virtually all of these criticisms can be boiled-down to a claim that China's “economic problem” is having too much savings and too little debt – in other words “too much money”.

Finally, in the land which leads the world in fraudulent accounting and falsified “statistics”, China's legion of U.S. critics hypocritically accuse China of lying about its rate of growth. To “prove” this accusation, these hypocrites look no further than China's export-based, coastal cities. They point to widespread unemployment, factory closings, and social unrest among the 100 million (or so) inhabitants of these cities – and claim this proves China is “lying” in claiming current GDP growth of around 8%.

In reality, these coastal cities comprise less than 10% of China's total population, and no more than ¼ of GDP. In reporting its GDP, China has openly stated that this segment of its economy (the “first tier cities”) is only growing at a little more than 1%. The vast majority of China's economic growth is coming from its interior “second” and “third tier” cities, which are entirely focused on China's domestic economy – which (as mentioned earlier) is growing by more than 20% per year.

The Chinese government, itself, is totally focused on its interior economy in its own “stimulus spending”. Instead of propping-up the struggling segments of its economy with hand-outs (which is precisely where most of the U.S.'s “stimulus” dollars have gone), China's “stimulus” is going into massive, infrastructure investment, as well as environmental initiatives such as its “grain-for-green” program, where it is successfully reversing some of the environmental degradation caused by generations of unsustainable land-use practices in the backward regions of Western China.

This is not to say that China is without its own set of social, economic and environmental problems. However, what sets China apart from many other nations is that a) it is working at fixing these problems (rather than hiding or simply ignoring them); b) it can actually point to positive progress in dealing with these problems; and c) it can afford to fund the necessary programs to continue addressing these problems in the future.

In the United States, even in the few areas where the government is actually trying to make things better (i.e. the small segment of the government not devoted to serving Wall Street), every penny of money being spent in a positive manner is either borrowed or freshly-printed off of Ben Bernanke's magic printing-press. Given that the #1 problem in the U.S. is more debt than any other nation in history, any limited progress it is making is being offset by dramatically accelerating its regression toward formal default on its debts.

Clearly, China's critics (especially those in the U.S.) would be much better off studying all the things which China's government is doing successfully to improve its economy, and the standard of living of its citizens rather than squandering their time inventing imaginary “faults”. I wish that my biggest “problem” was having too much money.

Comments

[GordonFreeman:]

The US situation today reminds me a lot of the Weimar Republic at the end of WWI: 1) After the war, Germany's factories and industry were mostly destroyed by war. Today, majority of OUR industry and manufucturing sector has been either closed down or outsourced. 2) Germany was obligated to pay huge reparations to many countries. We have a tons of growing debt that we owe to China, Japan, etc. 3) Germany resorted to hyperinflation in an attempt to improve its situation, resulting in mass poverty for its citizens, including France taking over the biggest and most important coal mine in Germany. The US will... well, that's left to be seen.

Your comments?

Aug 25 12:55 PM

[doublenickel:]

kman makes a good comment that in essence a single homeowner has borrowed a negligible amount of the banks capital, AND, I might add, the bank has recourse through foreclosure. But for a HUGE borrower, who has the ability to break the bank, what would the reaction be? Especially if the bank has no legal recourse of seizing assets. The US is still a sovereign entity, and no matter how much China may want to repo some of what the US has, we have the sovereignty and the military to say, No you won't. Not that that's the moral or ethical response, you understand. It's the "might makes right" response which governments in extremity always resort to.

However, on the flip side, I find the argument which boils down to "China's economic problem is that it has too much money" lets the cat out of the bag. It tacitly admits that the "money" China holds isn't worth anything. Substitute "value" for "money" in the argument and you can see that it makes no sense. Then substitute "fiat currency" and it makes perfect sense.

Aug 25 03:02 PM

[Hot Richard:]

The Big Lie: China is weak. Sorry, USA, Hot Richard ain't buying it.

I hate communism, collectivism, and central planning. But, I'm more bullish on China than the USA because I love human capital (and the USA has pretty much destroyed their human capital...and what isn't destroyed is handcuffed to debt, taxes, and incentive crushing).

I'm still shorting the USA over investing in Chindia, but one Chinese pullback could reveal a whole lotta opportunity. India is right there, too, but still second fiddle.

