Yes Virginia...It's a Bubble...

[Milton Kuo]

Re: Yes Virginia...It's a Bubble...

Milton, have you ever considered that is China's plan? For example they will build a sidewalk outside an apartment building and after two years tear it up and put a new one in.

This all to keep economic GDP high. If they build a structure that lasts only 10 years well fantastic they can fix it or build another one and continue the imports of iron ore, concrete etc into perpetuity and their population base allows for it.

They could care less if the building falls like the one in the picture, it is not like the citizens are going to sue the builder or government.

This is taking the "broken window" idea of economic stimulus to a whole new level. China might as well have another Cultural Revolution to really ramp-up the amount of reconstruction work available if planned self-destruction is part of their economic growth plan.

So, no, I don't think that is the Chinese strategy. I believe the real story is that China puts a half-assed effort in to an endeavor and hopes that things don't go to pot (which, of course, they always do.) This is based on my own experiences and observations as well as those of my grandparents (who had pretty harsh things to say) who left China when the Communists took over.

Considering that China is kind of third-worldish, they really could spend their money in far better ways than rebuilding the same crap over and over again.

The point is they can keep this up longer than you can stay fearful of a collapse.

I'm not invested in China in any way so they can kick the can down the road as long as they want; I'm merely an amused bystander.

[touchring]

Re: Yes Virginia...It's a Bubble...

Shanghai circa 2009. I am quite certain I wouldn't feel all that enthused about living in any of the adjacent, identical looking apartment blocks. Maybe that's why so many of them are empty in China? :-)

Ya, but these blocks are worth gold. Millions are dollars $$$.

LOL

[GRG55]

Re: Yes Virginia...It's a Bubble...

lots of others like to quote xie, and leave out the 2012. he's still fixated on 2012. i posted another piece of his this morning. staflation, currency problems, chinese crash: 2012
http://www.itulip.com/forums/showthread.php?t=14211

And like all good bubbles it goes on much longer and inflates to a much greater extent than anyone could have imagined.

Is it finally the beginning of the end? Maybe. Maybe not...

China’s riskiest property market just collapsed. Is this how it starts?

February 25, 2013 at 11:05 am

The real estate market in Phoenix Island, a development project in the Chinese island province of Hainan, was so inflated, so outrageously expensive and unsustainable, that it became known as the Dubai of China. With its palm tree-lined streets, glimmering high-rises and ostentatious sports cars, it even looked a little like Dubai. And now, also like Dubai but maybe more in the vein of south Florida, the Phoenix Island real estate market that drove so much local economic growth has imploded.

Phoenix Island is an extreme case, but it’s in many ways symptomatic of China’s skyrocketing real estate market, which is both a blessing and a curse for China...

...If the national real estate market collapses in China, it would be disastrous not just for China but for the entire world economy, risking a third wave of the global crisis that began with the U.S. financial collapse and worsened with the Euro crisis. Is Phoenix Island an outlier, a crazy market so extreme that it tells us little about China? Is it the start of a major but recoverable setback? Or, in the worst-case scenario, is it the beginning of the end for China’s astounding 20 years of miraculous economic growth?

In some ways (but not all), China is even more exposed to the dangers of a real estate collapse than America was. Washington Post business reporter Jia Lynn Yang pointed out last fall that urban housing stock constituted 41 percent of Chinese household wealth of 2011. The number was 26 percent in the U.S...

...I asked Patrick Chovanec, whose economics teaching at China’s prestigious Tsinghua University has made him a respected and much-cited source on China’s economy, how we would know if the Chinese real estate bubble was bursting. In other words, when do we start panicking?

“As long as the money supply keeps expanding aggressively (15%+ per year), and people (absent alternatives) are willing to plow that money into real estate and hold it, this [real estate market] can persist for some time,” Chovanec explains in an e-mail. “But when the flow of new money slows — either because of the need to rein in inflation, including housing inflation, or the need to roll over and refinance bad debt (often at rising rates of interest) — the whole thing begins to unravel.”...

...It’s very very hard to tell. First of all, because so much financing has gone outside the banking system, the standard measures of money supply (M1, M2) don’t tell us very much any more about the amount of “money” (i.e., credit) in the Chinese economy. Most of the credit expansion we’re seeing is off balance sheet. In fact, a lot of credit growth that we’re seeing is inter-company or buyer credit — companies pretending they have sales when in fact they may or may not ever get paid.

