Wednesday, August 26, 2015

When China sneezes, Miami catches the flu ... by gimleteye

1987 stock market crash, 1998 Long Term Capital implosion, the boom and bust, 9/11, the real estate bubble and crash of 2007: these decidedly US events had one thing in common -- they were all cushioned by the astonishing rise of the Chinese economy. China has not only been the largest buyer of US debt, its factories and products have substantially maintained US corporate profits and US equity markets. In the interconnected world, China has been the (arrogant) dominant player.

China's lack of transparency accounts for a seemingly impregnable political dictatorship rife with corruption. It has also enabled, inside the United States, a willingness to accommodate and to tolerate trade with a partner along the lines of a destructive co-dependency. We have eagerly absorbed low labor cost goods from China, built on the back of a massive peasant migration to China's megacities. To a significant extent, China's contribution to our own economic stability allowed our government to paper over our own speculative asset bubbles and to mask the vast concentration of wealth at the top .01 percent. US consumers and savers have meekly wondered for nearly twenty years why our own government says inflation is low, when evidence points in the opposite direction except as measured by government approved consumer market basket.

These dissonances could be maintained for a long time, so long as China balanced its own books. To any curious observer, the massive real estate bubble in China has been visible for many years. It is not the stock market correction in China we should fear, it is the real estate asset bubble popping there.

One wishes it were possible to easily understand how much of Miami's real estate bubble is dependent on investment from China, because that number would give a better sense of what is to come in Miami's real estate based economy. It is not hard to envision, however, that many Chinese investors who have piled money into condominiums built through the EB5 visa program will need to liquify.

Back in 2008, it seemed that not all the king's horses and all the king's men could put Humpty-Dumpty (Miami's real estate boom) back together again. Except for China's influence in the world economy.

When China sneezes, the US economy catches the flu. But if China's economy doesn't just sneeze but catches the flu (meaning, its real estate bubble collapses), what happens to the US economy then? That is the question being asked by stock market investors, exacerbated by high frequency trading and algorithms running in computers and components made in China.


Anonymous said...

Not to mention those forecasted imports NOT arriving at PortMiami, after $billions(borrowed) in port improvements for container ships NOT arriving from Asia through the Panama Canal. Yes, go ahead and develop the port SW corner for massive commercial use, because we will be needing all the resulting revenue to pay off those loans. Gimenez and corrupt port director Juan Kuryla are feuding over who leads that development.

Anonymous said...

Chinese retail traders are probably wiped out. The investors in these Miami/Miami Beach condos are going to be wiped out. Somebody is going to figure out that the rental rates for condos are inflated by multiple inflated listings. Miami is the Tijuana of real estate.

Anonymous said...

The 1987 US stock market crash's blow was cushioned by China? LOL

Anonymous said...

China began purchasing U.S. public debt in meaningful sums in the 1980s as the country starting acquiring hard currency in large volumes. The earliest numbers I've seen from the Treasury are from 1994 and show China owning $17 billion in Treasury securities. Given the size of China's economy at the time the government had likely been acquiring for at least a few years prior. Today the number is more like $1.2 trillion, or about 8 percent of publicly held US debt.

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