Exporting the Real Estate Bubble to China (November 14, 2005)
Everyone is agog at the immense trade deficit the U.S. has with China, but fear not, we are exporting something equally enormous back to China: our very own real estate bubble. As this link explains, low U.S. interest rates and the huge trade imbalance has flooded Asia with dollars. The Chinese have added gasoline to this already roaring fire by relentlessly boosting their own money supply; according to the Wall Street Journal, China increased its money supply by 18% while their economy grew at a more modest 8%.
Similar imbalances between inflation-feeding rapid growth of money supply (M2 or M3 as the economists call it) and much lower growth of actual economies is a worldwide phenomenon. Such vast increases in money supply typically cause inflation. Yet the inflation rate remains low everywhere. So where's all that money flowing, if not into goods and services? It's flowing into assets. What we are witnessing is an unprecedented global inflation of fixed assets, i.e. real estate.
Here are some other links describing the Chinese real estate bubble:
The Political Economy of Shanghai’s Real Estate Bubble by Wenhui Zhu
Wangjianshuo's blog on Shanghai real estate
China takes step to deflate an impending property bubble (Int'l Herald Tribune)
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copyright © 2005 Charles Hugh Smith. All rights reserved in all media.
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