Ricks Picks header image

The $15 Trillion Home Equity Question

57 comments

[To broaden the conversation, Rick’s Picks inaugurates a two-week series of commentaries today from guests who have contributed regularly to the daily forum.  I can promise that you’ll enjoy these essays, which cover topics ranging from the peculiar economic boom in Germany, to the failure of New Jersey’s casinos, to the possibility that the global economic breakdown has been meticulously engineered by financial and political sociopaths.  This morning we proffer the always-sunny thoughts of Mario Cavolo, an expatriate who lives in China. His very bullish outlook for the global economy contrasts with some of the gloomier think-pieces that have appeared in this space.  In the essay below, Mario extrapolates a very positive economic outcome from the $15 trillion of unencumbered equity that Chinese property owners currently have vested in their homes.  Will the eventual leveraging of this still debt-free sum, together with the irresistible power of China’s growing economy, be sufficient to pull the world out of its funk?  Read on for Mario’s optimistic answer. RA]

Current United States home mortgage debt: $15 trillion. Current China home equity: $15 trillion. Mortgage debt on those homes? Zero.  It is easy to suggest that this insight, which reveals a $30 trillion spread between U.S. home mortgage debt and Chinese home equity, better enables us to grasp the underlying forces impacting the economic power shift we are seeing from West to East. While it might be in vogue these days to criticize the United States for being built on a mountain of debt, I’d rather not. Let’s first take a moment to remember the positive effect the world over which the judicious and reasonable use of debt has had over the past 50 years.

A housing project, Bejing-style.  It is being developed along a narrow stretch of waterfront in the city of Behai

How’s that you ask? Because while it is in vogue to complain about America’s mountain of debt, that very same debt-based financial system enabled the United States to become, by an enormous margin, the largest economy in the world while the rest of the world’s countries also enjoyed their own growth riding on the American red, white and blue coattails. In truth, that never would have happened without the U.S. debt-financing binge, so let’s not pretend otherwise. Countries love to complain about America’s debt but they’ve enjoyed riding along as she rose these past five decades. The economic power of Japan and China lag far behind at only $4 trillion each, followed by Germany in the $3 trillion range. Maybe if they had committed to more debt to build industry and consumption, they’d also have proportionately higher GDP.

Alas, we note with grave concern that the words “judicious and reasonable” were removed from the use of debt formula, but that is not our focus here. While China at the government banking level has also done more than its fair share of economic stimulus lending these past few years, Chinese homeowners stand alone as a large piece of the world’s economic puzzle, with $$ trillions in fresh, new home-equity that will eventually make its way into the Chinese and global economies.

China’s Equity Miracle

Let’s argue for a moment that the U.S. mortgage/China equity numbers we started with may be too general or generous to be meaningful. However, digging deeper into the history of property appreciation in the U.S. and China, that argument falls flat fairly quickly for an amazing reason: a key economic growth curve which took 40 years to create in the U.S. took only 10 years in China. Hence, what looks like an economic miracle is really no more than a statistic on an unexpected fast-track to the moon.

We recall that U.S. suburban home prices back in the 1960s were in the range $30,000 to $60,000. Those millions of homes today fall in a price range of $90,000 to $250,000. A time span of over 40 years was required to achieve that level of appreciation in value — a long, slow appreciation curve. Can we confirm that the average home equity is perhaps 20% today? Yes we can. 30% of homeowners in the U.S. have no mortgages. The other homes in aggregate with mortgages barely have a dime of equity.

Now let’s take a look at China’s home property value appreciation curve.  Property value appreciation that took 40 years in the United States has occurred in China in only 10 years. The unprecedentedly steep curve in China’s economic expansion explains a large proportion of the rising shift in economic power toward China. $15 trillion of home equity with no mortgage debt sheds even more light on the new reality. Imagine what the United States would be like if 50% of households were free of their mortgage payment.

Comparing Home Values

Back in 2001, China’s first-tier cities such as Shanghai and Beijing had similar local apartment prices as in the 1960’s U.S., in the range of $30,000 to $60,000. Home values in the mainstream second-tier cities such as Dalian, Shenyang, Tianjin, Chengdu, were lower by half again, more like $15,000 to $30,000, equaling $40 to $75 per square foot.

There are no mortgages on any of those millions of apartments. Did you know that home mortgages hardly even existed in China in 2000 and they probably didn’t even have Chinese words back then for the phrase “credit cards”.  Only 10 years later, property in the media-worn first-tier “property bubble” cities have increased in value an average seven-fold, from $30,000-60,000 to $200,000-$400,000; while in second-tier cities, property prices have increased a much more reasonable four-fold, from $15,000-30,000 to $60,000-$120,000 across a much wider swath of the Chinese population. Considering normal long-term global economic cycles and property values, $60,000-$120,000 is a range those millions of households are likely to never decline below again.

School Teacher Example

Let me give you an accurate example to illustrate; a typical Chinese retired schoolteacher living in her five-story walk-up, 80-square-meter apartment, located in a garden apartment complex of 800 similar apartments in which we find all of the area’s retired schoolteachers living on pensions of $300 per month with full medical coverage. During their career well over 15 years ago, they were allowed to purchase this apartment for 800rmb per square meter which was about USD $10 per square foot back then. Today, the apartments are worth five times that:  4000rmb per square meter, or USD $50 per square foot, which equals close to USD $60,000, still a relatively modest valuation. The new apartment developments in the surrounding neighborhood are certainly much nicer and valued at closer to $100,000, which makes sense and is still within a reasonable range for urban middle-class home prices. Why? Because the city in general has been rebuilt and revitalized; because a new 180km/hour subway line is going in with a stop just 10 minutes walk away; because Sheraton, Marriott, Hong Kong New World Towers, Kerry Center and Shangri-la hotels have all appeared around the new convention center area downtown; because several multinational companies have set up shop in or outside the city, cranking out cars, car parts, software and medical equipment. Needless to say, these 800 retired schoolteacher home-owners all have 100% equity in their homes. That equity will eventually makes its way into the economy. Even within 10 years, many of these elderly will pass away, leaving the asset to their children who will most likely sell it and use the money in some other way, adding money to the economy. As they increase their tendency to borrow against this asset, that will add even higher levels of domestic consumption, a trend we take a closer look at further on.

The Scottsdale Home

Back in America, the Scottsdale, Arizona home I sold in 1995 for $110,000 is still valued at $180,000 today, even after a 30% drop from its peak value a couple of years back. With America’s economy still struggling, many expect that property values will still fall further. Understand that China is on the classic inflationary rise including all the historical hallmarks one finds such as rising prices and rising wages, supported not only by the popular reasons most often cited in the media, but also by the economic foundation of this unprecedented mortgage free equity pool.

Does a fresh pool of 70,000,000 mortgage-free homes scattered across dozens of China’s second-tier cities valued today at $60,000-$120,000 plus an additional 30,000,000 homes valued at $200,000-$400,000 pack an economically punch strong — enough to at least blunt the world’s economic woes? To answer that question, there are a couple of related variables to consider: Chinese are still loath to borrow on their home equity. When you buy something in China, you pay cash or you don’t buy it. However, we can consider entrepreneurial business owners as more likely to borrow — and who may borrow up to 70% of their home equity from a bank to build their businesses. We find that even borrowing of this nature is not yet a widespread practice in China. If the home equity loan rate hit 30% of equity, that would conceivably add $3-5 trillion of spending to the Chinese economy in the coming years, a welcome addition as far as the Chinese government is concerned to help stimulate domestic consumption.

Related to the question of such trends in lending and borrowing, Chinese today are still the world’s greatest savers, with a 30% plus savings rate. As Chinese consumers start borrowing more on their massive home equity pool to consume and make entrepreneurial investments, they will have additional monthly loan payments and the national savings rate could perhaps come down to 20%. Even a 20% savings rate would still be regarded as amongst the highest savings rate in the world compared to other countries. So when trying to understand the many factors which are supporting China’s rise, bear in mind the powerful factors we have discussed here like this enormous home equity pool, which stands quietly in the shadows as a leg of support behind the more popular topics and analysis on China typically found in the mainstream media.