Second, it’s hard to tell how much of that credit expansion is being “eaten up” by the need to roll over bad debt at interest, rather than financing new investment. That’s where the real crunch comes, and why we’re seeing, consistently, the returns (in terms of GDP growth) to credit expansion decline. In other words, it takes more and more credit expansion to deliver less and less economic growth — less bang for the buck.

So it’s an opaque process that depends, in large part, on the willingness of everyone to believe that they will, somehow, get paid in the end. If that ever comes into doubt, credit suddenly disappears and everyone rushes to cash out, and there isn’t enough cash to meet all claims. I don’t know if and when that will happen, but even if it never happens, the dependence on credit expansion to roll over more and more bad debt inevitably puts a squeeze on growth...

Chinese 'Dubai' turns into deserted island
Posted: 24 February 2013 1349 hrs

SANYA, China: It was billed as China's Dubai: a cluster of sail-shaped skyscrapers on a man-made island surrounded by tropical sea, the epitome of an unprecedented property boom that transformed skylines across the country.

But prices on Phoenix Island, off the palm-tree lined streets of the resort city of Sanya, have plummeted in recent months, exposing the hidden fragilities of China's growing but sometimes unbalanced economy.

A "seven star" hotel is under construction on the wave-lapped oval, which the provincial tourism authority proclaims as a "fierce competitor" for the title of "eighth wonder of the modern world"...

...Now apartments on Phoenix Island which reached the dizzying heights of 150,000 yuan per square metre (US$2,200 per square foot) in 2010 are on offer for just 70,000 yuan, said Sun Zhe, a local estate agent.

"I just got a call from a businessman desperate to sell," Sun told AFP, brandishing his mobile phone as he whizzed over a bridge to the futuristic development on a electric golf cart.

"Whether it's toys or clothes, the export market is bad... property owners need capital quickly, and want to sell their apartments right away," he said. "They are really feeling the effect of the financial crisis."...

...On the other side of Hainan, the Seaview Auspicious Gardens boasts beachside villas accessed by artificial rivers and a private library containing 100,000 books. Prices there have fallen by a third from a high of 12,000 yuan per square metre in the last year, and a third of the flats remain unsold...

[touchring]

Re: Yes Virginia...It's a Bubble...

Milton, have you ever considered that is China's plan? For example they will build a sidewalk outside an apartment building and after two years tear it up and put a new one in.

This all to keep economic GDP high. If they build a structure that lasts only 10 years well fantastic they can fix it or build another one and continue the imports of iron ore, concrete etc into perpetuity and their population base allows for it.

They could care less if the building falls like the one in the picture, it is not like the citizens are going to sue the builder or government.

The point is they can keep this up longer than you can stay fearful of a collapse.

Can China really continue doubling their money supply every 3 years without a collapse of the Yuan?

[touchring]

Re: Yes Virginia...It's a Bubble...

If that's the fallen apartment/condominium building that I think it is, it didn't even come close to surpassing the meager five or ten years I was saying China's infrastructure would not last. Tenants hadn't even moved-in to the building when it toppled due to shoddy design!

If the infrastructure is all constructed so poorly, in the event of a bust, not only will China have to wipe out investors and write off bad debt, they'll have to write off the infrastructure as well!

Makes me wonder how long that the Bay Bridge in California is going to last.

This will depend on your tolerance for broken stuff. A building is still livable even if it leaks by the bucket when it rains and all the paint work has peeled off and cement is dropping off the walls. Many Syrians are still living in their homes even after parts of the building has collapsed due to shelling.

Of course, the great test will come if an earthquake close to the urban centers like the Tangshan earthquake that struck in 1976 happens again.

[ProdigyofZen]

Re: Yes Virginia...It's a Bubble...

Can China really continue doubling their money supply every 3 years without a collapse of the Yuan?

Touchring, when the US did the exact same thing China is doing today to England back in the mid to late 1920's which economy eventually emerged as the largest in the world?

1966 Alan Greenspan essay “Gold and Economic Freedom”

“When business in the United States underwent a mild contraction in 1927, the Federal Reserve
created more paper reserves in the hope of forestalling any possible bank reserve shortage. More
disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold
to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it
was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal
Reserve pumped excessive paper reserves into American banks, interest rates in the United States would
fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid
the political embarrassment of having to raise interest rates.

The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in
the process. The excess credit, which the Fed pumped into the economy, spilled over into the stock
market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up
the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the
speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching
and a consequent demoralizing of business confidence. As a result, the American economy collapsed.
Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she
abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of
confidence and inducing a world-wide series of bank failures. The world economies plunged into the
Great Depression of the 1930's.” (end)”

[touchring]

Re: Yes Virginia...It's a Bubble...

