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EJ
10-23-10, 05:26 PM
China Crash 2011 - Part I: The repetition compulsion of central bankers


http://www.itulip.com/images2/haltingbubble600.gif

It’s China’s turn to pop a world-class asset bubble and smash the global economy

• China tried to pop its property bubble once before but the global economic catastrophe caused the US financial crisis aborted the effort in 2008
• This week China re-launched the crash phase of its Greenspan Credit Bubble with Chinese Characteristics
• Watch out for flying bricks

Why don’t central banks, and the governments they front for, ever learn? The only way to prevent macro-economic damage from a collapsed asset bubble is to not allow a bubble to develop in the first place. Once a government takes the path of winning popular favor with the temporary prosperity that’s produced by asset price inflation, there is no easy way out, as Japan re-discovered in the 1990s, the US found out again in the 2000s, and China will experience soon enough. As part of our project to map out the coming decade, this week we investigate the prospect of the collapse of the Greenspan Credit Bubble with Chinese Characteristics.

Monday China embarked anew on a treacherous program of rate hikes to end a property bubble that took root there in 2005.

Here is a game readers can play at home to simulate the genius of a central bank managing an asset bubble down via interest rate hikes.

Find a cinder block and a bungee chord. Place the cinder block on the far end of your kitchen table. Attach one end of the bungee chord to the cinder block and put the other end between your teeth. Kneel down so that your face is level with the tabletop and pull the chord until it is taught.

Now it’s time to begin “tightening” the way central banks try to, bit by bit, to bring an asset bubble to a benign end, or so they believe.

Pull ¼ of an inch. If nothing happens then pull another ¼ inch. If nothing happens then do it again, and again.

Silly game, you’re thinking. A child can see how this will turn out. Sooner or later that concrete brick will sing across the table and smash your face.

As obvious as the outcome might be to a 10-year-old, the brick-in-the-face lesson remains lost on central banks. They must be slow learners because repeat it over and over. Or perhaps there is a common institutional neurosis shared among central banker’s that compels them to repeat the same mistake, to recreate the experience of concrete on teeth.

For years I’ve referred to China’s asset bubble economy as a Greenspan Credit Bubble with Chinese characteristics. This week we find that not only the policies that created China’s bubbles but even the policy responses to attempt to tame them mirror Greenspan’s.

Democracy or dictatorship, credit bubbles buy political favor... while they last

The beauty of a credit bubble is that while they expand both the creditor and the debtor believes they are getting rich. But unless the asset purchased with debt is appreciating, as might a piece of farmland, in fact only one of the two of them is getting richer, the one who holds the loan has an asset on his or her balance sheet. The debtor may increase his or her purchasing power temporarily, but once the cash is spent -- on a car or tuition at a culinary school or a home in the US since 2006 -- all they have left is a depreciating asset and a liability.

After a bubble gets big and fearsome enough, and all of the political benefits have accrued – capital gains tax revenues, high paying appointments to influential political posts such as running Fannie Mae or Freddie Mac, large scale wealth redistribution from debtors to creditors, and so on – and a catastrophic crash looms, first governments attempt to slow a bubble gingerly, such as restricting bank credit and raising taxes on particular classes of capital gains.

But speculators are not discouraged by such half-measures. The specter of marginally higher costs pale beside the dreams of quick riches created by the central bank during years of bubble growth. The speculator believes that the wealth and success they have achieved during the bubble resulted from their own genius, and this misguided view undoes all but the most self-aware of investors in such periods. The idea that excess liquidity and cheap credit were the main sources of their good fortune only occurs only to a small number of those who understand how asset bubbles operate, both economically and politically, as iTulip.com readers have since 1998 when we played the technology bubble until April 2000.

Asset versus wage and commodity price inflation: the central banker’s game

If commodity and wage inflation containment policy is all about managing consumer inflation expectations downwards, then the central bank’s policies that produce asset price inflation, to bribe the middle class into accepting insane levels of income and wealth inequality, is aimed at managing speculators' asset price inflation expectations upwards. Later, affecting an asset bubble policy about-face from encouragement to discouragement is like trying to convince Paris Hilton fans to stop reading her tweets.

The “solution” that the Greenspan Fed devised to quell the technology stock bubble was a program of 25 basis point rate hikes. The theory was that these clearly communicate the central bank’s determination to end the bubble, and cause the speculators to exit the market in an orderly fashion.

The central bankers’ dream is that these tender rate hikes will first slow the bubble, then allow it to deflate gradually to give the macro-economy a soft landing. But that never happens. They believe this despite the evidence that these measures cause the asset bubble to collapse. Every. Single. Time. It’s as predictable as the laws of physics that propel a brick airborne.

The NASDAQ Cinder Block

After six interest rate hike tugs the NASDAQ cinder block flew off the table and smashed the Fed in the face in 2000.


http://www.itulip.com/images2/nasdaqpop2000.gif

The first five hikes (percent, right hand axis) were quarter point each, just like the Bank of China’s on Monday. The final sixth hike that finally produced the NASDAQ crash starting in Q2 2000 (price, left hand axis) was a full half point just for good measure, nine months after the tightening program began.

Six months later the Fed began unprecedented panic rate cuts from 6% in Feb. 2001 to 1.5% by the end of the year. Many analysts at the time thought it was U.S. 1929 all over again, or maybe 1990 Japan, and a deflation spiral was sure to follow. Within a year, as the FIRE Economy crisis indeed began to spill over into the Productive Economy, median duration of unemployment (weeks, right hand axis) doubled from under six weeks to over 10.

The Housing Bubble Cinder Block

But as it turned out the year 2000 wasn’t 1929. The tech bubble was Greenspan’s warm-up for an even bigger and more macro-economically devastating bubble, the housing bubble. Incredibly, after allowing the housing bubble to grow by ten trillion dollars in fictitious value via asset price inflation, the Fed followed the exact same procedure as before except this time to pull a ten trillion ton brick off the table.


http://www.itulip.com/images2/hosuingpop2000.gif

The Fed tugged on interest rates for two years before the housing bubble finally burst and the cinder block went flying. But as we explained in 2004 (See Housing Bubbles Are Not Like Stock Market Bubbles (http://www.itulip.com/housingnotlikeequities.htm), January 2004), when housing bubbles collapse they don’t pop like stock market bubbles. The process is slow and corrosive, like rust, rather than an sudden like a stock market crash. Bank analyst Chris Whalen can be heard repeating our forecast after the fact six years later.


<object width="480" height="385">


<embed src="http://www.youtube.com/v/9_i9DO0BRdk?fs=1&hl=en_US" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="480" height="385"></object>


A stock market crash informs the unfortunate investor of their condition in quarterly stock portfolio statements, but homeowners don't experience their asset price deflation pain until they try to either refinance or sell their home, and that happens over years not quarters. As the realization of losses is gradual, so is the political, legal, and economic fallout. If a stock market crash is a ball of sodium burning up in a bucket of water, and housing bubble crash is pickup truck rusting on the bottom of a lake.

The main reason that the macro-economic damage of a property bubble is far more severe and long lasting than an equity bubble is that property bubbles are debt not equity financed, and a debt is an asset on the balance sheets of the politically protected commercial banking class whereas stocks are owned by a politically diverse group. The losses of banks are pawned off on the taxpayer, and if the taxpayer can't cover it then the nation's balance sheet takes the bad debts on.

This is why, ultimately, private credit risk (See Credit Risk Pollution (http://www.itulip.com/riskpollution.htm), April 2006) expresses itself as currency risk, and why we bought gold in 2001.
Fourth Currency (http://fourthcurrency.com/) (Gold) Price Rise Eight Step Thread of Causation:


Asset bubbles end in
Financial crises that cause
Debt deflation that forces
Governments to deficit-spend to reduce unemployment that results in
Fiscal crisis that leads to
Sovereign debt crisis that ends in
Currency crisis that causes
Decline in the exchange rate value of the asset bubble host country's currency

In the US case, the reduced equation is:


US asset bubbles + n years = rising gold prices


If we were in Argentina in 2001 instead of in the US we’d have bought US dollars instead of gold, but as the world’s reserve currency is the source of currency risk in the current case, the only place to go to hedge dollar currency risk was into gold. But that still leaves open the question, how will the global currency imbalances work out?


http://www.itulip.com/images2/bang300.jpg

China Crash 2011 – Part II: Do the currency wars end with a bang or a whimper?