(If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)

Please do not ask trading questions!

  • David September 1, 2010, 5:06 am

    Very early on, you betrayed, it seemed to me, a lack of understanding of what’s really been going on: “We recall that U.S. suburban home prices back in the 1960s were in the range $30,000 to $60,000. Those millions of homes today fall in a price range of $90,000 to $250,000. A time span of over 40 years was required to achieve that level of appreciation in value — a long, slow appreciation curve.”
    FYI: the multiplier for prices because of dollar depreciation since 1971 is five. What cost $1 in 1971 takes 5 frn’s today to purchase. Doing the math: 30k x 5= $150k; 60k x 5=$300k. And so it is. The “appreciation in value” you spoke of is merely an appreciation in nominal dollar prices. The houses are no more valuable today than they were then. You make some interesting observations in your essay, but I couldn’t help but be a bit skeptical after that early paragraph. And the real reason, bottom-line, for the nominal increase in house prices without any corresponding increase in value is precisely what you espouse: debt. Hmmm…

    • mario cavolo October 4, 2010, 12:24 pm

      Hi David, I’m a month later finding this and responding. Your point is spot on. I definitely didn’t adjust the numbers for currency value/purchasing power as I was making those points. That (currency purchasing power and value) just keeps declining over the decades and no reason to think it won’t continue.

      Cheers, Mario

  • mikeck September 1, 2010, 4:10 am

    Mario,

    In the unlikely event you ever return here, know this…I feel much safer in a city where the criminals think I may be armed, I’m not at this precise moment, because they may think I am armed and be less likely to take the chance…crime is much worse in areas where guns are outlawed. If you have doubts, read John Lott’s well researched book, More Guns, Less Crime, wherein it is clearly shown that the safest places to be are are where gun ownership is less restricted.

    Actually, it is common sense…if you were a criminal, would you ply your trade where you might come up against an armed property owner or where it was illegal to be armed?

    Don’t even think about using the argument that everyone should be disarmed…the biggest criminal organization of all, government, will never disarm.

    Also, I’m paraphrasing here, but when someone there was asked what the 500,000 Swiss would do if attacked by a million man army, responded with, we would all shoot twice. That is the beauty of individuality and a real militia.

    Mike

  • Roy August 31, 2010, 9:00 pm

    @Mario: In 2006 as I was riding a city bus in Xiamen, I watched a small gang of pickpockets try to steal a man’s cellphone from his belt. When he started shouting at them, they physically threatened him and literally kicked him off the bus at his stop. No on else said or did anything.
    In Beijing while I lived there a foreigner woman came home unexpectedly to her villa in a ritzy suburb to find burglars in the house. They murdered her and left. Probably set up by her aiyi. AFAIK never caught.
    In fact China is rife with crime. It is the same as any other place where poverty creates desperate people. Safer than Venezuela to be sure, or Ciudad Juarez, but Chinese society has no great advantage over the west in preventing crime. The lack of guns probably keeps the death rate down, though.
    @Steven, you think the state has a heavy hand in China, but that’s so only in a few ways, such as openly criticizing the government or disputing too loudly and longly with same. In fact today’s China is much more like the lawless American west of the 1800s. It is a kind of gold rush, where everyone is trying to find the nugget that will make them rich, and some are succeeding quite well.

  • Max Power August 31, 2010, 9:18 am

    “It is the deferral of consumption, savings, that allowed this country to have a great economy.”

    Completely wrong. Its a shame so many are so confused about things. The US had a strong economy in the past largely because of being able to run huge trade surpluses with Europe; and particularly after WWII. In about the late 1940’s, a system was proposed that would have minimized or eliminated such trade imbalances, but the US rejected it. In more recent years, excessive borrowed money has kept the US economy going. So, no, it is not possible to save 30% in an economy while maintaining full employment without running a huge trade surplus with another country. Properly invested savings only add to the material well being of an economy, and are not necessarily related to full employment. These are two different things.

    • Chris T. August 31, 2010, 7:44 pm

      The US did not have a trade surplus with Europe between 1870 and about 1895, but we did have unparalleled economic growth.

      There was no such thing as the unemployment we talk about today, either.
      Economic growth is an increase in output, productivity, etc. If you only consume without investing to further such growth there is none.
      And how do you invest? From savings, nothing else.
      We have done a “good” job replacing that with credit, but things are getting closer and closer to that temporary aberration coming to an end. How long will that take? No one knows, and one can never understimate the beneficiaries of the current, three generation distortion.

      (Un)employment, as a modern feature of extant economic systems, is simply an imbalance between the price level and real wages.
      If real wages rise less quickly than the general price level, you can and will have full employment, as Rick has pointed out for Weimar Germany, and its main reason for hot-printing.
      When the general price level declines faster than real wages, you will have unemployment, as that is the only way producers can hope to stay ahead of that. That is exactly what happened 1929-1932.

      BTW, if you look at imbalances of trade under the real multilateral trade and a real gold standard that included its clearing house, bills of exchange, you will find that system regulating the imbalance.

    • Max Power August 31, 2010, 9:55 pm

      Chris T., reading your comments is painful. Too many disjoint, irrelevant and misplaced pieces of info that have little to nothing to do with my comment that you replied to. It sounds like all you want to do is argue. Perhaps you need to find a forum for arguing where everyone tries to outdo the other with totally irrelevant comments and disjoint info?

  • AT in HK August 31, 2010, 8:57 am

    Very interesting article.

    What are the sources for the Chinese equity in their own homes being $15 Tril… and conversely US home mortgage debt also at $15 Tril?

  • jj August 30, 2010, 11:59 pm

    Speaking of WalMart, aren’t we all to blame for China’s rise to a degree, most Americans would rather (or can’t afford the option) pay $10 for an item made in China than an item made in the US costing $15………..try and find anything made in Canada or the US today…..the mountain bike shorts I just bought at Sports Check are made in China, what we can’t make bike shorts?

    Oh yah, we can we just want $100,000 a year to do it, catch 22, no?…..and the multi-national companies want higher margins so we fund China’s growth.

    China is using its huge US$ reserves to buy real things, oil, nat gas, copper, Gold……what is the US buying these days?……their own debt!!

    Craaaazy times….good luck to us all

    • mario cavolo August 31, 2010, 5:37 am

      yea jj, the underlying driver that creates this problem is cheap labor. Its impossible to compete against cheap labor. Even within China!..labor around Shanghai gets more expensive for example, and so business moves to the 2nd tier cities where labor is even cheaper. But as well know, labor costs are rising here and that will create pressure. America and Europe were built on slave labor too. History shows, men, governing, are not nice.

      Cheers, Mario

  • Jack L. Earl August 30, 2010, 11:03 pm

    mario,
    Bunk. China is not the world’s newest and greatest testament to capitalism. China is a totalitarian Communist government that controls the people and the economy. Oh, boy where do I start? Yes, they have embraced some forms of capitalism because they saw what a failure the former Soviet Union’s closed economy was and tried another direction. It worked and they have been going that direction.

    How did they make it work so well and grow so quickly? Because large American corporations bought in to the globalism story and built factories and sent our manufacturing jobs to China to benefit from lower costs and friendlier government regulations. Smaller companies were lured into partnerships with Chinese companies in order to break into this 1.3 billion customer market only to find their partners had opened their own plant and were manufacturing the product in China.