Touchring, when the US did the exact same thing China is doing today to England back in the mid to late 1920's which economy eventually emerged as the largest in the world?

The US is a different case from China.


China has a single party authoritarian government whereas the US is a 2-party semi-democracy.

China still has an on-going civil war (xinjiang and tibet) whereas the US is stable.

China has a rapidly aging and shrinking workforce (yes, China's workforce has started to shrink this year), whereas the US has a growing workforce, even till today.

China has a serious elite/brain drain, many wealthy Chinese have been transferring their wealth to places like Singapore, the UK and the US.

The US has many times more oil reserves and arable farm land per person than China - and we have not take into account of Canada. ;)

[Polish_Silver]

Currency Wars

Touchring, when the US did the exact same thing China is doing today to England back in the mid to late 1920's which economy eventually emerged as the largest in the world?

1966 Alan Greenspan essay “Gold and Economic Freedom”

“When business in the United States underwent a mild contraction in 1927, the Federal Reserve
created more paper reserves in the hope of forestalling any possible bank reserve shortage. More
disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold
to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it
was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal
Reserve pumped excessive paper reserves into American banks, interest rates in the United States would
fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid
the political embarrassment of having to raise interest rates.

The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in
the process. The excess credit, which the Fed pumped into the economy, spilled over into the stock
market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up
the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the
speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching
and a consequent demoralizing of business confidence. As a result, the American economy collapsed.
Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she
abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of
confidence and inducing a world-wide series of bank failures. The world economies plunged into the
Great Depression of the 1930's.” (end)”

Very interesting parallel to today.

Similiar things:

1) Currencies and interest rates are correlated internationally.

2) Trade deficits/interest rates/gold outflows are important parts of national policy

3) High debt levels

4) Controversy over absolute and relative currency values

5) Britain was the has-been debtor of 1927, the US is the "has-been" debtor of 2013.

In the sense that, the global conditions no longer justify using the national currency as the world reserve currency.

Differences:

1) Britain was trying to strengthen the pound---get the value back up to the pre war value. However, since so much printing had happened, they needed rather high rates to do this. Britain was by this time a net debtor, but the debts were payable in gold, so a stronger pound would probably make the debt service easier.

2) The US was trying to help britain strengthen the pound, by weakening the dollar.

3) Today, each country wants to weaken it's own currency relative to others.

3) There is no national currency suitable to be a global reserve currency. The USD could easily take over the role from the pound, which happened unofficially around 1920, and officially with Bretton Woods.

The only viable reserve currency today is Gold. People are talking about Special drawing rights, but they have no taxation authority, military, or national identity behind them.

__________________________

Cheapening the currency is a "street fighters" way to improve balance of trade. It is a defacto wage cut.

Real economic strength comes from good governance, properly functioning markets, strong work ethics. This requires capital deepening, which requires savings. It's hard to motivate savings in a depreciating currency.

Plus, currency depreciating is a "race to the bottom". It confers only transient, relative advantage--zero sum game.

Good governance confers long term absolute advantages---productivity improvements.
But it is a lot harder to achieve than currency depreciation.

[GRG55]

Re: Yes Virginia...It's a Bubble...

The belief in a perpetual motion machine economy probably goes back almost as far as the belief in unicorns. :-)

I am sure your friend in Shenzen has lots of company. Inside and outside China.

Bubblicious news from Shanghai. Who are we to deny that all those empty apartments in all those ghost cities aren't an "investment" for a future great nation...

The Chinese are so desperate about the new property taxes they are divorcing in droves to avoid them

Reuters | 13/03/06 | Last Updated: 13/03/06 2:27 PM ET

SHANGHAI — At Shanghai’s Zhabei District marriage registration centre, officials divorced a record 53 couples in a single day this week – that’s about one every five minutes – as couples rushed to untie the knot to avoid tougher tax laws on home sales.

There were similar scenes in Wuhan, Nanjing and Ningbo as married couples opted for ‘quickie’, uncontested divorces – costing just a few yuan – that would allow them to split ownership of their properties and sell without having to pay capital gains tax of as much as 20%...

...Reckoning that primary residences owned for more than five years will remain tax exempt, some couples hope that divorcing and dividing up real estate assets will allow them to sell properties as individuals, and not pay tax. Once the sale is complete, they can remarry.

“It’s a practical attitude,” said Li Li, managing director of International Strategic Group, a real estate consultancy in Shanghai...

...“I told all of them to come here again for remarriage registration as soon as their transaction is finished,” the official told the newspaper...

