| deflation in the near term caused by continuing downward pressure on prices
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Posted on 02/24/2009 3:07:08 PM PST by An Old Man
The LA Times came out Saturday with a widely-noticed article on Beijing real estate, which features my friend Jack Rodman. Jack, who runs a firm called Global Distressed Solutions, is a bad-loan and distressed real-estate expert who has spent the last several years in China, and somehow has the energy to poke around among all the spectacular buildings in Beijing and other cities, worm his way in, and see if behind the beautiful façades there is actually some semblance of economic viability.
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Any conversation about Chinese real estate with Jack is likely to be depressing because his terrible stories aren’t much relieved by vagueness. Unfortunately he probably knows as much about the real estate market as anyone, and his conversation tends to be pretty specific and avoid the kinds of generalizations that we often make here, given the difficulty of getting hard data about some of the problems. When Jack talks about empty buildings he gives actual addresses.
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Meanwhile, speaking of funding SOEs, there is a lot of talk in the markets about second big stimulus package aimed at delivering more consumer spending (“A second big stimulus package?” some unkind folk may wonder, “Did I miss the first?”). The front page of today’s People’s Daily has an article with the large headline “Communist Party leadership warns of ‘austere’ year for China.” It goes on to say:
The ruling Communist Party of China (CPC) said Monday the country will launch a comprehensive economic package to tackle an “austere and complicated” year ahead.
“We will increase large-scale government investment, implement and readjust a plan to revive industries, make great efforts to boost innovations, and greatly enhance the level of social security,” said a press release issued after a meeting of the Political Bureau of the CPC Central Committee. The meeting was presided over Hu Jintao, general secretary of the CPC Central Committee.
Meanwhile Xinhua yesterday reported PBoC concerns about deflation:
China’s central bank on Monday warned of deflation in the near term caused by continuing downward pressure on prices. Commodities prices were low and weak external demand could exacerbate domestic over-capacity, the People’s Bank of China (PBOC) said in an assessment of fourth-quarter monetary policy. “Against the backdrop of shrinking general demand, the power to push up prices is weak and that to drive down prices is strong,” the PBOC said. “There exists a big risk of deflation.”
Are you wondering what this obama fella is going to do? Maybe you should look to his peers in communist china to see how they handle things.
This article has some interesting views of the real estate depression on both sides of the Pacific.
| deflation in the near term caused by continuing downward pressure on prices
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..and what some “’spurts” see as the floor is just another level on the way down.
“The National Stadium, known as the Bird's Nest, has only one event scheduled for this year: a performance of the opera “Turandot” on Aug. 8, the one-year anniversary of the Olympic opening ceremony. China's leading soccer club backed out of a deal to play there, saying it would be an embarrassment to use a 91,000-seat stadium for games that ordinarily attract only 10,000 spectators.
The venue, which costs $9 million a year to maintain, is expected to be turned into a shopping mall in several years, its owners announced last month.”
Ping!
Ah, the brilliance of central planning.
I wish our government would just try it once. You mean we’ve been doing it for decades. You mean that is why our economy is tanking.
Who woulda thought that?
How could government meddling harm the market? Aren't they the smart set? At least our American politicians aren't this stupid...
A strong argument can be made, and has often been made, that the liquidation process makes a crisis feel worse in the short term, but results in a much faster recovery because at some point very low prices create economic value to businesses of owning the assets, and their use of these assets can fuel a rapid recovery.
The classic case is the massive railroad building program in the US in the 1860s and early 1870s, which left the railroad owners saddled with expensive assets which required passenger and cargo rates that were too high to be useful to most potential passengers. Many of the railroads were never able to stop losing money. When these railroads went bankrupt after the 1873 collapse, and were subsequently liquidated, new owners were able to buy them for pennies on the dollar, and so were able to make them profitable while charging much, much lower freight and passenger rates. These lower rates sparked an economic boom by sharply reducing transportation costs, and the final value to the economy was much greater than the initial losses on the railroad assets.
That's not necessarily a bad thing. It may turn out to be a good investment.
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There! See that? Deflation is caused by declining prices! Who knew?