    China does not honor patents, copyrights or properties of other countries. In fact, 80% of all counterfeit products produced in the world are made in Communist China. Coin World has written articles and editorials on the millions of counterfeit U.S. coins being sent into the United States from China. They fear that the Chinese fakes will be so difficult to detect that they will destroy the coin collecting hobby and business in the U.S. If you have traveled outside the U.S. recently you know that a $100 bill is not easily accepted. No one can tell what country printed it. It has gotten so bad that the treasury will be replacing the current bills with new harder to counterfeit bills next February.

    I never used to think about where a product was made but now I do. If given a choice I will not buy anything from China. I will pay more for an American made product any time. It’s not because I am a bigot, I respect the Chinese people and believe they are being victimized as much as the American people by the Communist Chinese government. I won’t buy their products because I won’t help them build up their economy and their military at the expense of our own economy.

    And as for that Chinese military. Their army is the largest in the world. If it wasn’t for our superiority in nuclear weapons, we would be in the middle of world war 3 right now. The Chinese Communist government is not our ally, they are not our friends. They continually support Iran and any other country that opposes the U.S. We have hope and change. They have a fifty year plan to rule the world. Every dollar you spend there, every dollar that we invest there, is used to further that end.

    You may be waiting for my tin foil hat to fall off and thinking that I am just another moron, but then you must have missed the story on “60 Minutes” last night about the Chinese spies who have infiltrated the pentagon and our military. Or perhaps you haven’t heard of the threats the Chinese Communist government has made to the United States Government over our support of Taiwan or the article in last week’s newspaper about the new Chinese supersonic missile that was developed specifically for only one target. United States navy aircraft carriers.

    Mario, you are probably right. The Chinese are literally outgunning us on all levels. But not with my dollar. And never in a Wall Mart.

    Cheers, jack

    • mario cavolo August 31, 2010, 5:21 am

      Hi Jack,

      Thanks for weighing in. Plenty of bad things in China, and I have written and speak of those also in other articles and places and would never suggest otherwise. The copying thing is rampant, it will never be brought under control in my opinion.

      I have often stated they are not our friends, China is out for China, etc. It is definitely true but no more so than any other nation that I can see. The last ones to go on a megalomanical world conquering rampage was Japan and Germany, China’s never tried it militarily and won’t, but economically they will definitely take every advantage they can. The trouble is that in this moment in time they are holding a nice deck and that’s a bit scary for the rest of us They are master strategists and I am always wary in my dealings here, even considering all the good sides of the equation. I often mention the past year’s annual European white paper on China, a scathing rebuttal on doing business in China, still too many barriers and not enough transparency for FDI. They are happy to use the foreigner, take his money and then send him home when they don’t need us any more, but they made a deal and both parties benefited and agreed.

      On the Taiwan thing, its a peculiar saga. If for example, another country came along and started selling arms to California while at the same time, Governor Schwarzenegger starting talking up secession from the United States to make a deal with Mexico in the media, how do you think the U.S. govt would respond to the country who is selling those arms to California? China says, stay the hell out of our internal affairs, seems right to me and so would any other country say the same thing. Meanwhile the background to all this fascinating military and political tit for tat, flights for the public have now opened up between Taiwan and the mainland! So happy days for the businessmen and tourists…

      I would suggest an underlying theme to this entire string is the idea of those moments along history when citizens fear their governments. At this particular moment in history, the Chinese govt is doing as well as its ever done, as long as it may last before another potential political shift. While the U.s. govt seems going very much down the wrong road with its hands tied by the banking industry.

      Cheers, Mario

  • ricecake August 30, 2010, 9:23 pm

    One of the solution of fix American’s economy:

    Webster Tarpley World Crisis radio 28 Aug 2010

    http://geraldcelentechannel.blogspot.com/2010/08/webster-tarpley-world-crisis-radio-28.html

  • DG August 30, 2010, 9:14 pm

    Mario

    Your lack of constitutional understanding is such that it forces me to want to dismiss everything you have written. Please read what was the intention of the second amendment. Jefferson, Washington, Adams and the rest were all on the same page.
    http://www.sightm1911.com/Care/Gun_Quotes.htm

    It has nuthin’ to do with hunting. It is the ultimate insurance policy, hopefully one that stays in a safe forever.

    Hitler outlawed guns and look what a great idea that turned out to be. Hard to conduct the “Crystal Night” when the innocents have the ability to defend themselves.
    Adolf Hitler: “The most foolish mistake we could possibly make would be to allow the subject races to possess arms”
    Mao Tse Tung: “All political power comes from the barrel of a gun. The communist party must command all the guns, that way, no guns can ever be used to command the party.”

    Wait until things go not as planned in China….Murphy has a way of showing up inconveniently. At that moment, “moron” will be replaced with genius, albeit too late.

    • mario cavolo August 31, 2010, 4:13 am

      DG,

      I do appreciate your thought and I do understand. And I would still take living in a society that does not allow citizens to have guns any day of the week. It works BETTER. It is a problem when and only when a tyrannical governments overly suppress, control, tax and abuse its citizens. Then people want to rise up, bear arms, protest and start a war for their freedom if they can, as well they should! BUT in today’s world of modern military and weaponry, that is not practical reality. Guns on the streets of today’s America has been one of the key factors that has destroyed quality of life in America. Not to mention, ask a cop trying to do his job how the NRA, ACLU and Miranda has tied his hands in his efforts to protect us from the scum of the earth.

      Cheers, Mario

  • Larry August 30, 2010, 9:06 pm

    Interesting commentary, Mario.
    You wrote:

    “…Its a community, a neighborhood, and like most lower/middle income neighborhoods in China, its got NO guns, NO violence, NO drugs.”

    Which panel of this triptych sees the way clear for the other two?

    How do Chinese authorities deal with attempts at drug smuggling in 2010? I am aware of how they got rid of the problem in 1949.

    • mario cavolo August 31, 2010, 4:37 am

      Hi Larry,

      Thanks for jumping in. China’s laws are harsh on crime. I have a friend in Chengdu who is a very good lawyer, including overseas experience in Europe. In the courts in China, a criminal gets a fair trial, both sides presenting evidence, etc. If found guilty, there is a typical range of jailtime sentencing yet immediate execution is much more common here and seems to be a very effective deterrent. Guilty?…out the back door and bam, there’s no discussion or appeals process. This should be elaborated on in terms of the range of punishments for the range of crimes, but I don’t have that info. I believe but did not yet verify that drug smuggling is regarded severely and punished by execution.

      Cheers, Mario

  • jj August 30, 2010, 8:56 pm

    Latest China rumor: PBC gov Xiaochuan may have left the country due to the $400Billion+ loss owning US bonds, we in the free world can google search the above but his name has been blocked from search engines in China……

    Now thats not freedom!

    They should have dumped those bonds and bought more Gold, lol

  • Chris T. August 30, 2010, 8:29 pm

    ” where, thanks to the moronic NRA and other special interest groups, grandma and her grandchildren can’t walk on the street enjoying a normal life. ”

    No need to compare us to the UK, where is your logic in that?
    First of all, there are plenty of places,EVEN TODAY, in the US, where not onle CAN grandma walk her little ones completely safe (unless you believe in GWBs post 9/11 kool-aid scaremongering), but where people DO NOT lock their doors at night.

    Guns where here long before the NRA, our founders had them. The ONLY real. reason they wanted them in the hands of the the citizen, was to prevent a tyranny of government, not to prevent a tyranny of crime or to hunt for food. If you do not believe that, look up those same founders and their rationale for the 2nd amendment.

    It was the progressives, with their statist, anti-individual agenda, that pretended to be against guns for the benefit of the people.
    Do you know where the first gun-control law EVER in the US was put in place and why?
    It was in NYC about 150 years ago. There business travelers were constantly being robbed, and to protect themselves, they armed themselves. The take of the criminals dropped substantially, so they got together with the crime pols of the day, banned weapons, and presto, crime’s success went back of.
    FOR OF COURSE, the lawabiding gave theirs up, the criminals did not.

