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So basically: The Chinese are popping their bubbles on purpose. I wonder if their timing is correct (or there would have been more growth in just letting things

So basically: The Chinese are popping their bubbles on purpose. I wonder if their timing is correct (or there would have been more growth in just letting things run for another few years). And I wonder if we in a Western democracy would ever be able to the same (i.e. pop a residential real estate bubble on purpose).

boc 5y ago
The US has a reverse issue when it comes to real estate. After 2008 we stopped building and now prices are rapidly spiraling upwards as we realize that we're playing musical chairs without places for over four million people[1] to sit. In China it's the opposite where people have been selling houses before they are ever built, or building before anyone ever arrives, leading to very unbalanced debt issues. So if anything the current US housing "bubble" is actually very sustainable right now because there's tons of demand for houses, so people who miss their mortgage payments are still sitting on a nice asset which the bank can repossess. In China they can't repossess many of the houses because they haven't been finished yet.[2] [1] https://www.wsj.com/articles/u-s-housing-market-is-nearly-4-million-homes-short-of-buyer-demand-11618484400 https://www.wsj.com/articles/u-s-housing-market-is-nearly-4-... [2] https://www.reuters.com/world/china/unfinished-evergrande-apartments-central-china-buyers-seek-answers-2021-09-17/ https://www.reuters.com/world/china/unfinished-evergrande-ap...
- topkai22 5y ago
  Yeah, while there is a definite chance for some form of crash in real estate in the US, I think an equally or more likely scenario is that incomes catch up with pricing via inflation rather than an out right pricing crash.
- fmajid 5y ago
  A big part of China's boom is the cultural requirement for Chinese men to own a house before they get married, but the one-child-policy has meant slow Chinese population growth and there is no reason for the real estate market to be this frothy outside a handful of big cities.
  - nerbert 5y ago
    You don't understand, China is "special", things works differently there! Some even say that gravity is different.
jbay808 5y ago
In terms of timing, the earlier the better. Debt-fueled speculation isn't growth. Unless you think that the next million empty apartments they build really will be worth a fortune?
simorley 5y ago
> And I wonder if we in a Western democracy would ever be able to the same (i.e. pop a residential real estate bubble on purpose). We do it all the time. It's called raising the interest rate. When we want to create bubbles, we lower the interest rate. Pretty much all bubbles are created and popped by banks and governments. Doesn't matter if it is a 'western democracy' or not.
- ortusdux 5y ago
  As I understand it, lowering the interest rate is one of the few tools the Fed has at its disposal. Their goal is to always be raising the rate as long as it does not cause disruptions, so they have something to lower in the future.
  - ItsMonkk 5y ago
    This is a cynical take, but it's an honest good faith effort on my part. I post a thorough comment in hopes that people can build on top of or destruct where it's wrong. > The Federal Reserve has two mandates: maintaining maximum employment and maintaining stable prices and moderate long-term interest rates. This seems fine at first glance, until you see that maximum employment does not mean maximum employment, and in fact you can have more than maximum employment. Last decade we had more than maximum employment and the Fed was expecting inflation that did not come. "Struggling to reach 2%". Why was the Fed expecting inflation? Because when you have more than full employment, it converts the labor market from a buyer's market to a seller's market. This ties in with the other side of it's mandate: stable prices. Why would prices rise? If you read my water analogy comment[0], you could see that there are only two real ways. The rivers are higher, or the reservoirs are leaking. We have not seen any signs of reservoirs leaking. So then the rivers are higher. What is the CPI really tracking? What is the Fed trying to keep under control? The ability for labor to negotiate. Why did we not get inflation even though we had above maximum employment? Wealth inequality. Monopolies. The business owners have all but shut down a perfect competition in the economy and can without discussing openly, act like a cabal. Until CO-VID, until unemployment checks, until stimulus going out to people. Suddenly labor has an opportunity to negotiate. People are leaving their jobs and moving to higher paying ones. Work from Home is having companies compete from all over the nation, now you are not limited by your building size, you can employ as much as you can handle. Wages are being negotiated. Suddenly it's a seller's market. So the rivers are rising. The Fed has to react according to their mandate. What will they do? The same thing they have done the last 8 times since the 70's, they rise rates. It's a proven strategy that when the Fed funds rate rises above the 30 year treasury rate[1], it de-stabalizes the economy. As a result within short order we get a recession. Recessions mean job losses, which means the market moves back to a buyer's market. Labor is happy to have any job at all. The rivers fall. Inflation is back off the table. Once the goal has been reached and the market has switched, they go ahead and drop the interest rates back down to 0. Let the free money be free once again. So long as it does not cause disruptions? Disruptions for whom? To me it looks like the system is working exactly as it was designed. [0]: https://news.ycombinator.com/item?id=25646585 https://news.ycombinator.com/item?id=25646585 [1]: https://fred.stlouisfed.org/graph/?g=ENDs https://fred.stlouisfed.org/graph/?g=ENDs
simonh 5y ago
Changing the regulatory regime to drive companies bankrupt would present a lot of legal problems in the developed world, even if you did it unintentionally.

