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Milton J. Madison - An American Refugee Now Living in China, Where Liberty is Ascending

Federalism, Free Markets and the Liberty To Let One's Mind Wander. I Am Very Worried About the Fate of Liberty in the USA, Where Government is Taking people's Lives ____________________________________________________________________________________________ "Extremism in defense of liberty is no vice. Tolerance in the face of tyranny is no virtue." -Barry Goldwater-

Tuesday, April 27, 2010

China; housing bubble or going first world.......

Several big money managers and economists are concerned about the massive rise in real estate prices in China. In the case of Chanos, he is actively betting against the China real estate market by actively betting against China investments. We know what happens to economies where real estate problems impact the banking system like we saw in the United States from 2007 to present. So, just read the following excerpt from here and think about what is wrong about this statement.....
Hedge fund manager James Chanos is overly pessimistic about China’s property market because he underestimates government efforts to avoid a bubble, according to Fan Gang, a former People’s Bank of China adviser.

Chanos said this month that China is on a “treadmill to hell” because it’s hooked on property development for driving growth. “That statement is under the assumption that Chinese are stupid, Chinese will not do anything to deal with that,” Fan said in a Bloomberg Television interview recorded in Hong Kong yesterday.
Hmmmm. Chinese are stupid? I do not think that this is what Chanos is arguing at all that it is an issue of stupidity. And is their a tinge of racial pride embedded in this? There is an issue when there is a potential bubble forming and people bet against the fantastic rise in the price of this asset. So the argument is that they will deal with the 'bubble'?? Bubbles are by definition, unknowable and uncontrollable. However, as Fan thinks, argues and implies, the great leaders in China, the all-knowing sages will address the problem and come to a solution that is imposed by them. Why is it forming in the first place? Presumably this is all part of the brilliant great plan concocted by the leaders in Beijing. But this intervention is also a non-market solution to a market problem. There is a supply/demand imbalance between many things in China, not just housing, but investment and savings options for people and a raft of other things that are controlled by the state. The problem here is the assumption that these sages have the solutions and that can effectively execute these solutions.

Chanis is right to bet against the ability of governments to control market forces when markets may just be too big for them to easily control.

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