    As to you logical fallacy”

    Can you please explain, why someone who wants to commit a MAJOR felony, such as robbery, rape, or murder, with the life long prison term or execution threatened as punishment, will be deterred by a few years (either alone or in addition) for POSSESSING and/or using a gun?
    If death does not deter, as it clearly does not (we do have murders in the US you know), then of course the extra does not.

    Germany has even stricter anti-gun laws than the UK, but there still are gun murders, etc, and those perpetrators were willing to break the law long before they obtained a gun.

    What does separate violent societies from more peaceful ones is NOT gun-ownership or lack thereof, but heterogeneity. While this is un-PC, your present home is VERY homogeneous, whereas the countries you must sure deem more violent are getting ver less so. Even in the US, where your attitude is often used to point to the lawless west as a disproof, just look up the crime stats in the long settled eastern seaboard, prior to IT becoming less homogenous.

    • Benjamin August 30, 2010, 9:30 pm

      “What does separate violent societies from more peaceful ones is NOT gun-ownership or lack thereof, but heterogeneity.”

      I have to disagree, Chris. Switzerland has at least four different cultures within her borders, but we never hear about rampant crime over there. On the opposite side of the spectrum, Mexico. Lots of crime there, but they’re not exactly known for their racial and cultural diversity (while there’s more than one culture in Mexico, they’re cetainly not a mix of European, African, Asian etc).

      That’s not to say heterogeneity causes the opposite, though. I just don’t think the lack of it is the cause of violence in a society.

      For China, it’s simple. Their police and military are easily the size of the U.S. in terms of population! Too, they are in an economic boom, and that probably deters crime more than it attracts it. Of course, history can be at odds with booms = low crime rates, but it doesn’t forbid it 100% either.

    • Chris T. August 31, 2010, 1:44 am

      “Switzerland has at least four different cultures within her borders…”

      For all intents and purposes, that is only three, the RhetoRoman speakers are a tiny fraction, and the Italian speakers are not a large share either.
      Most important are two other factors, differences wihtin the heterogeneous mix and its distribution geopraphically.
      The within difference between the German and Welsh-Swiss (did that on purpose, mean the French) is perhaps less than within Belgium.
      And the distribution is rather homogeneous, the German in the Middle and East, the French in the West, and the others on the periphery. This physical separation is coupled with a political systems that also keeps separate in many ways, a still basically federalist structure.

      You can not compare this type if “heterogeneity” to what is referred to above. France itself, as also Germany, have within group differences, whether that be a Wallon and somebody from the Provence or a Frisian and a Bavarian, but that is not the same as above.

      Are these things monocausal, certainly not, but you can’t deny the correlation. Look at the crime rates of just about any Western European country over a longer time period, and at how these places have changed over the last 25, 50, etc years, and you will see the inverse realtionship between crime rate and this shift.

      Mexico is a failed state, the current practice field (next to Afghanistan) of fourth generation warfare, and has hardly been a place of peaceful democratic self rule of and by the majority for any great lenght of time. But the quasi-dictatorial PRI did keep things rel. peaceful for a while, but within a few-have-all, most-have-none context. Not a comparison.

    • Benjamin August 31, 2010, 4:36 am

      Chris,

      Well, since you seem to know about this stuff more than I do, maybe you can answer something for me…

      When we look at violence across the spectrum and across time, why is that we see so much more inner cultural and/or racial correlations? ie Why do more muslims violently perish to the practice of their religion? Why do blacks tend to kill blacks? And whites, whites?

      The racial justice squad and racists/purists alike might to try and make us think it’s all or mostly among the differences, but in my experience and observation, this simply is not the case. Like tends to hurt like, not unlike. Maybe that’s not the way of things, though, and it’s all in my head. But if it is, then perhaps it might explain (though certainly not justify) why some parts of the world are so strict when it comes to gun ownership and/or are police states (sublime or otherwise).

    • Chris T. August 31, 2010, 6:46 pm

      Ben,

      it is a good question, so we can only ponder.
      First of all, heterogeneity is not solely limited to an ethnic one, that is one, perhaps a major component, but not the only one. Socio-economic is another, as is religion, etc.
      But the more all of those become diverse, with none keeping constant, that is my point.

      For ex. about your intra-crime on the ethnic level:
      Which of the white countries of the world has the highest crime rate?
      The US, which of all of these is also the most diverse.
      This is hardly genetic, as our roots are where the crmie rate is much lower (GB, Scotland, Ireland, Germany, Italy, etc), so that can’t be the explanation.
      But in those places, as diversity has increased, crime has gone up.
      The socio-economic diversity is hte least changed, they have all had poor and rich, uneducated and educated, etc. What has changed is a by and large homogeneous religious structure, and else the ethnic one, become more diverse.
      This does not imply that all the violence/crmie now becomes inter group (which ever you choose to focus on: rich/poor, local/immigrant, etc) just an increase in general.

      Maybe just an observation through blinders, but the correlation appears to be there.
      As to more homogenous groupings elsewhere, first one has to find a comparable societal structure, before comparing. Alas, not many Western democracies in Africa for example, their violence appears to be more top-doiwn driven, between one group who happens to dominate and the other Hutu*Tutsi for example, where its just on ethnic lines, or Nigeria, where it is right on religious ones. Those also exist in Europe (Ireland for religious, Balkans for ethnic). But that is different from above.
      Just some thoughts, and again not monocausal.

    • Benjamin August 31, 2010, 8:09 pm

      Chris,

      lol… you lost me more than anything else, but thanks for the reply anyway.

      I will say this for China again, though. I beleive their homogeneity accounts for the restriction more than anything else does, especially with the distrubing trend of the male/female disparity. Prosperity offsets the potential for violence, as would a ban on gun ownership, and more police, with the result being less crime.

      Again, I don’t approve, but China has historical trends which, like it or not, are going to continue to follow them for generations to come yet. That said, I see China more coming out of rather than stagnating or plunging deeper into tyranny. It’ll take time. And we can’t forget how things used to be in the U.S. Feuds, duels, lynchings… But we’ve had more time to let differences and likenesses settle. I mean, really, for that we are the most diverse nation on earth the crime isn’t all that bad. It just has the misfortune of being shocking, for some reason.

  • Chris T. August 30, 2010, 7:47 pm

    Benjamin:
    “…I’d worry more about food, water, shelter, medicine…/or gold and silver.”

    Benjamin, this is not an either/or proposition. Having read your posts, I don’t think you are of the “you can’t eat gold in a crisis” variety, but it needs to be pointed out.
    If one has ONLY enough to stock some of those necesseities you mention above, then you are perfectly correct. But someone link that need not worry AT ALL about anything we discuss here because (beyond such meager (?) stockpile) , he can do nothing anyway.
    For those here though who do have more to protect than just a few months in a bad/worst case scenario, those non-edibles are the way to get started again once things get better.
    And indeed, if one is NOT optimistic, then indeed, you do not need any gold, silver, land, etc, because that preserved capital will never be able to be put to use.
    Another example of why the gloom and doomers with their action are actually people full of hope – they prepare for the better after the bad.

    And, as you may be reading this, a comment about your post from 8/28:
    “I’ve read that it’s not high or low interest that matters. It’s the stability of a rate over time”.

    That is very correct. If you have not done so, you should read Antal Fekete’s writings about the disastrous falling interest rate structure we have had for 30-40 years, what it has done to (bank and otherwise) capital, etc.

    One of his main arguments, and correctly imho, is that the only thing capable of regulating a stable interest rate structure is gold as money. It is precisely that which people like F. Beard don’t understand.
    For a challenging read (because it will make you think, if only to come up with a correct argument to rebut what you are reading), see:
    http://www.professorfekete.com/articles.asp.