boc 5y ago

The US has a reverse issue when it comes to real estate. After 2008 we stopped building and now prices are rapidly spiraling upwards as we realize that we're playing musical chairs without places for over four million people[1] to sit. In China it's the opposite where people have been selling houses before they are ever built, or building before anyone ever arrives, leading to very unbalanced debt issues. So if anything the current US housing "bubble" is actually very sustainable right now because there's tons of demand for houses, so people who miss their mortgage payments are still sitting on a nice asset which the bank can repossess. In China they can't repossess many of the houses because they haven't been finished yet.[2] [1] https://www.wsj.com/articles/u-s-housing-market-is-nearly-4-million-homes-short-of-buyer-demand-11618484400 https://www.wsj.com/articles/u-s-housing-market-is-nearly-4-... [2] https://www.reuters.com/world/china/unfinished-evergrande-apartments-central-china-buyers-seek-answers-2021-09-17/ https://www.reuters.com/world/china/unfinished-evergrande-ap...

topkai22 5y ago
Yeah, while there is a definite chance for some form of crash in real estate in the US, I think an equally or more likely scenario is that incomes catch up with pricing via inflation rather than an out right pricing crash.
fmajid 5y ago
A big part of China's boom is the cultural requirement for Chinese men to own a house before they get married, but the one-child-policy has meant slow Chinese population growth and there is no reason for the real estate market to be this frothy outside a handful of big cities.
- nerbert 5y ago
  You don't understand, China is "special", things works differently there! Some even say that gravity is different.

jbay808 5y ago

In terms of timing, the earlier the better. Debt-fueled speculation isn't growth. Unless you think that the next million empty apartments they build really will be worth a fortune?

simorley 5y ago

> And I wonder if we in a Western democracy would ever be able to the same (i.e. pop a residential real estate bubble on purpose). We do it all the time. It's called raising the interest rate. When we want to create bubbles, we lower the interest rate. Pretty much all bubbles are created and popped by banks and governments. Doesn't matter if it is a 'western democracy' or not.

ortusdux 5y ago
As I understand it, lowering the interest rate is one of the few tools the Fed has at its disposal. Their goal is to always be raising the rate as long as it does not cause disruptions, so they have something to lower in the future.
- ItsMonkk 5y ago
  This is a cynical take, but it's an honest good faith effort on my part. I post a thorough comment in hopes that people can build on top of or destruct where it's wrong. > The Federal Reserve has two mandates: maintaining maximum employment and maintaining stable prices and moderate long-term interest rates. This seems fine at first glance, until you see that maximum employment does not mean maximum employment, and in fact you can have more than maximum employment. Last decade we had more than maximum employment and the Fed was expecting inflation that did not come. "Struggling to reach 2%". Why was the Fed expecting inflation? Because when you have more than full employment, it converts the labor market from a buyer's market to a seller's market. This ties in with the other side of it's mandate: stable prices. Why would prices rise? If you read my water analogy comment[0], you could see that there are only two real ways. The rivers are higher, or the reservoirs are leaking. We have not seen any signs of reservoirs leaking. So then the rivers are higher. What is the CPI really tracking? What is the Fed trying to keep under control? The ability for labor to negotiate. Why did we not get inflation even though we had above maximum employment? Wealth inequality. Monopolies. The business owners have all but shut down a perfect competition in the economy and can without discussing openly, act like a cabal. Until CO-VID, until unemployment checks, until stimulus going out to people. Suddenly labor has an opportunity to negotiate. People are leaving their jobs and moving to higher paying ones. Work from Home is having companies compete from all over the nation, now you are not limited by your building size, you can employ as much as you can handle. Wages are being negotiated. Suddenly it's a seller's market. So the rivers are rising. The Fed has to react according to their mandate. What will they do? The same thing they have done the last 8 times since the 70's, they rise rates. It's a proven strategy that when the Fed funds rate rises above the 30 year treasury rate[1], it de-stabalizes the economy. As a result within short order we get a recession. Recessions mean job losses, which means the market moves back to a buyer's market. Labor is happy to have any job at all. The rivers fall. Inflation is back off the table. Once the goal has been reached and the market has switched, they go ahead and drop the interest rates back down to 0. Let the free money be free once again. So long as it does not cause disruptions? Disruptions for whom? To me it looks like the system is working exactly as it was designed. [0]: https://news.ycombinator.com/item?id=25646585 https://news.ycombinator.com/item?id=25646585 [1]: https://fred.stlouisfed.org/graph/?g=ENDs https://fred.stlouisfed.org/graph/?g=ENDs

simonh 5y ago

Changing the regulatory regime to drive companies bankrupt would present a lot of legal problems in the developed world, even if you did it unintentionally.