Aug 25 03:52 PM

[Whippet:]

No; I completely agree with you. Default at all is not an option- and that would be the only kind palatable to Kongress.
Hyperinflation is the only way out of the debt spiral...


On Aug 24 08:36 PM mna wrote:

> Selective default? you mean default only on Chinese held Treasury
> bonds? That's problematic for 2 reasons: 1) the system is so convoluted
> that it's tough to know how much and who's actually holding what,
> or if the bonds are collateral to something else. By the time it's
> worked out, the treasury bonds would've been already partially sold
> and wreaked havoc with the dollar 2) Chinese can simply seize American
> assets inside china as compensation. So you can be sure GM, Ford
> would do anything in its power to stop the government from doing
> something like that.
>
> Only way to stop it would be total war and occupation of China.
> In any case, if we go down that road, we'd better be prepared for
> full out thermonuclear war. You prepared to sacrifice relatives
> in NY or LA because our government wants to be a deadbeat?

Aug 25 03:56 PM

[Yaudy:]

Michael, I agree with you that China has a wealth imbalance problem, like Thailand. But the advantage that China has over Thailand is that China's communist party came to power 60 years ago by exploiting exactly the same problem China had then, so they are acutely aware of the problem and is addressing it the best they can by pumping money into education and rural and interior areas. In Thailand, being a democratic country, politicians exploit the problem, which was what the Chinese communists did 60 years age, rather than mend it, which is what they are doing now.


On Aug 24 01:19 PM Michael Clark wrote:

> Cities in China are becoming over-developed, since all the money
> is being pumped in to the cities, while the rural areas remain poor
> and undeveloped.
>
> This will create a major problem of imbalanced weath, that is such
> a huge political problem in Thailand, in China, and also a problem
> in Vietnam.
>
> Thailand has had street battles all year between the urban rich party
> and the rural poor party; the rural party government has been thrown
> out of power and the urban party has taken over. But nothing is
> resolved. This is a potential political problem in much as Asia,
> and could erupt into open political warfare.

Aug 26 01:38 AM

[China Interest:]

Here is an article of interest from Andy Xie who is also stating the asset bubble. The reality is that China has structural imbalances that are destabilizing the economy.

english.caijing.com.cn...

Aug 26 04:54 AM

[China Interest:]

Oh by the way Jeff I live in Beijing but I have travel throughout China. The excesses are evident in more than just the 1st tier cities - it goes well beyond to 2nd and even 3rd tier cities. You can find apartment blocks of say 20 buildings each 20 stories built with no one home (all over China including in the villages).

While China have amassed $2 trillion in foreign reserves the domestic financial market is pass the ball under the shell game (otherwise known as the Enron game).

P.S. For every non-performing asset is an non-preforming liability.

Aug 26 05:03 AM

[Jeff Nielson:]

China Interest, "structural imbalances" do NOT = "bubble".

Let me repeat: to have a "bubble" REQUIRES large amounts of LEVERAGED debt. As I pointed out in this commentary (and others before it), there is virtually NO leveraged debt in China (certainly in comparison to the U.S.).

The same knuckle-draggers who are talking about Chinese banks making "bad loans" are obviously oblivious to the fact that the Chinese government RAISED reserve requirements for its banks FIVE TIMES in 2007, alone.

The reality is that the Chinese banking system is a HUNDRED TIMES healthier than the U.S. system - which is why they haven't had to hurl TRILLIONS in government hand-outs to their banks - as was done for the U.S.'s "capitalist" bankers.

To my critics who are content to live in their own tiny world of half-truths I say this: I don't write my stuff for YOU. I write for those who still have the capacity for independent thought.

Aug 26 02:28 PM

[thiazole:]