For the perspective of an expert who consults to governments worldwide on trade, monetary, and currency policy, I caught up with Michael Hudson in Germany for an interview on Wednesday. His Financial Times editorial on the currency wars appeared the day before. Here’s his take. more... $ubscription (http://www.itulip.com/forums/showthread.php/17310-The-repetition-compulsion-of-central-bankers-%C2%96-Part-II-Will-the-currency-wars-end-with-a-bang-or-a-whimper-Eric-Janszen?p=178590#post178590)

Tulip Select (http://www.itulip.com/forums/showthread.php/1032-iTulip-Select-Subscription-Description?p=7837#poststop$session[sessionurl_q]): The Investment Thesis for the Next Cycle™
__________________________________________________

For a concise, readable summary of iTulip concepts read Eric Janszen's 2010 book The Postcatastrophe Economy: Rebuilding America and Avoiding the Next Bubble (http://www.amazon.com/gp/product/1591842638?ie=UTF8&tag=wwwitulipcom-20&link_code=as3&camp=211189&creative=373489&creativeASIN=1591842638)http://www.assoc-amazon.com/e/ir?t=wwwitulipcom-20&l=as2&o=1&a=1591842638.

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don
10-24-10, 01:33 PM
Pierced Fans, Stiff Cadres and Hip Rock


http://graphics8.nytimes.com/images/2010/10/24/24chinaspan/24chinaspan-articleLarge.jpg


By ANDREW JACOBS (http://topics.nytimes.com/top/reference/timestopics/people/j/andrew_jacobs/index.html?inline=nyt-per)

ZHENJIANG, China — A curious thing happened this month at the Midi Music Festival (http://www.rockinchina.com/w/Zhenjiang_Midi_Music_Festival_2010), China’s oldest and boldest agglomeration of rock, funk, punk and electronica.

Performers took musical potshots at the country’s leaders, tattooed college students sold antigovernment T-shirts and an unruly crowd of heavy metal fans giddily torched a Japanese flag that had been emblazoned with expletives.

Curious, because the event, a four-day free-for-all of Budweiser, crowd-surfing and camping, was sponsored by the local Communist Party, which spent $2.1 million to turn cornfields into festival grounds, pay the growling punk bands and clean up the detritus left by 80,000 attendees.

The city cadres also provided an army of white-gloved police officers, earplugs in place, who courteously endured bands with names like Miserable Faith and AK47 while fans slung mud at one another.

The incongruity of security agents facilitating the sale of cannabis-themed merchandise was not lost on the festival’s organizer, Zhang Fan.

“The government used to see rock fans as something akin to a devastating flood or an invasion of savage beasts,” said Mr. Zhang, a handful of whose events have been canceled by skittish bureaucrats since he pioneered the Chinese music festival in 2000. “Now we’re all part of the nation’s quest for a harmonious society.”

http://www.nytimes.com/2010/10/24/world/asia/24china.html?ref=world

All part of China's bubble-popping program? Social engineering in action .....

goadam1
10-24-10, 03:21 PM
They leaned from us that yup redirect anger at nonsense like punk rock festivals,wrestlmania, pro sports, real housewives and probably soon enough wedge issues like gay sex.


Pierced Fans, Stiff Cadres and Hip Rock


http://graphics8.nytimes.com/images/2010/10/24/24chinaspan/24chinaspan-articleLarge.jpg


By ANDREW JACOBS (http://topics.nytimes.com/top/reference/timestopics/people/j/andrew_jacobs/index.html?inline=nyt-per)

ZHENJIANG, China — A curious thing happened this month at the Midi Music Festival (http://www.rockinchina.com/w/Zhenjiang_Midi_Music_Festival_2010), China’s oldest and boldest agglomeration of rock, funk, punk and electronica.

Performers took musical potshots at the country’s leaders, tattooed college students sold antigovernment T-shirts and an unruly crowd of heavy metal fans giddily torched a Japanese flag that had been emblazoned with expletives.

Curious, because the event, a four-day free-for-all of Budweiser, crowd-surfing and camping, was sponsored by the local Communist Party, which spent $2.1 million to turn cornfields into festival grounds, pay the growling punk bands and clean up the detritus left by 80,000 attendees.

The city cadres also provided an army of white-gloved police officers, earplugs in place, who courteously endured bands with names like Miserable Faith and AK47 while fans slung mud at one another.

The incongruity of security agents facilitating the sale of cannabis-themed merchandise was not lost on the festival’s organizer, Zhang Fan.

“The government used to see rock fans as something akin to a devastating flood or an invasion of savage beasts,” said Mr. Zhang, a handful of whose events have been canceled by skittish bureaucrats since he pioneered the Chinese music festival in 2000. “Now we’re all part of the nation’s quest for a harmonious society.”

http://www.nytimes.com/2010/10/24/world/asia/24china.html?ref=world

All part of China's bubble-popping program? Social engineering in action .....

jk
10-24-10, 04:15 PM
"...torched a Japanese flag...." not their own chinese flag. a japanese flag.

Chris Coles
10-24-10, 05:26 PM
"...torched a Japanese flag...." not their own chinese flag. a japanese flag.

MY gosh! Freedom of expression..... change we will have to believe is occurring right in front of our eyes....

jk
10-24-10, 05:32 PM
"...torched a Japanese flag...." not their own chinese flag. a japanese flag.
ej is predicting a chinese crash. if the u.s. consumer is tapped out and can no longer import chinese goods, and europe is going into the dumper, how will the chinese, with its millions of excess 20-30 year old males, react to growing unemployment and social unrest? have more rock concerts? or a military push and increased nationalism?

FRED
10-24-10, 05:39 PM
ej is predicting a chinese crash. if the u.s. consumer is tapped out and can no longer import chinese goods, and europe is going into the dumper, how will the chinese, with its millions of excess 20-30 year old males, react to growing unemployment and social unrest? have more rock concerts? or a military push and increased nationalism?

We have long believed that the Chinese government, even more than most governments, will crank up the nationalism in the event of an economic crisis, just as they did when the US accidentally bombed the Chinese embassy in Belgrade. Ten years later, here is China's official position:

"During interviews, some Chinese experts believe that objectively, the bombing of the Chinese embassy offered China an opportunity to reflect and transform. On the one hand, the general public has realized that economic construction is the basis on which the enhancement of the overall national strength rests. On the other hand, a strong belief has formed among the general public that only strong military power and an advanced national defense system can fundamentally protect and safeguard the results of economic construction."

10th anniversary of the bombing of the Chinese Embassy in Belgrade (http://english.peopledaily.com.cn/90001/90776/6654193.html)

jk
10-24-10, 05:42 PM
We have long believed that the Chinese government, even more than most governments, will crank up the nationalism in the event of an economic crisis, just as they did when the US accidentally bombed the Chinese embassy in Belgrade. Ten years later, here is China's official position:

"During interviews, some Chinese experts believe that objectively, the bombing of the Chinese embassy offered China an opportunity to reflect and transform. On the one hand, the general public has realized that economic construction is the basis on which the enhancement of the overall national strength rests. On the other hand, a strong belief has formed among the general public that only strong military power and an advanced national defense system can fundamentally protect and safeguard the results of economic construction."

10th anniversary of the bombing of the Chinese Embassy in Belgrade (http://english.peopledaily.com.cn/90001/90776/6654193.html)

putting aside how grim this all is, what do you think about "defense" stocks? if the only thing we can sell [besides commercial aircraft] is military equipment, and if we can predict a chinese nationalist/militarist build up, shouldn't we be investing in lockheed, et al?

and if what got the u.s out of the great depression, finally, was wwii, what about the benefits of a new [hopefully cold] war? if we live in a world of inadequate demand, what's better than military spending, which builds enormously expensive things which we hope never to use?

jpatter666
10-24-10, 06:37 PM
putting aside how grim this all is, what do you think about "defense" stocks? if the only thing we can sell [besides commercial aircraft] is military equipment, and if we can predict a chinese nationalist/militarist build up, shouldn't we be investing in lockheed, et al?

and if what got the u.s out of the great depression, finally, was wwii, what about the benefits of a new [hopefully cold] war? if we live in a world of inadequate demand, what's better than military spending, which builds enormously expensive things which we hope never to use?

Ironically, just as the US and China joined forces (unofficially) against the USSR, the US and Russia could (again unofficially) join forces against China.

