View From the Moon
Macroeconomics. Not my specialty. However, I do feel I have access to some of the best analysts out there. Compiling all thoughts, here’s the situation with how our world economy will play out.
We are witnessing the slow demise of capitalism. Capitalism is defined by growth. Growth is impossible without the respect of contracts. The western governments are attacking contracts at their core by forgiving mortgages and nationalising companies. Next up are CDS’. It began in the financial sector but will slowly carry into autos, tech, pharma, everything. There is no doubt of that, nor is there an end in sight.
In a recession and depression, capital is king. Those who hold the capital will win in the end. In regards to the macroeconomic situation, China holds the capital. China buys our debt. They will continue to use their capital for that purpose. For now.
If growth defines capitalism, China is the front runner to be the next big capitalist nation. China has accounted for more global economic expansion in the past five years than Euroland, Japan, and North America combined.
So, China holds the cash and growth cards. However, Chinese growth cannot come from exports any more, so it must come domestically. What is the easiest and largest domestic market to grow? Real estate. As shown by the West, a bubble can be created with the flick of an interest rate switch and a slight expanse in leverage.
However, the Chinese saw what happened to the West with the idea of capitalist growth. The Chinese are too smart to repeat that error. So all eyes are on how the Chinese will manage their real estate market to define the future economy of the world.
Currently, the Chinese real estate market looks mixed. Transactions are picking up this quarter and prices are stabalizing. The central authorities have reiterated the point that “more vigorous and effective policies and measures” will be adopted for the real estate sector. In other words, the stimulus package. The government is also pushing for higher leverage and easing the requirements for mortgage applications.
At the same time, inventories are at an all time high in major cities. The office space infrastructure boom over the past three years have swamped the market.
Watch this Chinese real estate market with every ounce of energy you can. It will define economic growth for the next two decades.
*image source: bhi.com
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