Here is how I see it - let's say you have two farmers, one who grows apples (the US) and one who grows oranges (China). The orange farmer approaches the apple farmer and says, "hey, I sure would like some apples - would you like to trade me apples for my oranges?" The apple farmer agrees and brings a bushel of apples to the orange farmer and says, "I'll trade you a bushel of apples for two bushels of oranges" since that is rate the apple farmer usually trades with other orange farmers. The orange farmer says, "nope - we are fixing OUR oranges at the rate of 1 bushel per bushel of apples". Well, that is a great price, so the apple farmer agrees. Now the apple farmer offers to trade a bushel of apples to the orange farmer (whose family is starving and could really use these apples), but the orange farmer says, "nope - we don't really want your apples right now - we aren't very hungry. Instead we want promise notes in your apples that we can cash in on later." So this trading relationship continues - the orange farmers are starving, but they refuse to actually take any apples. They only want promisary notes for apples in the future. In the meantime, all the other orange farmers out there are going out of business because they can't compete with the prices this orange farmer is asking, so the apple farmer doesn't actually have any trading partners who are buying many apples any more. Now normally this would cause the value of the apples to drop, but the orange farmer refuses to adjust the trading rate. As a result, the apple farmer stops growing as many apples since they ones they are growing are going to waste (ie, the US move away from a manufacturing based economy and into a services based economy). After a while, the fields where he used to grow apples are becoming infertile. Now the orange farmer is getting scared because he is realizing that he has WAY too many promisary notes for apples and there is almost no way the apple farmer could ever deliver this many apples with the reduction in apple output and the fact that most of the land previously used to grow apples is no longer fertile. As a result, the orange farmer is threatening to redeem his promisary notes which would wreck the apple farmer's business altogether.

Now tell me, how the hell does anyone blame the apple farmer in the above example?

Aug 26 03:47 PM

[Belome:]

Jeff your arrogant psychotic socialist dribble makes my head hurt....

Aug 26 08:04 PM

[China Interest:]

Coreopsis

The FT have given Michael Pettis a bi-weekly column just because he is a leading authority writing on China. I don't know where you get the idea that he is a laughing stock (that is just your minority opinion). Furthermore, even though Michael might have some blind spots (trying to find the evidence to support his theories) he is right on track as to where the discussion is needed. His knowledge on China, finance, and economics far surpass the blog your reading from Jeff.

On Aug 24 09:31 AM coreopsis wrote:

> You must not read the Financial Times of London; there's been a recent
> spate of letters from professional economists excoriating the writings
> of mpettis. His writing has become the laughing stock of serious
> thinkers. Hope you're not the last to know.

Aug 26 10:05 PM

[China Interest:]

The bubbles do exist! Definition of an asset bubble is "an extended period of extreme overvaluation. Bubbles are formed when excessive speculation enters a market."

The use of derivatives for leveraging purposes isn't the issue in China (as it was in the USA), but the there is excess liquidity in the market through various other means, i.e, hot money in flows, the creation of money supply to keep up with the USA (this is being done to keep the RMB from appreciating against the US dollar), etc...

The reserve requirements were used in 2007 to curb the hot money inflow. Any Econ101 course will tell you that this is a blunt instrument for trying to control inflation (money supply)!

What actual goes on - State-Owned Enterprises (SOE) have received massive loans from the banks but many SOEs don't know what to do with the money. Much of this money is being parked in the stock market and in real estate. Many of those who are using the funds provided by the banks are investing in overcapacity (steel) or stock piling commodities.

Real estate developers are being given loans from the banks that they are using to turn around and buy their own apartments at extremely high prices because the common consumer can not afford to buy them. The price of real estate in 1st tier cities is well above the affordability of the people who can buy and live in them.

To borrow for real estate (first mortgage) officially requires the purchaser to pay 20% down payment. However, borrowers will often borrow from another source (another bank) to meet the 20% (common practice). As well, to show that you'll have income to support the loan. No problem. Creating a fake document to show an inflated income is easy to obtain. Banks don't have a problem (they are well aware).

Banks have lent commercial developers money to build buildings that sit empty or are occupied at extremely low rental rates. Thus we now have many high-end retailers using the retail space as billboards. They hardly ever sell actual merchandise!

The banks are sending text messages to university students to give them lines of credit without due diligence to ensure the lending will be repaid (i.e., collateral, employment, co-signer, etc..).

The list goes on and on....

On Aug 26 02:28 PM Jeff Nielson wrote:

> China Interest, "structural imbalances" do NOT = "bubble".
>
> Let me repeat: to have a "bubble" REQUIRES large amounts of LEVERAGED
> debt. As I pointed out in this commentary (and others before it),
> there is virtually NO leveraged debt in China (certainly in comparison
> to the U.S.).
>
> The same knuckle-draggers who are talking about Chinese banks making
> "bad loans" are obviously oblivious to the fact that the Chinese
> government RAISED reserve requirements for its banks FIVE TIMES in
> 2007, alone.
>
> The reality is that the Chinese banking system is a HUNDRED TIMES
> healthier than the U.S. system - which is why they haven't had to
> hurl TRILLIONS in government hand-outs to their banks - as was done
> for the U.S.'s "capitalist" bankers.
>
> To my critics who are content to live in their own tiny world of
> half-truths I say this: I don't write my stuff for YOU. I write for
> those who still have the capacity for independent thought.