Siberia is very empty and a resource treasure box. And there *is* enough of a historical basis for China claiming those lands.

jtabeb
10-24-10, 07:14 PM
Just for laughs

http://www.bloomberg.com/news/2010-10-24/g-20-vows-to-avoid-weakening-currencies-as-leaders-prepare-to-prod-china.html

G-20 Vows to Avoid Weakening Currencies as Leaders Prepare to Prod China

<cite class="byline"> By Simon Kennedy and Shamim Adam - Oct 24, 2010 2:04 PM CT <noscript>Sun Oct 24 19:04:32 GMT 2010</noscript> </cite>



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http://www.bloomberg.com/apps/data?pid=avimage&iid=ipzI.pBAf19o
Strategists said the decisions taken in Gyeongju were unlikely to mark an end to the dollar’s recent slide or trigger a quicker rise in the yuan. Photographer: Andrew Harrer/Bloomberg



Group of 20 finance ministers and central bankers vowed to avoid weakening currencies to lift exports, leaving leaders to flesh out new ways of prodding fellow member China to allow faster gains in the yuan.
Officials ended talks in South Korea on Oct. 23 pledging to refrain from “competitive devaluation” and to let markets set foreign-exchange values more as they sought to calm fears that they risk a trade war by using cheaper currencies to spur growth. They called for more sustainable current-account gaps without embracing a U.S. proposal for targets, an initiative aimed at making a yuan advance more palatable to China.

LargoWinch
10-24-10, 09:41 PM
We have long believed that the Chinese government, even more than most governments, will crank up the nationalism in the event of an economic crisis, just as they did when the US accidentally bombed the Chinese embassy in Belgrade. Ten years later, here is China's official position:

"During interviews, some Chinese experts believe that objectively, the bombing of the Chinese embassy offered China an opportunity to reflect and transform. On the one hand, the general public has realized that economic construction is the basis on which the enhancement of the overall national strength rests. On the other hand, a strong belief has formed among the general public that only strong military power and an advanced national defense system can fundamentally protect and safeguard the results of economic construction."

10th anniversary of the bombing of the Chinese Embassy in Belgrade (http://english.peopledaily.com.cn/90001/90776/6654193.html)

Don't forget about the easily forgotten Hainan incident... (http://en.wikipedia.org/wiki/Hainan_Island_incident)

oddlots
10-24-10, 09:42 PM
I was doubtful of your basic premise EJ until I tried it. Indeed the breeze block does practically fly across the table as you said. I'm short two teeth, have a nasty black eye and fat lip. But the insight: priceless.

If anyone on the board has a good way to explain this to my wife I'm all ears.

goadam1
10-24-10, 09:57 PM
"...torched a Japanese flag...." not their own chinese flag. a japanese flag.

Exciting the crowd, getting people ginned up on nationalism is an old trope. It doesn't mean you are preparing them for war. You just need to keep the crowd in a war mindset.

What keeps people in line here. Permanent war and fake tribal conflicts in our entertainment and political media.

goadam1
10-24-10, 09:58 PM
But what does a crash look like in the Chinese system?

Chris Coles
10-25-10, 06:20 AM
Don't forget about the easily forgotten Hainan incident... (http://en.wikipedia.org/wiki/Hainan_Island_incident)

Lt. Shane Osborn is a hero of the very best calibre; piloting an aircraft that was, by all accounts, right on the very edge of flyable, right aileron fully vertical, one propeller severely damaged and impossible to feather, nose radome completely smashed off the aircraft, landing with full right aileron, no trim, no airspeed indicator, nor altitude indicator and at 200mph. Magic, pure magic!!!

jtabeb
10-25-10, 06:25 AM
+1 (Don't forget the best part, NO EJECTION SEAT!)

Chris Coles
10-25-10, 06:52 AM
putting aside how grim this all is, what do you think about "defense" stocks? if the only thing we can sell [besides commercial aircraft] is military equipment, and if we can predict a chinese nationalist/militarist build up, shouldn't we be investing in lockheed, et al?

and if what got the u.s out of the great depression, finally, was wwii, what about the benefits of a new [hopefully cold] war? if we live in a world of inadequate demand, what's better than military spending, which builds enormously expensive things which we hope never to use?


This is the nub of the matter in hand. What we have observed, over the last few decades, (this is not a sudden event, but instead, a VERY long term decline), is the general prosperity of the wider nation, in almost every Western nation, has been drawn down to the bare minimums. All of the prosperity has been drawn into the FIRE economy. We see this very clearly with the success of the likes of Walmart selling ever cheaper mostly Chinese manufactured general merchandise to the poor..... now including much of what we once described as the "Middle Class". But we once designed and manufactured all this general merchandise ourselves. Employing the wider population in the process and at much greater levels of prosperity for the wider nation.

To describe our only option is to produce military equipment is a complete failure to recognise the fallacy of the FIRE economy. We have right under our noses the potential to re-create that original prosperity by re-capitalising the grass roots of the Western nations. By setting them the challenge to undo all the ridiculous stupidities of the FIRE economy.

Turning to China; they have a vast, untapped internal market. But to address that untapped market, they have to also recognise the stupidity of the Western FIRE economic model. They have been drawn into enslaving their own population to produce ever cheaper merchandise for the likes of the Walmarts of the Western economy.

Both sides, BOTH sides; must change direction.

The answer is the improve the prosperity of the bottom 50% of the people. The greater the prosperity at the grass roots of society, the greater the capacity to buy their own production.... of EVERYTHING.... NOT just armaments.

It was this understanding, gained from being the bright useful inventor who was continuously refused investment that brought me to understand what is wrong... it is not militaristic endeavour that draws us down, it is a complete failure to see the need to capitalise a free nation to produce what THEY themselves need.

The only answer is to set about re-capitalising the bottom segments of each and every nation. Get everyone back into productive employment... by ANY means that is legal.

But to be able to do that all the Central Bankers will have to throw away the one thing they see as their reason for existence; to control the economy to keep wages down by adjusting interest rates. All they in fact achieved was to constantly drain away the vitality, the unseen prosperity of their respective peoples. It is the central bankers that have been drawn into feudalising their nations on behalf of the largest companies.

All we need is access to the capital to invest into new jobs. But they will be much more prosperous new jobs paying better wages. Today, wages here in the UK are insufficient to permit the lowest quartile of employees from living even a subsistence life, in the process requiring government to pay out enormous sums of borrowed money to pay then further monies in the form of welfare to permit them to survive.

This is utter stupidity. The utterly stupid unrecognised idiocy of the FIRE economic model.

All we need is access to prosperity in the form of available equity capital to permit us to create the jobs we need.

Chris Coles
10-25-10, 06:57 AM
+1 (Don't forget the best part, NO EJECTION SEAT!)

Are you permitted to tell us which you fly? With or without?

raja
10-25-10, 10:45 AM
putting aside how grim this all is, what do you think about "defense" stocks? if the only thing we can sell [besides commercial aircraft] is military equipment, and if we can predict a chinese nationalist/militarist build up, shouldn't we be investing in lockheed, et al?

and if what got the u.s out of the great depression, finally, was wwii, what about the benefits of a new [hopefully cold] war? if we live in a world of inadequate demand, what's better than military spending, which builds enormously expensive things which we hope never to use?
We also live in a world of inadequate supply. Peak: oil, food, clement weather, wealth.

I would think about how much money can be diverted into military spending without further impoverishing the people and driving them to greater heights of fury.

goadam1
10-25-10, 11:14 AM
It feels like KA-poom has become focused on a disorderly unraveling of Chinese/us mad. It's seems like a valid scenario but one with many variables.

Chris Coles
10-25-10, 03:42 PM
It feels like KA-poom has become focused on a disorderly unraveling of Chinese/us mad. It's seems like a valid scenario but one with many variables.

That is certainly a very prescient statement; but, anyone who has experience of the process of job creation from scratch, (idea pre-startup), will be also able to confirm the process has almost infinite variables. If it can go wrong, it will go wrong.... but even then, having overcome all natural obstacles; we are faced with an economic system that is totally inadequate for the job in hand, the creation of a free nation of prosperous citizens.

Polish_Silver
10-25-10, 05:45 PM
If anyone on the board has a good way to explain this to my wife I'm all ears.

The experiment shows the difference between static friction and dynamic friction. While the block is at rest, it has a strong static friction against the table. Thus, the force in the bungee can be quite high before
the block starts moving.
When the bungee tension becomes slightly greater than static friction, the block starts to move. Now the sliding/dynamic friction is much lower, so the brick quickly accelerates until striking the central banker.

oddlots
10-25-10, 10:39 PM
Thanks I thought that would be complicated enough to confuse her but she's going with "You are an idiot."

oddlots
10-25-10, 11:05 PM
+1

Nicely put. The challenge is really enormous on both sides of the, largely, chinese-us equation.

One of the thoughts I had was that China should nationalise it's health service. One of the main reasons I've seen sighted for the high savings rate is future health costs. Freeing some of those savings to develop internal demand might be a good shock absorber, especially in the inevitable event of an asset-price crash.

On our side of the divide it's a less palatable menu. The thing that most depresses me about the situation is we seem to still be headed in the wrong direction at an accelerating pace. It's a system that is the exact opposite to what markets are meant to deliver (what's the opposite of a meritocracy?) I think monetary reform is a bridge too far. Far more doable to my view is a movement for state chartered banks in the mold of North Dakota's. Starve FIRE (they've basically already incinerated everyone's pensions anyway.) I really think these interests need to be frightened by the wrath of the people expressed through indictments and the construction of another form of banking in comparison with which they will be found wanting.