    • Benjamin August 30, 2010, 8:08 pm

      Sorry, Chris, I wan’t trying to knock gold, just saying it’s not the most important thing if survival when TSHTF occurrs is what one worries about. One would do better to have stock as well as plans on how to get more, and junk gold/silver (as pure bullion, so I’ve read, isn’t valued as such in those situations). If you plan to invest in the reconstruction once everything is all clear, though, then by all means do so.

      Oh, and what I said about interest was based on what I read of Fekete’s works, though it took me a while to wrap my mind around the concept to confidently explain it myself. But yes, everyone should read his essays, definitely!

  • redou August 30, 2010, 7:26 pm

    Mario,

    You just chided Steve for his prejudices, how about your own?

    “thanks to the moronic NRA and other special interest groups, grandma and her grandchildren can’t walk on the street enjoying a normal life”

    So how do you explain the following?

    from Mail Online

    “The most violent country in Europe: Britain is also worse than South Africa and U.S.

    By James Slack
    Last updated at 12:14 AM on 3rd July 2009

    Britain’s violent crime record is worse than any other country in the European union, it has been revealed.

    Official crime figures show the UK also has a worse rate for all types of violence than the U.S. and even South Africa – widely considered one of the world’s most dangerous countries.”

    and, Mario, in a nation with NO NRA and all HANDGUNS
    OUTLAWED.

    can you weasel out of that one, Mario?

    Redou

    • mario cavolo August 31, 2010, 4:20 am

      No I can’t Redou. I’m amazed to hear this about the UK stats on crime and violence. It bears more thought and thank you for pointing it up, while it does not automatically mean that citizens allowed to have guns is somehow better than citizens who aren’t.

      Cheers, Mario

  • mario cavolo August 30, 2010, 6:25 pm

    Good Evening Everyone,

    Of course thanks to all for weighing in. Tim made the key point that America needs to seriously evaluate where its at in the global economy; if you go to the AmCham-shanghai.org website you will find an article by the Chairman Robert Roche which shows that the Chamber, which is, of course, pro-American business, which encourages the NEI program: that’s the National Export Initiative. Indeed!! America is getting its butt kicked and better start thinking about the fundamental realities of producing and exporting whatever else it is the rest of the world, which is getting richer by the day, might want to buy from her.

    Steve, besides your intelligent comments, I think you deserve a slap back for some of your dark comments which reveal prejudice you should consider getting past:

    What shrooms year were you hallucinating on when you wrote “Chinese society appears to me to be one living organism that does what is best for the state, as the state dictates. If the Chinese government is telling the people to turn to gold. That in fact is the Chinese government buying gold because from my point of view the Chinese Nation is One Person in the form of 1.3 billion cells all serving the needs of the Chinese Body/State.”

    You think its a commie state?…as the state dictates? Geez, wakeup man, every govt dictates and makes the rules, and sure they all follow one doctrine or another easy to disagree but in the past 10 years, the Chinese government built an economy that has raised up a group of more people from poverty into middle class freedom than ever in the entire history of mankind, people who, from my point of view, have in numerous ways, much more freedom than Americans (definitely not in freedom of speech). Also, I wouldn’t and didn’t call a place where retired university teachers on a pension live a “ghetto”. Its a community, a neighborhood, and like most lower/middle income neighborhoods in China, its got NO guns, NO violence, NO drugs. Unlike America, where, adding a side note, thanks to the moronic NRA and other special interest groups, grandma and her grandchildren can’t walk on the street enjoying a normal life. On upholding the Constitutional right to bear arms, our forefathers didn’t imagine today’s drastically different world of circumstances than they ever could have imagined when they wrote that otherwise beautiful vision for a country and its citizens.

    Cheers all, Mario

    • jj August 30, 2010, 6:41 pm

      Tell us how you really feel Mario, lol

      Well said! enjoyed your views from afar

      Cheers! jj

    • Benjamin August 30, 2010, 7:15 pm

      The idea that it’s not safe to walk outside is pure Hollywood/activist bullcrap. I grew up in Gary, IN, which the homicide capitol of the nation for several years running throughout the 90s. At that time, there was a big gang war… vice lords, probably gangster disciples, LKN, and even the Hells Angels were duking it out with another biker gang known as the Outlaws. Of course, they all clashed with each other, too.

      You wouldn’t have known it, though. I could walk down any street in the dead of night and not so much here a single gunshot. Never tripped over any bodies, either. You read about it in the papers, though. It got to the point where the state governor brought in the state troopers (oooo! Scare-rry!). They got their butts handed back to them of course. So the DEA and ATF were brought in…they got their butts kicked too, but not long after the wars ended anyhow. Of course, the feds took credit.

      So, the best way to stay away from gang violence is to a) not join one and b) don’t become a cop in gang territory.

      Assuming you’re smart enough to follow that timeless wisdom, you also don’t want to be poor. Guns are not the greatest cause of homicide among the general population to begin with. Poor people are too poor to afford guns (also brainwashed, but that’s another story). Therefore, it’s stabbings and beatings that are still the number one cause of homicide in the U.S., especially among the poor. My town is no exception.

      Which is to say, yes, the NRA is full of it. They play upon that dark fairytale of the grandma that can’t get out of her house, that there’s endless packs of foaming at the criminals just waiting to gun someone down. Oddly enough, you see that Mario, but then in the next breath say that the NRA is on to something.
      Can’t have it both ways, though.

      Anyway, it’s no secret as to where gangs come from. The more “disposable income”/credit/welfare, which is going to be there when a government decides to ban something drugs, among the tons of other things they crusade for, the more incentive for the gangs to show up to make profits.

      And come on… the founders didn’t know technology could progress? Really? Even though someone like Da Vinci envisioned these things? Even though rifles went through many changes even in their own time? They couldn’t predict today?! Wow…

    • Benjamin August 30, 2010, 7:55 pm

      Redou,

      http://thedailybell.com/1139/NRA-Makes-a-Terrible-Deal.html

      With friends like the NRA, who needs enemies?

      As for the crime in England, you’re right, but it should be noted that it ain’t all that great to begin with…

      http://www.spiked-online.com/index.php/site/article/5196/

      Someone’s always going to first and last when it comes to homicides.

    • Steve August 30, 2010, 8:00 pm

      Dearest Mario;

      While I cannot speak of your past, or present; I can qualify the delusional character of personal assault ranting. Not that it matters to the new Order of drug spent bodies. I don’t drink alcohol which is the most damaging drug abused in the World costing society tens of billions each year in medical costs, police enforcement for the crimes committed by self drugged abusers of other people, and lost productivity. I do not smoke. I have never used an illicit drug, or even the mary jane the new culture is so fond of. I have to admit that dope smokers were really laid back, don’t care a thing about anything people when they are arrested and put in jail.

      What is even more real is that I understand that everyone discriminates, and that the use of the word ‘bigot’ is most abused by those who proclaim to be most liberal. Personal defamation instead of sensible communication shows weakness in the argument.

      Everything that I read says that politically the people of China are lock step allowed to do that which is good for the state, and only good for the state. The political reality is very narrow minded, and that political reality has been shaped by generations (how many thousand years ? 10,000) of selective breeding to produce a population uniquely able to survive in a totalitarian social norm of crowding. Should a person, or group of people proclaim Liberty as I know Liberty they will be crushed, have been crushed, and will always be crushed unless there is radical political revolution.

      So my dear Mario; I admit my prejudices created upon everything I can read, every bit of impute I can obtain, even giving you credit for having more knowledge about China than I (you live there); even from the defamatory words thrown into the wind like a feather pillow slashed on a high hill alleging crimes committed in illegal drug use with mushrooms.

      Just be honest Mario, does the thousands of years of Chinese Culture allow individualism to be different, or is success found in China by following the mold of a totalitarian government and party leaders. Can you say to me that the Party will not suppress, stomp, and crush protests against the Party ? Or, that one will not be executed post haste for tainting milk products !