Aug 26 10:43 PM

[Michael Clark:]

Yaudy:
I'm not sure they are mending the problem in China. I agree that they are trying to mend it. But it's a problem that is hard to mend.

Vietnam has a similar problem -- and it also has the communist revolution that is supposed to make mending the problem easier.

But real estate developers are part of the problem, buying up farmland on the cheap -- and threatening, beating, or killing those that won't sell -- and leaving peasants wandering in the countryside or cities.

The central government passed a stimulus bill in Vietnam that gave $38.00 (if I remember correctly) to each rural family. But only $7 of that $38 actually got to the rural families after it had gone through each power gate where it was skimmed first.

I think the duality of rich urban and poor rural is a continuing historical duality that is not solved very easily.

In Thailand, it seems to be the current political struggle very clearly defined.


On Aug 26 01:38 AM Yaudy wrote:

> Michael, I agree with you that China has a wealth imbalance problem,
> like Thailand. But the advantage that China has over Thailand is
> that China's communist party came to power 60 years ago by exploiting
> exactly the same problem China had then, so they are acutely aware
> of the problem and is addressing it the best they can by pumping
> money into education and rural and interior areas. In Thailand,
> being a democratic country, politicians exploit the problem, which
> was what the Chinese communists did 60 years age, rather than mend
> it, which is what they are doing now.

Aug 27 01:43 AM

[Michael Clark:]

I agree with you. I don't think the historic tulip bubble had anything to do with debt level. It had to do with massive speculation -- and a price collapse. A stock market collapse can happen without heavy margin buying. It is an auction house. Everyone wants to buy AAPL. They put all their savings into buying shares of AAPL. Suddenly AAPL is discovered to have a worm and people start dumping shares....this scenario has nothing to do with debt. There are PRICE BUBBLES and DEBT BUBBLES. You can have price bubbles (recessions) and you can have debt bubbles (depressions).


On Aug 26 10:43 PM China Interest wrote:

> The bubbles do exist! Definition of an asset bubble is "an extended
> period of extreme overvaluation. Bubbles are formed when excessive
> speculation enters a market."
>
> The use of derivatives for leveraging purposes isn't the issue in
> China (as it was in the USA), but the there is excess liquidity in
> the market through various other means, i.e, hot money in flows,
> the creation of money supply to keep up with the USA (this is being
> done to keep the RMB from appreciating against the US dollar), etc...
>
>
> The reserve requirements were used in 2007 to curb the hot money
> inflow. Any Econ101 course will tell you that this is a blunt instrument
> for trying to control inflation (money supply)!
>
> What actual goes on - State-Owned Enterprises (seekingalpha.com/symbo...)
> have received massive loans from the banks but many SOEs don't know
> what to do with the money. Much of this money is being parked in
> the stock market and in real estate. Many of those who are using
> the funds provided by the banks are investing in overcapacity (steel)
> or stock piling commodities.
>
> Real estate developers are being given loans from the banks that
> they are using to turn around and buy their own apartments at extremely
> high prices because the common consumer can not afford to buy them.
> The price of real estate in 1st tier cities is well above the affordability
> of the people who can buy and live in them.
>
> To borrow for real estate (first mortgage) officially requires the
> purchaser to pay 20% down payment. However, borrowers will often
> borrow from another source (another bank) to meet the 20% (common
> practice). As well, to show that you'll have income to support the
> loan. No problem. Creating a fake document to show an inflated income
> is easy to obtain. Banks don't have a problem (they are well aware).
>
>
> Banks have lent commercial developers money to build buildings that
> sit empty or are occupied at extremely low rental rates. Thus we
> now have many high-end retailers using the retail space as billboards.
> They hardly ever sell actual merchandise!
>
> The banks are sending text messages to university students to give
> them lines of credit without due diligence to ensure the lending
> will be repaid (i.e., collateral, employment, co-signer, etc..).
>
>
> The list goes on and on....
>
> On Aug 26 02:28 PM Jeff Nielson wrote:

Aug 27 01:49 AM

[Michael Clark:]

That is funny. These unions -- doctors, lawyers, real estaters, insurancemen, bankers -- these are the Republican unions. Look how they've swollen under the Republicans while the other unions (the working poor, who have been defined on another page as 'the grasping, parasitic lower class' -- I thought it was the upper class that was 'grasping and parasitic') has withered to nothing but debt and unemployment insurance... Let the insurance executives and the doctors and lawyers fight the next war.