Chris Coles
10-26-10, 07:17 AM
Thanks I thought that would be complicated enough to confuse her but she's going with "You are an idiot."

If she wants to study the subject, Hysteresis, where movement lags behind the application of a force, (a very good example being a long propeller shaft on a boat with slightly tight bearings will have the engine running at a constant speed and the propeller stop starting stop starting at regular intervals), then this will be a great place to start. http://en.wikipedia.org/wiki/Hysteresis

bill
10-26-10, 11:53 AM
putting aside how grim this all is, what do you think about "defense" stocks? if the only thing we can sell is military equipment, and if we can predict a chinese nationalist/militarist build up, shouldn't we be investing in lockheed, et al?

and if what got the u.s out of the great depression, finally, was wwii, what about the benefits of a new [hopefully cold] war? if we live in a world of inadequate demand, what's better than military spending, which builds enormously expensive things which we hope never to use?

Who's flag did they burn?
http://www.itulip.com/forums/showthread.php/showthread.php?p=10027#poststop

7011 is at an all time low!
That is if you purchased yen a few years ago.
http://www.google.com/finance?q=TYO:7011

they are part of the core.
http://en.wikipedia.org/wiki/Zaibatsu


Now lets get to the excitement.
http://www.google.com/hostednews/ap/article/ALeqM5hwdwVBXvqM6vWU6Nmkq1QY74G8nw?docId=aff6dc03d 42f438ebe1c034f3d0b759c


Japan, worried by China, may boost submarine fleet
(AP) – 10 hours ago
TOKYO (AP) — Japan may increase the size of its submarine fleet, officials said, as concerns rise that the expansion of the Chinese navy is tipping the regional balance of power.
The Defense Ministry said a bigger submarine fleet is under consideration, with a firm proposal likely to come as early as December. Officials who spoke to The Associated Press on Tuesday refused to give further details because the plan has not yet been formally tabled.
According to Japanese media reports, the number of submarines would be increased from 16 to 22 over the next four years, a substantial rise that could generate concern from neighboring China.
Though well outnumbered by the Chinese — who now have about 60 subs — the Japanese navy's submarine fleet is significantly augmented by U.S. subs deployed throughout the region. Japanese subs are generally believed to be better equipped than many of the Chinese vessels and are hard to detect.

http://www.yomiuri.co.jp/dy/national/T101024002067.htm

Oct. 25, 2010
<!--// date_end //-->[B]Japan, U.S. to up talks on China threat / Rapid buildup of military main concern

<!--// headline_end //--><!--// byline_start //-->Satoshi Ogawa / Yomiuri Shimbun Correspondent
<!--// byline_end //--><!--// article_start //--><!-- google_ad_region_start=region1 -->WASHINGTON--Japan and the United States will beef up strategic consultations to cope with China's rapid military buildup, especially the strengthening of its maritime might, according to Japanese and U.S. diplomatic sources.

http://www.upi.com/Top_News/US/2010/10/24/Report-Japan-party-urges-new-arms-policy/UPI-17251287940846/


TOKYO, Oct. 24 (UPI) -- Japanese politicians are reportedly leaning toward easing the nation's ban on weapons exports, sources told a newspaper.
The Yomiuri Shimbun Sunday said a panel of the Democratic Party of Japan had concluded that allowing arms exports would both boost Japanese defense contractors

http://www.speroforum.com/site/article.asp?id=42390&t=INDIA+%96+JAPAN+++Singh+in+Tokyo+to+increase+tra de+and+boost+military+cooperation

10-25-2010
Tokyo – India and Japan want to increase trade and develop closer strategic and military ties to counter Chinese military expansion. A number of agreements are expected to be announced at the end of a meeting between Indian Prime Minister Manmohan Singh and his Japanese counterpart, Naoto Kan, today in Tokyo.
Singh is on an official visit to Japan until tomorrow accompanied by a large delegation that includes top government officials and Indian business leaders. For him, an India-Japan strategic and global partnership is “a factor of peace, prosperity and stability in Asia and the world.”


http://in.reuters.com/article/idINIndia-50097320100713

Tue Jul 13, 2010 11:01pm IST
TOKYO (Reuters) - Japan's largest business lobby called on Tuesday for restrictions on weapons exports to be eased to allow defence contractors to take part in international research and development projects and stay competitive.
The proposal by Nippon Keidanren comes as the government, facing an unpredictable North Korea and rising China, prepares the latest defence policy outline and mid-term defence equipment procurement plan for issue by the end of the year.
"As defence gear becomes sophisticated and development costs grow, more and more fighter jets and other equipment are being developed by international consortia," Nippon Keidanren said in its proposal released on Tuesday.
"But the three principles are prohibiting Japan from joining international joint development, putting the country in the state of technological isolation."
Japan in 1967 drew up "three principles" on arms exports, banning sales to countries with communist governments or that are involved in international conflicts or subject to United Nations sanctions.
But the rules eventually became almost a blanket ban on arms exports and on the development and production of weapons with countries other than the United States.
That prohibits the nation's defence industry from joining multinational projects such as Lockheed Martin-led(LMT.N (http://in.reuters.com/finance/stocks/overview?symbol=LMT.N)) F-35 Joint Strike Fighter, and makes it difficult for Japanese defence contractors such as Mitsubishi Heavy Industries(7011.T (http://in.reuters.com/finance/stocks/overview?symbol=7011.T)) to drive down costs and keep up with cutting-edge arms technologies. (Reporting by Kiyoshi Takenaka, editing by Andrew Marshall)

jtabeb
10-26-10, 03:06 PM
I've flown both, (I like having one, just in case)

KC-10A and T-6A, T-37B

bill
10-26-10, 05:27 PM
Gets more intense by the minute.
Here comes the think tank support report.

http://blogs.wsj.com/japanrealtime/2010/10/27/think-tank-weighs-in-on-us-japan-security/


<LI class="dateStamp first"><SMALL>October 27, 2010, 5:20 AM JST</SMALL>Think Tank Weighs in on U.S.-Japan Security

By Chester Dawson

Whither the U.S-Japan security alliance? That’s an eternal question for security policy think tank types who are always on the lookout for the next inflection point. Indeed, a new report due out Wednesday from the Washington, D.C.-based Center for a New American Security (CNAS) sees the bilateral relationship at a — surprise, surprise — “turning point…amid a strategic environment of unprecedented complexity.” Yet the report also points out the half-century old U.S. Japan Mutual Security Treaty has had a solid track record of helping to keep the peace in the Asia-Pacific region. Among the more provocative suggestions for policymakers: consider pulling back some forward stationed U.S. military forces in Japan and moving them as far away as Guam or Hawaii.
The report, an advance copy of which was obtained by The Wall Street Journal, provides an overview of challenges facing the alliance timed to coincide with the upcoming Asia Pacific Economic Cooperation (APEC) meeting of regional leaders in Yokohama next month. It specifies several areas in need of “revitalization,” including greater interoperability of the two countries’ intelligence, surveillance and reconnaissance (ISR) programs. It also bluntly calls on Japan to create a National Security Council and to boost its arsenal by adding drones (“long-haul, unmanned aerial vehicles”), diesel attack submarines and naval mines. And the report suggests four core options for the U.S. military base presence in Japan:
1.) Retain and Harden: Maintain current base structure and bolster their potency by deploying more missile defenses and “pouring additional concrete on shelters and burying facilities.”
2.) Fortify Guam: Shift more American military personnel from Japan to the island of Guam while building up its air and naval facilities.
3.) Disperse: Spread the U.S. military footprint across more of Oceania by redeploying forces from Japan and improve access to military installations in Southeast Asia.
4.) Pullback to Hawaii: Move some U.S. forces in Japan to Hawaii and upgrade their capability to redeploy quickly during a regional crisis.
The CNAS predicts that it is “likely” the U.S. will implement at least some of these policy options in the future to upgrade their effectiveness and mollify localized opposition to large the U.S. military presence in Okinawa. This comes against a backdrop of a tense standoff between China and Japan recently over uninhabited but strategic islands off the southern tip of Okinawa. That diplomatic tiff has rekindled concerns in Tokyo and Washington, D.C. about the regional balance of power in light of China’s new willingness to throw its weight around. While the report refrains from embracing a policy of containment vis-à-vis Beijing, it does encourage the U.S. and Japan to begin preparations to “counter China’s anti-access and area-denial strategy.” The report was authored by a trio of Asia-Pacific security experts, including Mr. Patrick Cronin, a former director at the National Defense University and senior official at the U.S. Agency for International Development.
On a less militant (and more colorful) note, the think tank report asks both countries to work towards fostering a “blue revolution” to cope with water scarcity, a “green alliance” to deal with natural resource dependence and a “green Okinawa” policy promoting local economic development. To accomplish all of that, CNAS wants to see a so-called “Track 1.5” series of ongoing dialogues for both government and private sector officials in the U.S. and Japan. But the unmistakable undercurrent of the report seems to say: actions speak louder than words, at least on the high seas.