      I argue that what was Liberty in the U.S. is becoming more Chinese in its Totalitarianism in abuses under a heretofore unknown feudalism with the High Lords of the presidency in succession. What my family has known is Liberty, from the ability to carry the cannon and powder to Concord Bridge in A.D. 1775, to my ability to head to Alaska to live my Dream in 1978. Dialectically and politically; the DNA of Liberty is crushed every day in China from what I read.

      Tell me Mario, will the Chinese government allow the people, or even you to establish, and practice a Republican Form of Government wherein the People are superior to the government, with government offices/officers as servants without Rights while in beneficial use of public trust office ? While Liberty is fading fast in the U.S. because of the manipulations of the populous by governmental use of The Prince, and Nash’s Non Co-operative Game Theory. Some of us out West have lived pretty much at Liberty, as have our families lived on American Land as Free for 10,000 years within Tribal Culture. That is changing quite rapidly as people begin to fear the government not providing everything and taking care of them in all things.

    • mario cavolo August 31, 2010, 4:26 am

      Steve, one’s view comes from the source of one’s information. Yours on China has as you said been too much reading. Don’t believe everything you read. Its like my first friend from China who invited me to come to China in 1999. On the plane he said “Forget everything you think you know about China, it is nothing like anything you are thinking from what you’ve seen and read”. You are just way too far off the mark when you suggest there is little individualism here.

      Highly recommend a holiday to Southeast Asia which will be a great experience : Singapore, Kuala Lumpur, Hong Kong, then pop up the coast to Shanghai…flight are quite cheap these days.

      Cheers, Mario

  • fallingman August 30, 2010, 6:05 pm

    I get the point of the article. Thanks.

    I would just echo Steve’s comment above, albeit in a more condensed form.

    You say: “A time span of over 40 years was required to achieve that level of appreciation in value — a long, slow appreciation curve.”

    I say: That ain’t bona fide appreciation of the asset. That’s simply a measure of price increase in nominal dollars. Dollar depreciates … prices rise.

    The “value” hasn’t changed. Not that they won’t tax your “gain” if you sell.

  • Max Power August 30, 2010, 5:43 pm

    To me, the Chinese economy is a failed economy. It thrives only because of trade surpluses with the West. Once that ends – and it will end, China will collapse hard. Remember, the only way an economy can have 100% employment is to consume 100% of its output. If consumers save 30%, that means 30% of output will not be consumed, and 30% of the work force will be laid off. As this keeps repeating, everything crumbles. The West has solved the problem of achieving full employment why also allowing saving by means of inflation that everyone has been conditioned to fear. As to why the US is sputtering out right now, a big part of the reason is the persistently huge trade deficit. Go back a few years and you will see that borrowing in the US was in excess of $2 trillion per year. That is what was needed to keep the US economy going given the massive trade deficits at the time and the low interest rate environment. Right now the only real borrower of substance out there is the Federal Government, and despite the massive deficits its running, its only adding about 1/2 of what is needed right now. Worse yet, folks are crying for the Federal Government to stop borrowing. And if Government stops borrowing, the collapse of the US will only accelerate. Then what will happen to the Chinese miracle??? How much goods will be bought from China once US unemployment reaches 30% or more??? Then what will happen to China’s glowing real estate market? Who will buy anything there, in a country where everyone saves?

    • Chris T. August 30, 2010, 7:52 pm

      “…100% employment is to consume 100% of its output. If consumers save 30%, that means 30% of output will not be consumed, and 30% of the work force will be laid off. ”

      That is simply incorrect.
      It is not the absence of savings, but their existence, which provides the capital stock necessary for funding economic growth.
      It is the deferral of consumption, savings, that allowed this country to have a great economy. We have been living off that substance for very long, deluded into thinking that credit (as fiat/from thin air) could replace true capital accumulation.

      No one has ever gotten rich by spending, and that does NOT change when going from the micro (an individual) to the macro (the whole state). The Keynesians and also the Friedmanites of course would have you think so, alas.

  • Chris T. August 30, 2010, 5:26 pm

    Whether or not those numbers are durable, at least if this stuff goes underwater, then it’s not debt’s pledged asset which is underwater.
    How much of Japan’s real-estate bubble of the 1980s and 1990s was equity financed vs. debt financed?

    And those same Japanese equity funded the Rockefeller center purchase as well as those 600 million Hawaii properties.
    The Burj-al-Dubai was built with exactly the same money, only they don’t have 1 billion to house there…

    But the source for these valuations and their equity funding is the same as here: The humongous FED action of the last 10-20 years, shoveling about 8tr of trade deficit, much of it to China, and having them print it up to keep the exchange rate pari. Can that stay like that? Who knows, we can never estimate the systems abiltiy to keep this going another round.

  • Benjamin August 30, 2010, 5:19 pm

    Okay, after reading this again, along with the responses, I’m going to conclude that, yes, _China_ will do okay, at the least, and perhaps even well, provided that…

    a) it disallows burdened, foreign “capital”
    b) it’s government stops stimulating, and truly lets markets do what they must.

    China truly is in a position to propser. I can see that now. I hope they’re wise enough to not lose it. But however it will go, it won’t be enough, as obviously it can’t given the stipulations, to pull the global economy along. Anyone thinking that needs to get real, real fast. Whether western “capital” will be allowed to continue entering China or not, does not matter. If it does, speculation is going to kill it. If it doesn’t, then we have to truly recover from the ruins on our own. China is for China, not for you!

    Too, I can see what Geithner and the central banks are trying to accomplish in getting more gold to China. I’ve only seen this problem mentioned here and there, though. Last week, I made a comment in which I attatched a link to a video and article where this was mentioned. I can’t find the other article where I first read this, though, and I’ve been looking. So they really must not like to talk about this.

    Anyway, the “problem” is the valuation of gold. The more indebted the West becomes, the more it’s gold price rises, the less that would flee to China as unburdened capital to generate the returns they would like. ie They can’t have their cake and eat it, too. The West simply does not want to give up it’s gold. The invisible hand forbids it, no matter who does what next. Which almost certainly says that, yes, the West has tonnes and tonnes of gold (GATA folks, rest easy. It’s there, though probably not at Fort Knox) to invest in itself. They also realize that people would raise an eyebrow if so many tonnes were to suddenly, somehow(!), be released.

    Because they know damn well it ain’t theirs, and that every single peice of paper and subsidiary coin is going to have to go backwards, to the issuer… in exchange for what they’ve spent so, so much effort over the decades to keep for themselves! THEY’LL be dirt poor. The U.S.S.A government will not be able to do whatever pleases it and the central bank will go obsolete in the process. The U.S. citizen will not be screwed and have to continue to depend on their game in order to exist.

    The U.S. will be closed out of global markets, of that I can assure because… Well, if one can’t see why, just wait and see. That’s all I can say on that. And the only means to recovery we’ll have is to go back to hard money. If we do not, it will happen anyway as the burden of debt becomes apparent. In regards to that, see this comment I made over the weekend, here…

    http://www.rickackerman.com/2010/08/the-fallacy-of-bailing-out-u-s-cities-states/#comment-9607

    To U.S. citizens: I’d worry more about food, water, shelter, medicine… your friends, family, and neighbors especially… than I would about “capital” gains and/or gold and silver. It will come back, most working (or now unemployed) adults will get some. I don’t know how long it will take, or how bad it will be, but it WILL happen. Always prepare for the worst, but SEE (not hope for) the best!

    • jj August 30, 2010, 5:47 pm

      Interesting Benjamin, without an outside audit why are you so sure the US has any Gold, I like to deal in facts and since Fort K has not been allowed to be “accountable” since the 1950’s its interesting how anyone can assume its there……very simple way to confirm it, audit America’s gold, China, Russia and others state how much they own.