On Aug 24 05:20 PM Jeff Nielson wrote:

> Yes, the "war" waged against unions is clearly also a BIG reason
> for the drastically widening wealth- and wage-gaps.
>
> Isn't it funny how the "unions" for working people were all "evil
> and corrupt" - while the two most-powerful, and most-greedy unions:
> the doctors' union and the lawyers' union BOTH remain untouched?
>

Aug 27 01:58 AM

[Michael Clark:]

I don't think China is weak. But I think China is VERY HARD for a foreigner to understand. Asians are very careful about their face, about what they let out, about information vs reality. Americans, especially, Westerners generally, are very open -- they'll spill their guts about strengths, weaknesses, worries... Asians are not like that. Weaknesses? Why would an Asian tell his enemy about his weakness?

And investors are going to trust official figures posted for public consumption in such a society?

There's a lot we don't understand about Asian culture -- they only let outsiders 'in' so far. Unfathomable. You see a smile on a face, it does NOT mean they like you.

Immense population, focus on education, high savings rate...that all seems very promising. Quality of goods being produced? Laughable. Integrity in quality of goods being produced? Nonexistent. (The Chinese are NOT like the Japanese. The Japanese are like Germans; they have an integrity second to none when it comes to quality because they are imbued with integrity.) Chinese are, at this stage in history, pirates producing bad products. They are not taking good Western products and making them better, like the Japanese did. They are taking fairly good Western products and making them worse. You should see the Chinese produced toothpaste and listerine. Very cheap, in all meanings of the word.

I agree with you that you should be shorting the USA now. We have lived the wrong way for too long, mortgaging our future to live a sort, unproductive, consumer-based life. The Swine Flu (that seems to be attacking the white Western societies with such vigor) is appropriately named, with metaphorical meaning).

But people throwing their money into China and India and other 'emerging' nations should be careful in assuming that political stability in these countries is a given. Pax Americana has given the world a pretty ideal investment environment over most of the globe for some time now. If Pax Americana goes, what replaces it? Pax Chindia? I don't think China and India have much political unity -- and the love of money only goes so far in fusing ideologies -- there's no honor among thieves, as they say. More likely, international chaos follows the passing of Pax Americana, as different forces try to fill the void, stepping on everyone else in the process.

I don't think its China against America. China wants America to succeed. Who else is going to buy its tootpaste, and its bigger items? (I don't see Americans standing in line to buy Chinese cars in the future; but I may be wrong about that.) If America falls, Europe falls; and if America and Europe fall, Chinadia shrinks into local powerhouse status with a lot of relatively worthless currency and no real markets to sell their goods.

It's a global economy, like it or not. If one of the giants dries up and blows away, they all do.


On Aug 25 03:52 PM Hot Richard wrote:

> The Big Lie: China is weak. Sorry, USA, Hot Richard ain't buying
> it.
>
> I hate communism, collectivism, and central planning. But, I'm more
> bullish on China than the USA because I love human capital (and the
> USA has pretty much destroyed their human capital...and what isn't
> destroyed is handcuffed to debt, taxes, and incentive crushing).
>
>
> I'm still shorting the USA over investing in Chindia, but one Chinese
> pullback could reveal a whole lotta opportunity. India is right
> there, too, but still second fiddle.
>

Aug 27 02:18 AM

[Michael Clark:]

Very interesting article. Here's a quote I found especially interesting....

The most serious damage that a property bubble inflicts is that it changes demographics. High property prices bring down birth rates. When property prices recede after a bubble bursts, a low birth rate culture cannot be changed. Hong Kong, Japan, Korea and Taiwan all went through property bubbles during their development periods. Their birth rates fell during bubbles and didn't recover afterward, despite government incentives. China's one-child policy alone will lead to a demographic catastrophe in two decades. The property bubble makes the trend irreversible: When the government abandons the one-child policy, the birth rate will not see a meaningful impact. In two decades, China's population could be very old and declining. Of course, property prices would be very low and declining also.