Chris Coles
10-26-10, 06:09 PM
I've flown both, (I like having one, just in case)

KC-10A and T-6A, T-37B

Wow! tankers!! me, when I can afford to, (which is not right now), I am a Lasham pilot www.lasham.org.uk (http://www.lasham.org.uk) Try a few gliding videos
http://www.glidingvideo.com/

ThePythonicCow
10-26-10, 07:20 PM
Wow! tankers!! The KC is a tanker. The T-* series are two seat trainers.

Rajiv
10-26-10, 10:24 PM
The answer is the improve the prosperity of the bottom 50% of the people. The greater the prosperity at the grass roots of society, the greater the capacity to buy their own production.... of EVERYTHING.... NOT just armaments.

Well said! -- and therein lies the rub -- how to undo the stupidity of the last 30 years (and I choose the term thirty years deliberately, even though some of the first baby steps towards the ultimate stupidity were taken in 1962)

oddlots
10-26-10, 11:03 PM
Classic. Thanks.

Chris Coles
10-27-10, 04:27 AM
The KC is a tanker. The T-* series are two seat trainers.

Wriggly, how you doing? Yes, I did know that. I used the plural simply that if you have ever flown over an airfield, (above the MATZ - in a glider), that KC's fly out of, you will forever thereafter think of them in the plural....... all lined up like new cars stored on an airfield.

Chris Coles
10-27-10, 04:34 AM
Well said! -- and therein lies the rub -- how to undo the stupidity of the last 30 years (and I choose the term thirty years deliberately, even though some of the first baby steps towards the ultimate stupidity were taken in 1962)

Thank you Rajiv. Did any of you read that Mervyn King has made a statement about the banks in New York earlier this week. We have turned the corner, yes, but still have a long way to go.... I will put this up as a new thread but here also.
Mervyn King says banking must be reinvented


"Of all the many ways of organising banking, the worst is the one we have today."
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/10/mervyn_king_says_banking_must.html

ThePythonicCow
10-27-10, 05:37 AM
I used the plural simply that if you have ever flown over an airfield, (above the MATZ - in a glider), that KC's fly out of, you will forever thereafter think of them in the plural....... all lined up like new cars stored on an airfield.That makes sense. Thanks for explaining.

I'm doing well, thank-you.

My 20-something son just got a job (retail sales at Sears) in California. So there has been good news in my family today.

Chris Coles
10-27-10, 06:21 AM
That makes sense. Thanks for explaining.

I'm doing well, thank-you.

My 20-something son just got a job (retail sales at Sears) in California. So there has been good news in my family today.

That is indeed good news; may he live long and prosper.

sishya
11-04-10, 08:04 PM
This is what I guess they will do. The chinese leaders will claim parts of their neighbouring countries calling them Tibet or South Tibet or some other bullshit and wage war on India or
smaller Asian neighbours for Gold. Their hypnotized people who are also highly nationalistic will eat that logic and play the drama and voila their excess male population problem will be solved. Never trust the chinese, as our elders say(chinese India war 1962), they speak with forked tongue.

bill
01-06-11, 01:39 PM
Who's flag did they burn?
http://www.itulip.com/forums/showthread.php/showthread.php?p=10027#poststop

7011 is at an all time low!
That is if you purchased yen a few years ago.
http://www.google.com/finance?q=TYO:7011

they are part of the core.
http://en.wikipedia.org/wiki/Zaibatsu


Now lets get to the excitement.


http://www.ibtimes.com/articles/97706/20110105/china-s-j-20-stealth-fighter-aircraft.htm


January 5, 2011 6:48 AM EST

http://img.ibtimes.com/www/data/images/middle/2011/01/05/57827-china-s-j-20-stealth-fighter-aircraft-pictures-leaked.jpg
China (http://www.ibtimes.com/topics/detail/227/china/) plans to begin test flight of its first J-20 stealth fighter as early as this month and plans to deploy them by 2017.
Photographs published online and Chinese military sources cited by the Japanese media indicate a test model of the J-20 fighter has been finished, with taxi tests carried out last week at an airfield in southwestern China (http://www.ibtimes.com/topics/detail/227/china/).
Beijing appears to have completed a prototype of the stealth fighter, which Chinese experts are comparing to the US F-22 fighter, reinforcing the country's rapid military build-up, Japanese newspaper Ashai Shimbun reported quoting Chinese military sources.
The fighter will be equipped with large missiles and could reach island of Guam, a US territory in the western pacific with the aerial refuelling, the paper said.
The news comes just days before a visit to Beijing by US Defence Secretary Robert Gates, who will seek to mend military ties cut off a year ago by China when Washington sold billions of dollars in arms to its rival Taiwan.
The J-20, which is larger than the US Air Force's F-22 Raptor, will be equipped with large missiles and could fly to as far as Guam with aerial refuelling, Asahi said. It would still take another 10 to 15 years to develop technology to catch up with that of the US F-22, the article said.
The J-20 was undergoing high-speed taxi tests late last week at Chengdu Aircraft Design Institute's airfield, defence industry publication Aviation Week reported. 'It is larger than most observers expected - pointing to a long range and heavy weapon loads.'
The completion of the J-20 'has confirmed that the Chinese military is rapidly advancing the modernization of its air force while putting more effort into advancing to the open ocean', Asahi said. 'The move could have an impact on the military balance in East Asia.'

touchring
01-06-11, 11:21 PM
http://www.ibtimes.com/articles/97706/20110105/china-s-j-20-stealth-fighter-aircraft.htm


I do not understand why people are so surprised that China can come out with sophisticated weaponry. As an industrial power, they already make everything, from the most high tech semiconductors to electronics, equipment and parts for aircraft, satellites, etc. This is almost like the USA 1930s. Making military hardware is only just one step away.

When I say that China is already a superpower, people look at me in amazement.

They got the money.

They got the technology.

They got the drive.

They got the people.

If they want, they can build 10 aircraft carriers battle groups in 5 years. They are not doing this yet because the current focus is on economic development.

Chris Coles
01-07-11, 05:30 AM
Well said, and I am reminded of another maxim, never prod a sleeping bear.

bill
01-07-11, 09:53 AM
. Making military hardware is only just one step away.
.

A GPS system coming.

http://www.wired.com/dangerroom/2010/08/latest-launch-brings-china-closer-to-gps-of-its-own/


Sunday’s satellite makes the fifth orbiter in the Beidou constellation, and the third launched this year. Another eight to 10 are supposed to be into space by 2012, providing regional coverage. By 2020, Beidou is supposed to ring the globe.
Which means China can get its own satellite-guided weapons — ones that hit within feet of their target, and stay on track in any weather.


http://www.yomiuri.co.jp/dy/business/T110105005032.htm

Jan. 6, 2011<!--// date_end //-->
The government plans to launch six or seven satellites over two years from 2014 to establish a Japanese version of the Global Positioning System that would be 10 times more accurate than GPS services currently available in Japan, according to a government source.

Tech transfer.
http://www.nanotechexpo.jp/en/index.html



China-Singapore Suzhou Industrial Park——the Chinese
"Nanotech Valley"

Suzhou Industrial Park (SIP) is a key cooperation project between Chinese and Singapore
governments.

touchring
01-07-11, 11:51 AM
Tech transfer.
http://www.nanotechexpo.jp/en/index.html


Singapore is already a unofficial SAR of China, ironically follows China's orders even more obediently than Hong Kong.

c1ue
01-08-11, 11:04 AM
A GPS system coming.

It is interesting - I've mentioned before that there are now at least 7 different GPS systems being put into play:

Besides the US' - Russia, China, Japan, the EU, Israel, and India are all either making noises or are actively deploying satellites.

Chris Coles
01-08-11, 11:50 AM
Removed by author

bill
01-12-11, 09:28 AM
Who's flag did they burn?
http://www.itulip.com/forums/showthread.php/showthread.php?p=10027#poststop

7011 is at an all time low!
That is if you purchased yen a few years ago.
http://www.google.com/finance?q=TYO:7011

they are part of the core.
http://en.wikipedia.org/wiki/Zaibatsu


Now lets get to the excitement.
[/URL]


http://www.telegraph.co.uk/news/worldnews/asia/japan/8254675/Japan-should-buy-J-35-stealth-fighters-US-says.html


Wednesday 12 January 2011
Nevertheless, Mr Gates called on Japan (http://www.telegraph.co.uk/news/worldnews/asia/japan), China's most powerful neighbour and rival, to bring forward its military technology by purchasing Lockheed Martin's F-35 to replace its obsolete fleet of F-4 Phantoms.