[lektrode]

Re: Yes Virginia...It's a Bubble...

Bubblicious news from Shanghai. Who are we to deny that all those empty apartments in all those ghost cities aren't an "investment" for a future great nation...

The Chinese are so desperate about the new property taxes they are divorcing in droves to avoid them
.....


uh huh.....


“It’s a practical attitude,” said Li Li, managing director of International Strategic Group, a real estate consultancy in Shanghai...

...“I told all of them to come here again for remarriage registration as soon as their transaction is finished,” the official told the newspaper...

sombody is _always_ being practical

i mean - given the right advice... well... 'legal' advice anyway - and there's plenty of that around
not would that make it right, but why stand on ceremony, on trivial matters like this, anyway....
really!

[Polish_Silver]

Re: Yes Virginia...It's a Bubble...

I am betting less than 20% get married again.

Marriage is like a "bait and switch". You fall in love and sexual passions are strong. So, for the sake of public approval, you enter into a life time contract of cohabitation and sexual monogamy. But a few years into it, you find out the sexual passions aren't there any more. Many stay together because the companionship is valuable.

If young people were told about the truth about sexual feelings, the prestige of marriage would decrease greatly.

[GRG55]

Re: Yes Virginia...It's a Bubble...

...Marriage is like a "bait and switch". You fall in love and sexual passions are strong. So, for the sake of public approval, you enter into a life time contract of cohabitation and sexual monogamy. But a few years into it, you find out the sexual passions aren't there any more. Many stay together because the companionship is valuable.

If young people were told about the truth about sexual feelings, the prestige of marriage would decrease greatly.

If there was validity to what you have written the institution of marriage wouldn't have survived as long as it has, across so many cultures, so many religions and so many generations. Humans just aren't that slow to learn...

[shiny!]

Re: Yes Virginia...It's a Bubble...

I am betting less than 20% get married again.

Marriage is like a "bait and switch". You fall in love and sexual passions are strong. So, for the sake of public approval, you enter into a life time contract of cohabitation and sexual monogamy. But a few years into it, you find out the sexual passions aren't there any more. Many stay together because the companionship is valuable.

If young people were told about the truth about sexual feelings, the prestige of marriage would decrease greatly.

If young people were told the truth about sexual feelings, their hormones and inexperience about life wouldn't let them believe it. Young people know everything.

Sex plays a part in marriage, but good relationships are about so much more than sex. I live in a senior community. On my walks I see very old couples still holding hands and so much in love. I hope you can experience a relationship like that some day.

[jiimbergin]

Re: Yes Virginia...It's a Bubble...

I am betting less than 20% get married again.

Marriage is like a "bait and switch". You fall in love and sexual passions are strong. So, for the sake of public approval, you enter into a life time contract of cohabitation and sexual monogamy. But a few years into it, you find out the sexual passions aren't there any more. Many stay together because the companionship is valuable.

If young people were told about the truth about sexual feelings, the prestige of marriage would decrease greatly.

I am sorry if you have found this to be true in your life. I have found just the opposite. Passion grew between my late wife and myself. When she went home to the Lord after 46 1/2 years, I could not have loved her more. After almost 7 years, my current wife and I love each other more than the day we met. We have 6 children, all of whom have been married for around 20 years to the same spouse. And as far as I can see passion is still very much alive in their lives.

[Polish_Silver]

Persistence of Marriage?

If there was validity to what you have written the institution of marriage wouldn't have survived as long as it has, across so many cultures, so many religions and so many generations. Humans just aren't that slow to learn...

Actually, marriage is only similiar among agricultural societies, in which women have very inferior legal and economic status. In pre-agricultural societies, people have sexual liberty throughout their lives. A good example of this is Bligh's account of Tahiti. Another is the Musuo people in China, were the land is inherited mother to daughter. Nobody knows, or cares, who a person's father is.

Humans are not very good at talking about problems and disappointments. Cognitive Dissonance.
Marriage survived because it was the only kind of deal women could make on an economic and legal level. And now that women are economically independent, and men are not trying to pass farm land on to their children, marriage is attenuating.

This problem is well established for relationships.
see abstract (pg 2), Coolidge effect Pg 22,
most of all, figure I, page 36.
(female desire declines markedly within the first year)

Wikipedia

Psychology Today explains that rhesus males lose interest in a single female. But if you put a new female in the cage, interest revives.

Terminology includes: Coolidge effect, incest imprinting, sexual boredom, habituation.

Books:
Sex at Dawn
Mating in captivity

related ideas:
http://en.wikipedia.org/wiki/Westermarck_effect