On Aug 26 04:54 AM China Interest wrote:

> Here is an article of interest from Andy Xie who is also stating
> the asset bubble. The reality is that China has structural imbalances
> that are destabilizing the economy.
>
> english.caijing.com.cn...

Aug 27 02:38 AM

[Jeff Nielson:]

China Interest, what do you think "excessive speculation" MEANS? It means too much leverage.

If people are only spending CASH then there is obviously not "excessive speculation" taking place. ALL of Wall Street was leveraged by an AVERAGE of 30:1during the housing bubble. Now THAT is "excessive speculation"...and yet the re-appointed Ben Bernanke called that a "Goldilocks economy".


On Aug 26 10:43 PM China Interest wrote:

> The bubbles do exist! Definition of an asset bubble is "an extended
> period of extreme overvaluation. Bubbles are formed when excessive
> speculation enters a market."
>
> The use of derivatives for leveraging purposes isn't the issue in
> China (as it was in the USA), but the there is excess liquidity in
> the market through various other means, i.e, hot money in flows,
> the creation of money supply to keep up with the USA (this is being
> done to keep the RMB from appreciating against the US dollar), etc...
>
>
> The reserve requirements were used in 2007 to curb the hot money
> inflow. Any Econ101 course will tell you that this is a blunt instrument
> for trying to control inflation (money supply)!
>
> What actual goes on - State-Owned Enterprises (seekingalpha.com/symbo...)
> have received massive loans from the banks but many SOEs don't know
> what to do with the money. Much of this money is being parked in
> the stock market and in real estate. Many of those who are using
> the funds provided by the banks are investing in overcapacity (steel)
> or stock piling commodities.
>
> Real estate developers are being given loans from the banks that
> they are using to turn around and buy their own apartments at extremely
> high prices because the common consumer can not afford to buy them.
> The price of real estate in 1st tier cities is well above the affordability
> of the people who can buy and live in them.
>
> To borrow for real estate (first mortgage) officially requires the
> purchaser to pay 20% down payment. However, borrowers will often
> borrow from another source (another bank) to meet the 20% (common
> practice). As well, to show that you'll have income to support the
> loan. No problem. Creating a fake document to show an inflated income
> is easy to obtain. Banks don't have a problem (they are well aware).
>
>
> Banks have lent commercial developers money to build buildings that
> sit empty or are occupied at extremely low rental rates. Thus we
> now have many high-end retailers using the retail space as billboards.
> They hardly ever sell actual merchandise!
>
> The banks are sending text messages to university students to give
> them lines of credit without due diligence to ensure the lending
> will be repaid (i.e., collateral, employment, co-signer, etc..).
>
>
> The list goes on and on....
>
> On Aug 26 02:28 PM Jeff Nielson wrote:

Aug 28 12:06 AM

[Carlos Lam:]

On Aug 27 01:58 AM Michael Clark wrote:

> That is funny. These unions -- doctors, lawyers, real estaters,
> insurancemen, bankers -- these are the Republican unions.

Ummm, as a libertarian Republican, I want to point out that you're incorrect. Tort lawyers have always been a key Democratic constituency: they oppose tort reform and support an activist judiciary. Criminal defense attorneys often support Democrats because Democrats have been seen as "soft" on crime since the '80s.

Bankers give a lot to both parties: Goldman Sachs employees gave Pres. Obama nearly $1,000,000 during the 2008 campaign. What else can one expect, though, when the banks are part of a cartel that uses the government to enforce their cartel agreement?

Finally, I think it's incorrect to classify organizations like the American Bar Association, American Medical Association, and the National Association of Realtors as "unions" inasmuch as a practitioner need not belong to any of those organizations to work in his field. I'm an attorney, for example, and have never belonged to the ABA. In closed- and agency-shop states, one often has to belong to a trade or industrial union to work in a given factory.

Aug 28 08:40 PM

[chris coonan:]

I am on the ground in China, going on 8 months now, and I think that all Wall Street investors, and opinion leaders, should take a couple weeks and visit the major cities here. They will be shocked.

Nov 29 03:40 AM