"The Japanese government is considering its purchase of its next-generation of the fighter aircraft," Mr Gates said in Beijing.

"That would give Japan the opportunity, if they bought the right airplane, to have a fifth-generation capability."

http://online.wsj.com/article/SB10001424052748704515904576075852091744070.html


<LI class="articleSection first"><SMALL></SMALL><LI class="articleSection first"><SMALL>JANUARY 12, 2011</SMALL>China's success could also have repercussions for several Asian countries, including Japan, which have territorial disputes or other security issues with China, and are either being encouraged to buy the F-35 or are banking on the U.S. maintaining air superiority in the region.
Japan plans to buy a dozen next-generation fighters within the next five years, as it modernizes its defense strategy and shifts its defense focus toward China, and away from Russia. The F-35 is a top contender. South Korea and Singapore are also considering buying the F-35, and Australia has already committed to purchasing it.
This is an earthquake which has especially shaken Japan, South Korea and Southeast Asian countries. I'm sure Japan and others will push the U.S. to restart the F-22 production line."

http://www.dvidshub.net/news/63417/gates-arrives-japan-military-talks


Gates is scheduled to meet with Japanese Defense Minister Toshimi Kitazawa and other senior leaders of the Japanese government, including Prime Minister Naoto Kan.


http://www.asahi.com/english/TKY201101110268.html


2011/01/12
On Monday, Japanese Defense Minister Toshimi Kitazawa visited South Korea for talks with his counterpart, Kim Kwan-jin.
Despite the various hurdles, agreement was reached to begin discussions regarding an Acquisition and Cross-Servicing Agreement (ACSA) for the exchange of military supplies between Japan's Self-Defense Forces and the South Korean military.
The ministers also agreed on the need for a General Security of Military Information Agreement (GSOMIA) to stipulate rules for the protection of confidential military information.

jk
01-12-11, 07:05 PM
http://www.telegraph.co.uk/news/worldnews/asia/japan/8254675/Japan-should-buy-J-35-stealth-fighters-US-says.html


http://online.wsj.com/article/SB10001424052748704515904576075852091744070.html


http://www.dvidshub.net/news/63417/gates-arrives-japan-military-talks


http://www.asahi.com/english/TKY201101110268.html

anyone have any predictions on how long the new u.s. defense austerity approach lasts?

FRED
04-05-11, 08:38 AM
China raises interest rates again
(http://money.cnn.com/2011/04/05/news/international/china_raises_interest_rates/)
By Annalyn Censky, staff reporterApril 5, 2011: 7:56 AM ET

NEW YORK (CNNMoney) -- For the fourth time in six months, China's central bank is hiking interest rates to combat rising inflation in the country.

The People's Bank of China said Tuesday that it will raise its one-year lending rate to 6.31% from 6.06%, effective Wednesday.

China has raised interest rates incrementally over the last six months in an ongoing effort to tame rapidly rising prices there. Consumer prices surged 4.9% over the 12 months ending in February -- a rate far outpacing price increases in the United States and Europe. more... (http://money.cnn.com/2011/04/05/news/international/china_raises_interest_rates/)

touchring
04-05-11, 09:09 AM
China raises interest rates again
(http://money.cnn.com/2011/04/05/news/international/china_raises_interest_rates/)
By Annalyn Censky, staff reporterApril 5, 2011: 7:56 AM ET

NEW YORK (CNNMoney) -- For the fourth time in six months, China's central bank is hiking interest rates to combat rising inflation in the country.

The People's Bank of China said Tuesday that it will raise its one-year lending rate to 6.31% from 6.06%, effective Wednesday.

China has raised interest rates incrementally over the last six months in an ongoing effort to tame rapidly rising prices there. Consumer prices surged 4.9% over the 12 months ending in February -- a rate far outpacing price increases in the United States and Europe. more... (http://money.cnn.com/2011/04/05/news/international/china_raises_interest_rates/)


I'm not optimistic that raising interest rates will help. Why would anyone bother about an additional 1% interest rates when there's no intention to return the money? ;)

Pass a law that imprisons anyone who doesn't pay his bank loans will be far more effective. And maybe also jail the mortgage or loan officer that gave out the delinquent loan also! lol

steveaustin2006
04-05-11, 11:55 AM
China raises interest rates again
(http://money.cnn.com/2011/04/05/news/international/china_raises_interest_rates/)
By Annalyn Censky, staff reporterApril 5, 2011: 7:56 AM ET

NEW YORK (CNNMoney) -- For the fourth time in six months, China's central bank is hiking interest rates to combat rising inflation in the country.

The People's Bank of China said Tuesday that it will raise its one-year lending rate to 6.31% from 6.06%, effective Wednesday.

China has raised interest rates incrementally over the last six months in an ongoing effort to tame rapidly rising prices there. Consumer prices surged 4.9% over the 12 months ending in February -- a rate far outpacing price increases in the United States and Europe. more... (http://money.cnn.com/2011/04/05/news/international/china_raises_interest_rates/)

Hmm...... Two more 'til crash (?)

aaron
04-05-11, 07:11 PM
If they continue to raise interest rates, does that not attract even more hot money? Doesn't it make sense to loan money to the Chinese ("invest" in China via money borrowed here) when the return is higher? In other words, isn't raising interest rates just going to lead to more inflation ?

One more thing, I know that if I were making 10% on my savings (Chinese have/used to have a lot of savings), I would be spending a lot more money. Won't all the old misers start buying more stuff when they get paid more for their savings?

While I have the utmost faith in Bernanke controlling inflation here in the United States, I do not have the same faith in the Chinese Central Authority being able to control inflation.

touchring
04-05-11, 11:55 PM
I believe that interest rates won't work in China due to corruption. State companies borrow money to build monuments, and we all know how government officials make money - by building stuff - you get kickbacks from contractors. Passing a law that puts the loan officer in jail for issuing delinquent loans will be a better way. lol



If they continue to raise interest rates, does that not attract even more hot money? Doesn't it make sense to loan money to the Chinese ("invest" in China via money borrowed here) when the return is higher? In other words, isn't raising interest rates just going to lead to more inflation ?

One more thing, I know that if I were making 10% on my savings (Chinese have/used to have a lot of savings), I would be spending a lot more money. Won't all the old misers start buying more stuff when they get paid more for their savings?

While I have the utmost faith in Bernanke controlling inflation here in the United States, I do not have the same faith in the Chinese Central Authority being able to control inflation.

Chomsky
04-14-11, 09:53 AM
Here comes the cinder block at 500mph. From ZH:


Chinese Real Estate Bubble Pops: Beijing Real Estate Prices Plunge 27% In One Month


Could the Chinese monetary tightening be working? The National Bureau of Statistics has released its latest food price update (http://www.stats.gov.cn/english/newsandcomingevents/t20110414_402718787.htm)for the period April 1-10, which shows that while most foods continue to rise modestly, several food products have plunged particularly cucumbers and rapes, both falling 8.8%, kidney beans 6.3% and kidney beans down 6.3%. Yet this is nothing compared to what is happening to Chinese real estate: it appears Chanos' long anticipated property bubble may have popped... but the supersonic boom is so loud that nobody has heard it yet.

From Market News (http://imarketnews.com/node/29203):



Prices of new homes in China's capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city's Housing and Urban-Rural Development Commission.

Average prices of newly-built houses in March fell 10.9% over the same month last year to CNY19,679 per square meter, marking the first year-on-year decline since September 2009.

Home purchases fell 50.9% y/y and 41.5% m/m, the newspaper said, citing an unidentified official from the Housing Commission as saying the falls point to the government's crackdown on speculation in the real estate market.

Beijing property prices rose 0.4% m/m in February, 0.8% in January and 0.2% in December, according to National Bureau of Statistics data.

The central government has launched several rounds of measures since last year designed to cool the housing market, though local government reliance on land sales to plug fiscal holes mean enforcement hasn't been uniform.
The only question is how much actual equity buffer was used in these purchases. For all intents and purposes a drop of this magnitude levered even 2 times (assuming 50% or so equity down) means that China is on the verge of a complete bubble implosion. If the pummelling in the Beijing real estate market shifts to other cities not only is the Chinese tightening regime over, but the SHCOMP in the next few weeks could get very interesting as people understand the world's biggest marginal bubble has popped.

http://www.zerohedge.com/article/chinese-real-estate-bubble-pops-beijing-real-estate-prices-plunge-27-one-month

Chomsky
04-14-11, 10:04 AM
Another take on this:

http://www.creditwritedowns.com/2011/04/is-chinas-hard-landing-already-happening.html

touchring
04-14-11, 12:02 PM
Big swings in Chinese real estate prices are common. I wouldn't take it serious unless it continues falling for another 2 months.