      Ron Paul is in doubt: http://www.thenewamerican.com/index.php/economy/economics-mainmenu-44/4424-ron-paul-calls-for-audit-of-us-gold-reserves

      So much for the new transparancy why doesn’t the US citizens know how much gold the US holds?

    • Benjamin August 30, 2010, 6:07 pm

      jj,

      The simple answer is how much the citizen doesn’t hold, and how much the “Keynesians” do. I mean, really, if you run a Ponzi scheme do you do so at the certain expense yourself?

      But even it is all gone, except for a few eagles at the mint, that would be sufficient, as Congress could define the weight of a dollar to whatever. We can rebuild and run our domestic economy on micro grams (or far less, even) if need be. Sure, it would limit our purchasing power on the global market (a weight of gold is a weight of gold), but that’s the point… We need to invest in ourselves. On micrograms we could do so, just as easily as we could with full ounces.

    • Benjamin August 30, 2010, 6:11 pm

      Sorry, forgot to say this…

      You have to consider that they keep it a mystery in order to… Well, you and GATA and Ron Paul jump to the conclusion that it’s not there. I used to as well, but… So long as it is not fully audited, and traced if it is gone, they aren’t obligated to return it if they are holding it. And given that no Ponzi works for free, let alone for less than nothing, I say there’s a higher likelihood that it is still in the U.S. somewhere.

    • Steve August 30, 2010, 7:17 pm

      Great final paragraph. Be keenly award of what is possible (on the negative) before a positive cycle begins again.

  • PhotoRadarScam August 30, 2010, 4:54 pm

    I’m not sure I buy it. A lot of the arguments that seem to be being made sound like the arguments in the US during the bubble. Real estate *can’t* go down because of x, y, z. Sounds familiar.

    I’m also not sure I buy that there are 0 mortgages. Mortgage debt may be minimal, but it is not 0. And this is not due to any frugality on behalf of the Chinese – it’s due simply to their lifestyle. Many generations live in the same home, the same place they’ve lived for generations. So naturally there’s no mortgage and if there was, there are multiple wage earners to contribute to pay the mtg. But there’s also little or no chance anyone is going to borrow against the family home for anything other than perhaps to start a business.

    Take your $180k Scottsdale home and move 3 families in it and share the bills. Suddenly, it becomes really affordable and they could easily have it paid off in 15 years. Of course, Americans don’t like to live like that, but it’s nothing for the Chinese.

  • Dennis August 30, 2010, 4:47 pm

    Very good article. Thanks for sharing. I’ve only a couple comments on the gold aspect.
    I’ve always thought it very smart for their government to encourage the private buying of gold. This allows a major transfer of western wealth to be transfered to their nation. Individually, it’s an insurance policy cor their citizenry. It lessens the concerns for the rest of the world in that “the Chinese are dumping their American debt instruments for gold!” If a government need ever arises the gold will be there…just like the US confiscation in the mid 30’s or S. Korea’s voluntary turn-in of gold to their government during their problems in the late 90’s.
    Lastly, I believe our government could learn something from how the Chinese are advocating gold to their citizenery!
    Rick: Thanks for this educational forum!

  • Tim August 30, 2010, 4:37 pm

    What this article makes me think is that as soon as China starts to revalue its currency (at the same time as we devalue) and adds in some western style leverage of credit in all its forms, there is going to be some all mighty shift of purchasing power going on. The new middle class of hundreds of millions are going to start sucking up all the home made products together with international commodities that the US once did. When this starts to happen in a big enough way, will this newly wealthy class simply replace us western buyers and price us with our near worthless currency out of the market?

    The article seems to infer that we will somehow benefit from all this spending. I fear the reverse may be true. What have we to offer this new class of consumers apart from dodgy financial products? No I fear this new class will simply take away the resources and products we have enjoyed beyond our fair share for so many years. Its long been known that there is simply not enough to go around for everyone to enjoy a US lifestyle.

    I fear the result will be huge increases in prices for resources of a finite nature eg oil and foodstuffs and base metals etc just as our standard of living really starts to decline.

    The picture and ones like it always make me think one thought, an apartment is never going to be the same thing as a house with a front door and its own even tiny plot of land/garden. One day houses as opposed to apartments are going to be very sought after.

    • PhotoRadarScam August 30, 2010, 5:00 pm

      I agree Tim. Part of globalism was sold to us as being beneficial to the US and that they would buy all of our products, but the opposite has happened.

  • ricecake August 30, 2010, 3:12 pm

    My aunts, uncles, sisters, friends, and classmates(they are just ordinary people) all have their own apartments purchased in the 10 – 20 years ago. Many are paid off while the others will pay off in 5 years. But their property values increased many times. My sisters salaries have increased from less than 400 yuan monthly to now around 4000 yuan.

    p.s. There is a reversal trend happening in China. City people giving up their city resident status buying lands in the countryside becoming peasants in areas where the land value is expected to go up. In fact, many peasants in China are actually living a much better, much affordable, much less stressful life in the countryside. Thousands 2, 3, 4 tire cities in the future will offer better life style to people. These mid to small size citie development can’t not be overlooked because in combination they offer lots of opportunities. May be more so than Beijing or shanghai.

    • ricecake August 30, 2010, 11:50 pm

      That means the huge inventory of empty houses in the big cities may remain empty in the future. Price of those overpriced empty apartments will come down.

  • LARRY in Hawaii August 30, 2010, 2:49 pm

    720 square foot condo in not considered small in Hawaii, in fact, a luxury one bedroom unit in a nice area, not in Waikiki, with 800 sq ft, would be worth around $400,000+. Now if is in the heart of Waikiki, you would one get 400 to 500 sq ft for around $350,000-$400,000. Though are not luxury units either, but very modest. There are places where you only get 700 sq ft with a 2 bedroom, very small rooms and are scatted near Waikiki. They are in the range of $300-$400,000 because they certainly are not luxury but what most working families can afford. The further you go from Waikiki or Downtown Honolulu the larger the units or you can even get a house with a small yard. But it is not cheap either. But the World all want Hawaii including people from Japan, China, Philiphines, Canada, and even the Mainland United States(48). So prices have held up better than most locations. The rich are certainly diversified into Hawaii real estate.

    • Steve August 30, 2010, 7:09 pm

      Larry,

      The things you cite are not homes of value, but; the greed of wanting to have. The costs/debt to own cited is a factor of supply and demand for a luxury that few can afford, let alone the Natives who the U.S. overthrew by violence in 1897.

    • LARRY in Hawaii September 11, 2010, 12:54 pm

      Steve,
      Many people who immigrated to the US, and Hawaii in particular, came with nothing. Of those who came long ago, some were smart enough to buy multiple units or homes, also Hawaiians who worked did the same. For over 100 years they imported cheap labor from China and the Philiphines some made it in Hawaii. Yes, most people can’t afford to live in Hawaii unless you have family to live with, and many homes are filled with several generations occupying them. That is the norm for people in Hawaii, I swear, the guy down the street from me bought a house, tore it down except one wall, to avoid building restrictions and built a huge home from edge to edge of his lot line, and and two stories. I’ll bet over 20 people live in that house, they just happen to be Chinesse. But I believe most of them are working and saving. That’s what determination people have, they do what the must to survive. Do you think it is all rich people in Hawaii? It certainly is not. Housing is expensive for sure. But it was not always. US is opportunity.

  • Benjamin August 30, 2010, 2:47 pm

    This is one of those articles that I’ll have to copy/save for future reference. It says a lot, and I can’t possibly comment on every point made. But there is one weakness that I perceive…

    What of foreign investment? Will China/those countries allow burdened “capital” to enter Chinese markets? If not, that’s good for China, as nothing can provide distortive signals like “indian giving” can. If it is allowed, however, that may as well be the end of the miracle. We’d see just how un/willing the Chinese are willing to borrow, and I’d hope for their sake they would be wiser than greedy (but let’s not kid… they’re as human as anyone).