And besides the last curb involves a ban on buying homes!

http://en.huanqiu.com/business/china-economy/2011-02/623836.html


Local residents with Beijing hukou, who already own two apartments, and non-locals who already own one apartment, will be temporarily forbidden from purchasing houses, China Central Television reported on Wednesday, citing the new guidelines.

Chris Coles
04-14-11, 02:40 PM
The whole thing depends upon what they have paid and the manner of raising the money. Without that detail, all bets are off ..... for the time being :)

Chomsky
04-17-11, 11:01 AM
China raises reserve requirements again.

http://www.bloomberg.com/news/2011-04-17/china-raises-bank-reserve-ratio-for-fourth-time-in-2011-to-curb-inflation.html

touchring
04-17-11, 11:37 AM
China raises reserve requirements again.

http://www.bloomberg.com/news/2011-04-17/china-raises-bank-reserve-ratio-for-fourth-time-in-2011-to-curb-inflation.html


How are we to know that Chinese banks actually follow the requirements? Giving out loans is so profitable, we all know bank officers get a cut.:)

jk
05-05-11, 09:13 AM
WEDNESDAY, MAY 4, 2011
UBS’s Magnus Warns of Risk of Chinese Minsky Moment

UBS strategist George Magnus helped popularize economist Hyman Minsky’s thinking in the runup to the financial crisis by warning of the likelihood of a “Minsky moment.” For those not familiar with Minsky’s work, a short overview from ECONNED:

Hyman Minsky, an economist at Washington University, observed [that] periods of stability actually produce instability. Economic growth and low defaults lead to greater confidence and, with it, lax lending.

In early stages of the economic cycle, thanks to fresh memories of tough times and defaults, lenders are stringent. Most borrowers can pay interest and repay the loan balance (principal) when it comes due. But even in those times, some debtors are what Minsky calls “speculative units” who cannot repay principal. They need to borrow again when their current loan matures, which makes
them hostage to market conditions when they need to roll their obligation. Minsky created a third category, “Ponzi units,” which can’t even cover the interest, but keep things going by selling assets and/or borrowing more and using the proceeds to pay the initial lender. Minsky’s observation:

Over a protracted period of good times, capitalist economies tend to move to a financial structure in which there is a large weight of units engaged in speculative and Ponzi finance.

What happens? As growth continues, central banks become more concerned about inflation and start to tighten monetary policy, meaning that

. . . speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently units with cash flow shortfalls will be forced to try to make positions by selling out positions. That is likely to lead to a collapse of asset values.

Ouch.

From that, Magnus coined “Minsky moment” in early 2007, which occurs when

…lenders become increasingly cautious or restrictive, and when it isn’t only over-leveraged structures that encounter financing difficulties . . The risks of systemic economic contraction and asset depreciation become all too vivid.

Given that Magnus was one of the few prior to the financial meltdown (and not too long before either) to see the possibility of a generalized credit contraction, as opposed to, say, a “contained” subprime crisis, his warning on China is worth considering. He highlights, as other commentators have, that China’s dependence on investments, now 47% of GDP, is unprecedented, particularly in a large economy. In addition, half that total is in property investments, which is not necessarily productive.

But what troubles Magnus most about Chinese investment is the degree to which it depends on lending. From the Financial Times:

But a more immediate worry is the growing credit intensity of China’s economy. What China calls “total social financing” – conventional bank loans and most other external sources of finance – was still 38 per cent of GDP in the first quarter of 2011, almost as high as in 2009 when China implemented a credit-centric stimulus programme. The credit intensity of growth, or the amount of new credit generated for each unit of GDP growth, has risen from 1-1.3 before 2009 to 4.3 in 2011.

Despite a 500 basis points rise in bank reserve requirement ratios since January 2010, and four 25bp increases in interest rates since October, credit demand and supply seem barely affected. In real terms, interest rate levels are the lowest for 13 years: the three-month deposit rate stands at -3 per cent, and the one-year lending rate at 1 per cent. Companies are borrowing more as cash-flows weaken, with energy, utility and wage bills rising.

Although formal bank loan volumes are subject to restraint, they only comprise about half of TSF. Companies can also access plentiful liquidity in Hong Kong, where the renminbi deposit market has increased eightfold since mid-2010 to more than RMB400bn and where offshore renminbi financing is rising fast….

But financial instability, arising from excessive credit, increasing inflation and weak investment returns, is always an important catalyst…..In this, the leadership changeover in 2012, a reluctance to compromise growth or alienate workers, and political interests in rising property prices could lead to a premature call of victory over inflation. This might boost asset price and growth in the short term, but increase the likelihood the new leadership will have to deal with a credit-fuelled Minsky moment.

Magnus does depict another set of choices which would steer clear of that result, that of increasing interest rates both to stanch inflation and shift the economic model away from lending-stoked investment towards more consumption. But putting on the brakes will slow growth short term. This is a tricky bit of economic management, and as the experience in the US and other major economies in the 1970s and 1980s showed, politicians are reluctant to induce a recession (which is what it might take in China to shift gears) until the alternative is painful. And even then, the temptation is to abandon the course. Carter pressured Volcker to abandon his squeeze on financial firms and the economy generally; can you imagine either Greenspan or Bernanke showing Tall Paul’s resolve? Today’s nominally independent Fed chairmen have been pre-screened for their bankster friendliness.

Given that preventing labor unrest is a major priority in the Chinese officialdom, it seems they have a non-win situation: either see worker real incomes squeezed further by rising prices, or deprive some, perhaps many, of jobs by putting the brakes on growth. As much as the entire world has every reason to hope for a happy outcome, soft landings are notoriously hard to engineer even in a command economy like China’s.

http://www.nakedcapitalism.com/2011/05/ubss-magnus-warns-of-risk-of-chinese-minsky-moment.html

bart
05-05-11, 09:27 AM
And from the things that makes one want to go hmmmm department:

http://www.nowandfutures.com/images/china_us_m2_credit_base.png

jk
05-05-11, 09:29 AM
welcome back, bart. your post reminds me how much we've been missing in your absence.

Chris Coles
05-05-11, 09:29 AM
What is never mentioned in any such analysis is the difference between lending and using equity capital to fund the expansion of the economy. Each time we meet a roadblock, everyone always turns to adjusting lending, rather than finding ways to return to good old fashioned equity capital.

China has to learn the usefulness of equity capital, invested at arms length, on free enterprise terms, for the long term development of their economy.

They should read this and then come and talk. http://www.itulip.com/forums/showthread.php/16929-The-Capital-Spillway-Trust-response-to-the-Green-Paper-Financing-a-private-sector-recovery?highlight=Capital+Spillway+Trust+Response

Chomsky
05-05-11, 09:35 AM
welcome back, bart. your post reminds me how much we've been missing in your absence.


+10000000000

bart
05-05-11, 10:02 AM
welcome back, bart. your post reminds me how much we've been missing in your absence.

hugs to you too, jk - Chomsky too.

http://www.nowandfutures.com/grins/smiley_bighug.gif

Raz
05-05-11, 03:21 PM
Thank you, bart.
I always want to know your thoughts and have learned quite a bit from you.

Please don't stay aways so long; drop in for at least a visit more frequently!;_Y

bart
05-05-11, 03:31 PM
Thanks Raz... and a bonus chart, albeit on the wrong thread (I can't be too easy ;-) ), showing some of what EJ is looking at in my opinion on silver - as in history does rhyme:

http://www.nowandfutures.com/download/d4/silver_and_ratio1972_1976.png

touchring
05-05-11, 11:57 PM
What is never mentioned in any such analysis is the difference between lending and using equity capital to fund the expansion of the economy. Each time we meet a roadblock, everyone always turns to adjusting lending, rather than finding ways to return to good old fashioned equity capital.

China has to learn the usefulness of equity capital, invested at arms length, on free enterprise terms, for the long term development of their economy.

They should read this and then come and talk. http://www.itulip.com/forums/showthread.php/16929-The-Capital-Spillway-Trust-response-to-the-Green-Paper-Financing-a-private-sector-recovery?highlight=Capital+Spillway+Trust+Response


This is not so easy, especially for SME, if you consider the amount of lawlessness with respect to corporate governance, investors are not guaranteed of their rights.

There had been a recent case of a Chinese company listed in the Singapore stock exchange, who had a fire in their finance department office before the auditors came. ;)

Chris Coles
05-06-11, 04:31 AM
This is not so easy, especially for SME, if you consider the amount of lawlessness with respect to corporate governance, investors are not guaranteed of their rights.

There had been a recent case of a Chinese company listed in the Singapore stock exchange, who had a fire in their finance department office before the auditors came. ;)

There is no doubt that there are substantial problems with governance in China, but I do not believe that the people leading the Chinese financial institutions and who have driven their economy to where it is today, believe they can continue to turn their collective backs to corruption and corporate malfeasance. Instead, I believe they need a way forward that will, slowly, steadily, over time, change the way business is done. That Confucian principles will prevail.
http://en.wikipedia.org/wiki/Confucius
http://books.google.co.uk/books?hl=en&lr=&id=IL5GtyPhinQC&oi=fnd&pg=PR21&dq=Confucian+principles+in+China&ots=8O5ckdvFSW&sig=cpdku3kTbEEtAiEx4C4GeQxJuqc#v=onepage&q=Confucian%20principles%20in%20China&f=false

In which case, the best way forward, (not just in China, but elsewhere), is to place the change into the hands of the grass roots.

Let the local communities take a direct interest in their long term prosperity.

The basic principles I have expounded in my own papers on job creation place the responsibility for success firmly upon the job creator who in turn, is directly under the supervision of their own local community. The two have to work together to make the whole system of job creation work.

Again, I am only defining rules for investment into very small, micro businesses, of no more than 8 to 10 employees. That the rules will create a vast raft of very small success stories spread right across the nation, that will inspire everyone surrounding them to take an interest in their success. That from that starting point, local community job creation is a local community function; linking local savings to local employment.

That there must be a better way forward than that we are using today.

touchring
05-06-11, 04:40 AM
That Confucian principles will prevail.
http://en.wikipedia.org/wiki/Confucius
http://books.google.co.uk/books?hl=en&lr=&id=IL5GtyPhinQC&oi=fnd&pg=PR21&dq=Confucian+principles+in+China&ots=8O5ckdvFSW&sig=cpdku3kTbEEtAiEx4C4GeQxJuqc#v=onepage&q=Confucian%20principles%20in%20China&f=false

In which case, the best way forward, (not just in China, but elsewhere), is to place the change into the hands of the grass roots.


China has ceased being a Confucian society since the Cultural revolution.

China is now even more individualistic society than Western societies. Everyone is trying to scam the other person with no consideration whatsoever to the community. From fake milk to fake eggs to fake oil - using paraffin for cooking oil.

There maybe change, but not without a catastrophic crisis to catalyze such a change.

Chris Coles
05-06-11, 05:57 AM
China has ceased being a Confucian society since the Cultural revolution.

China is now even more individualistic society than Western societies. Everyone is trying to scam the other person with no consideration whatsoever to the community. From fake milk to fake eggs to fake oil - using paraffin for cooking oil.

There maybe change, but not without a catastrophic crisis to catalyze such a change.

Your comment is correct. But I am saying that the local communities are the best people to step forward to bring the required changes needed to bring back long term stability. All the points you make are direct evidence of the need to bring forward new thinking.

You suggest the need for a catastrophe; I am saying that the people can do what is needed; through the application of some very simple rules for local community investment.

The choice is very simple, wait for catastrophe, or take a very simple step forward into new thinking and try something else instead.

touchring
05-06-11, 12:41 PM
Your comment is correct. But I am saying that the local communities are the best people to step forward to bring the required changes needed to bring back long term stability. All the points you make are direct evidence of the need to bring forward new thinking.

You suggest the need for a catastrophe; I am saying that the people can do what is needed; through the application of some very simple rules for local community investment.

The choice is very simple, wait for catastrophe, or take a very simple step forward into new thinking and try something else instead.


Are you talking about this kind of community investment?

http://www.peopleforum.cn/viewthread.php?tid=7893

By the way, the above example, borders on insanity. :)

Chris Coles
05-06-11, 07:59 PM
The economic model that has dominated the planet for the last five or six decades has thrown up some quite remarkable developments; but ended with us all living in a distinctly medieval feudal economy where money is power.

But what the vast majority want is to live in a small, friendly, local community; where their efforts combine to create a successful group of homes for people to live in and bring up a family, where employment is centred upon their personal skills and they, (and the products they create), are appreciated as a functioning member of their local community. In such an environment, most people will agree with your point of view.

touchring
05-06-11, 09:43 PM
The economic model that has dominated the planet for the last five or six decades has thrown up some quite remarkable developments; but ended with us all living in a distinctly medieval feudal economy where money is power.

But what the vast majority want is to live in a small, friendly, local community; where their efforts combine to create a successful group of homes for people to live in and bring up a family, where employment is centred upon their personal skills and they, (and the products they create), are appreciated as a functioning member of their local community. In such an environment, most people will agree with your point of view.


Economic reforms are not sustainable unless there is political reform. Take the example of Libya, the Libyans are rich (2 million barrels a day and only 5 million people), they live a good life. Gaddafi's socialist political system gave free education and health care to Libyans I heard.

This is in stark contrast to America, most expensive health care and most expensive education in the entire world. Why haven't Americans rebelled?

Chris Coles
05-07-11, 08:10 AM
Economics is nothing to do with politics at the levels I am proposing, any political system has the capacity to see the advantages of a more prosperous grass roots of their respective nations.

My proposals for The Capital Spillway Trust are non political; they are entirely based upon the prospect of a distribution of equity capital into simple, but formal, business structures; where the rules work against wrongdoing on the part of the recipients of the equity capital and to the favour of the local community. They will work in any nation and always in the same way.

LargoWinch
05-07-11, 09:29 AM
Economics is nothing to do with politics at the levels I am proposing, any political system has the capacity to see the advantages of a more prosperous grass roots of their respective nations.

My proposals for The Capital Spillway Trust are non political; they are entirely based upon the prospect of a distribution of equity capital into simple, but formal, business structures; where the rules work against wrongdoing on the part of the recipients of the equity capital and to the favour of the local community. They will work in any nation and always in the same way.

Chris, I would appreciate your opinion on the "The Venus Project (http://www.thevenusproject.com/)".

http://www.thevenusproject.com/images/photoVig/cities/Xarch31-689-348.gif

touchring
05-07-11, 10:59 AM
Economics is nothing to do with politics at the levels I am proposing, any political system has the capacity to see the advantages of a more prosperous grass roots of their respective nations.

My proposals for The Capital Spillway Trust are non political; they are entirely based upon the prospect of a distribution of equity capital into simple, but formal, business structures; where the rules work against wrongdoing on the part of the recipients of the equity capital and to the favour of the local community. They will work in any nation and always in the same way.

I think they are already doing this in China by prohibiting foreign companies from doing business with local governments.

Chris Coles
05-07-11, 06:27 PM
Chris, I would appreciate your opinion on the "The Venus Project (http://www.thevenusproject.com/)".

http://www.thevenusproject.com/images/photoVig/cities/Xarch31-689-348.gif

When I was a child my father used to create elaborate designs for futuristic building projects; they were always elaborate and impossible to attain. When you look at the detail with The Venus Project, all you see is the elaborate vision of a "visionary". I am sorry, but that sort of thing does not appeal to me. Yes, a great idea, but a single idea, and that is, to my way of thinking, it's fatal flaw.

I am much more interested in millions of separate individuals; setting their imaginations to work for themselves, within their own abilities, resources and aspirations. So that, instead of a single vision, they all get the chance to create their own vision. Instead of one idea, millions of ideas. In that way, we sow a seed bed of innovation and let the best ideas reach fruition.

No one will know what will result, other than by letting them try out their chance to achieve something better; in a very real sense, to re-establish "creative destruction", not in a negative way, but positively. Let the human race get back to the many trying something new; rather than being trammelled by one single vision.

Chris Coles
05-07-11, 06:33 PM
I think they are already doing this in China by prohibiting foreign companies from doing business with local governments.

I am sure you are correct. Everyone with a forward thinking ability will know, for certain, that we cannot continue on the path we have all followed for decades. In which case the more new ways tried, the better. Remember, innovation is a process of try, fail, and try again. No one idea will fit the bill, everyone will have to accept failure in one form or another. But by trying, many will succeed and others can then follow.

LargoWinch
05-07-11, 09:45 PM
Thank you Chris; good points.

vt
01-17-14, 03:00 PM
A lot of wealthy Chinese are leaving China or planning to to so, with many coming here. EJ, in the two years since this article what do you see for China now. and how does that fit in to the big picture?

http://www.cnbc.com/id/101345275


Well it hasn't been a crash, but more like a 3 year erosion:




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