    That’s the one… chink, no pun intended… that I see in the Chinese armor. They’ve already done slid the scale in their favor in buying U.S. debt, so all they have to do is hold on to what we so foolishly allowed our government to give away.

    to Rick Ackerman: Received your email, but for some reason my email isn’t allowing send. So, you’re welcome and thank you!

  • Steve August 30, 2010, 9:25 am

    Mario, I view and filter what you have written looking for the dangers that exist within. I am not looking for the positives in what you have written, but; the dangers that lurk between the words and ideas. The positive outcomes are well expressed for you as a resident on the Chinese Soil, a foreigner who is viewed by the benefit provided to the Nation.

    Great perspective on the word “value” as an expression of inflationary radicalism that only establishes the failed perspective of a tally number ‘money’ increasing 1700% on a home who’s real value is how many it can keep warm and dry. The value of something is its usefulness, not some accounting of inflationary bubbles created by fiat futures schemes. Just look at France when they were required to sell their futures equity to the U.S. in 1804. Our Congress is required to establish value at Article I, sec. 8, cls. 5, and so it is that a specie Coin Dollar represents a ‘value’. Contrary to that is the fiat territorial money federal reserve note which is just a tally of discharges in notes which are valueless according to the Federal Reserve. China holds no value in federal reserve notes, or contracts payable in federal reserve notes, only a perception of value that can only be enforced by force should default, bankruptcy, or inflationary powers take hold within territorial U.S.

    The Chinese advantage is its savings. Yet, for the U.S. to enjoy any benefit of the savings of China, there must be a manufacturing base in the U.S. in which an American Business can compete with wages, and infrastructure that exists in other net export economies. The U.S. does not sit in the advantage it had in manufacturing in 1946. Nor, can the American population take an increase in Walmart costs from an appreciating Chinese currency. America has one advantage, fraud and misrepresentation in banking, in accounting, and in governmental forms. What will be the balance reached by net Chinese wealth/equity, and net American debt ? Are the Chinese people at Liberty to own a free hold property where they might subsist ? Or, has Natural Selection moved the DNA of the Chinese people to a place where crowing and shoving is a way of life, and where giving each Chinese person an egg a day will deplete the World’s grain growing capability in the best of times.

    80 meters square, roughly 720 ftsq (yard square 9 ft) jammed into a ghetto of 800 units (can we assume at least 4 living in the 720 ftsq ? teacher, spouse, pappa, momma). There are only two ways to hold property, completely in debt with a 125% liar loan, or paid off. Why would the Chinese look at the American mess of 400,000.00 in forced government loans against each man, woman, and child; then think the American debt Thing is the way to go ? I believe the Chinese are smarter than that, but; you know better than I because you are there.

    What is the value of Liberty that existed in 1832 as an Allodialist, and 2010 in a new modern feudal monarchy in succession, debtor in possession, Fee Simple Absolute, under forced loans exceeding 400,000.00 per person after the entire American Nation is sold including every private and government holding ? The house you speak of in Arizona has no net value and in fact represents 800,000.00 in debt for a married couple if they have no mortgage, no credit card, no other debt in any form.

    While China and the Chinese may be able to create their own inflationary bubbles in housing and business property it is highly unlikely that Americans can create a manufacturing base based upon more debt stacked upon a National Bankruptcy that cannot be spoken. When we speak of “value”. What is the value of never fearing a tyrannical government being able to tax one off his land, and being a tenant in Fee, a peon, serf, slave, (Blacks Law Dictionary Fourth Revised Edition) Fee Simple Absolute ? Chinese society appears to me to be one living organism that does what is best for the state, as the state dictates. If the Chinese government is telling the people to turn to gold. That in fact is the Chinese government buying gold because from my point of view the Chinese Nation is One Person in the form of 1.3 billion cells all serving the needs of the Chinese Body/State.

    China already has over capacity in manufacturing. What does the U.S. have that the Chinese cannot manufacture for themselves ? What could the U.S. produce that is needed in China ? (grain/corn/coal/oil ?) All I am aware of that was useful to the Chinese was the American People selling their Allodial Estates, Liberty, for a new feudal monarchy in succession providing plastic toys and poison milk. Yet, it would appear there are other worldly players who might gain by taking Allodial Estates and creating tenants in fee corporate enfranchisees of democratic mobocracy. China has worthless federal reserve notes, and worthless Treasuries numbered in federal reserve notes, and; all persons in the U.S. are now debtors in possession, and the controlling interests of the Federal Reserve have a general and paramount lien against all property discharged with federal reserve notes under the Banking Act of 1913. use=debt=trust Clearfield Trust Doctrine SCUSA, fiduciary in public office.

    • mikeck August 30, 2010, 2:20 pm

      Mario,

      Thanks for sharing your thoughts. As I was reading, I could not help but think, why would the Chinese want to turn equity into debt when they have available such a good and current example of where that leads.

      Steve did a much better job of laying out all the problems than I could and makes a huge point that I concur with. I do not think the people of China are going to rush out to enrich the bankers…not if they are paying attention to what is going on in the rest of the world.

      Actually, based upon everything laid out by Steve, I think the US government is saying, BUY GOLD, loud and clear to anyone who is paying attention. I suspect many who find value here might have a few gold coins somewhere out on the back forty. Thanks for the forum Rick.

      Mike

  • jj August 30, 2010, 5:22 am

    Mario, if the economy in China is so well heeled in equity than why is the government of China suggesting its people buy Gold?

    The US economy is up to their eyeballs in debt, yet the Fed’s do everything possible to prevent its people from owning Gold, ie: new tax on purchases of bullion.

    One of these governments is completely wrong with their outlook towards gold yet its the strongest economy on the planet promoting the ownership of Gold.

    Go figure???? jj

    • mario cavolo August 30, 2010, 8:16 am

      Hi JJ,

      Thanks for the question with the gold angle. My online bank account with ICBC China bank here is amazing. Its a saving’s account but also a limited brokerage account offering a variety of stock funds and etf’s including a gold fund. The real time chart of the spot price spread for gold is there for me to watch 24 hours per day and buy or sell to my heart’s content, priced in grams. I can also exchange forex amongst many currencies.

      So we can simply conclude that gold etf fund like this was not available to Chinese citizens before around six years ago and with China’s updating and upgrading its many financial and brokerage operating platforms, it is now available as a choice to them here in China along with other equities as an asset.

      I wouldn’t understand why that should be regarded as such a big deal? Its just kind of a normal development, Chinese people don’t talk about it and there are certainly no frenzied TV marketing campaigns encouraging everyone to buy gold as in the United States. No matter the details, it is generally bullish for gold with multi-millions of new customers now able to buy it here in China.

      According to research by Harry Wong, my partner and founder of KBC China Shanghai, gold was first made available for purchase in China in November, 2003 by the Bank of China Shanghai. That was seven years ago, not so recently.

      The other part of this question I think most of us are familiar with is the diversification of reserves not so singly focused on USD and into other asset classes which is a reasonable way to approach asset allocations nowadays.

      Cheers, Mario


Do you want up-to-the-minute technical analysis and forecasts for your favorite stocks, commodities, ETFs? Join our Take Request Session on May 04th!

No, I'm not Interested

Discover WHY Crippling DEFLATION Is Upon Us and Your Best Wealth & Financial Defense Plan Against the Looming Collapse!

Join Us Friday, Mar 19th @ 1pm ET For a Live TELL-ALL Webinar

No, I'm not Interested

Free Butterfly Spread Video Training

Discover an ultra-easy trading strategy that delivers darn-near-zero risk in this free 1 hour video training.

The Story You Haven’t Heard About the GameStop Saga...

Join Us Thursday, Feb 11th @ 12ET For a Live TELL-ALL Webinar

No, I'm not Interested