China's ongoing battle against the deflationary pressures in its overstretched real estate market is taking an unconventional turn. Historically, the central government has relied on regional authorities to offload bad debts and distribute financial risks. Now, in a surprising development, local governments might be tasked with purchasing unsold homes to alleviate downward pressure on property prices.
This strategy is seen as a protective measure for banks burdened by non-performing loans and the declining value of mortgage-backed properties. According to a Bloomberg report, China is considering allowing local governments to use funds from special bonds—previously reserved for infrastructure and environmental projects—to buy up these surplus homes.
However, with more than half of this year's 3.9 trillion yuan bond issuance quota already spent, it remains uncertain how much will be allocated for this housing market intervention if the proposal is approved.
What we are witnessing here is the twitching of the keynesian fiat money system, believing that interest rates can be manipulated to control aggregate demand, that initial prices can be manipulated at will and that the behavior of economic agents can be manipulated. This is evidence of the infantile basic principles of keynesian economies, which ultimately always collapse under the lack of a market mechanism to clean up the mess initiated by the central planners. (We do not blink toward Brussels, do we?)
The West corrupted its application of fundamental Keynesian principles in the 1970s and 80s when the neoliberals deregulated banking and allowed for profit commercial banks to issue fiat debt toward ANY purpose, as opposed to the previous requirement that they only fund productive investments and infrastructure. Since the neoliberal corruption of Keynesian monetary theory commercial banks have come to issue over half their lending toward non productive purposes- mainly residential real estate- this massive rentseeking injection of debt based capital toward speculative non productive assets has crippled the western economies and created significant inter-generational wealth inequities but the bankers are laughing as their profits remain assured even though they have become parasites upon the economies they operate. China has been much stricter in its allocation of fiat debt capital, mostly ensuring it is directed toward productive purposes however regional governments have often operated property development programs using fiat debt issuance and the construction of power generation as economic growth leverage.
Nevertheless the China retain the advantage as the Chinese government generally retains control over fiat debt issuance while in the west the bankers have effectively captured and controlled most western governments and entrenched themselves as rentseeking parasites. Bitcoin might fix this or Chinas more disciplined application of Keynesian Fiat Theory might triumph? USD vs CBDC Yuan vs BTC
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That's a good point. While it is Keynesian inspired nonsense, many Keynesians would not have approved of this approach.
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68 sats \ 0 replies \ @xz 20 Aug
Is TARP basically the same old rob Paul to pay Peter? and weren't local governments saddled with unequal amounts of debt after the copious amounts of municipal and regional corruption? Kick the can.
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My guess is give it two or three months, then you will have news that "China is under deep recession".
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11 sats \ 1 reply \ @TomK OP 20 Aug
They'll rig the data like crazy
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That would be good for rest of the world!
However, the people will ultimately be fed up with the government.
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Last week I saw a video where they talked about deflation in China... and that there was obviously something wrong in a country where people do not have the means to buy in large quantities... that is, they spend what is necessary... and on the other hand, a government that does not spend not even a coin and I thought that the inhabitants and the government are waiting for people from outside to come and spend in the country!! something that the truth does not seem viable to me... now with what they are implementing it is possible that they work now we have to see how far the scope of these house purchases or real estate purchases is... and that it works to stop deflation...
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while fighting a currency war.
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Russia and Iran only retain viable economies because of Chinas ongoing support both in buying their oil and gas and enabling trade payments. Remember China is the only member of the IMFs reserve currency board that is not both monetarily and militarily subservient to the USA and China has for over a decade ignored US sanctions against Iran and now Russia. https://www.newyorker.com/news/daily-comment/russia-and-china-unveil-a-pact-against-america-and-the-west https://www.nytimes.com/2021/03/27/world/middleeast/china-iran-deal.html China gets discount oil and gas while enabling Russia and Iran to attack Ukraine and Israel which in turn costs the west billions. A successful proxy war strategy on Chinas part in the ongoing contest for global resource and trade payments hegemony that is now intensifying. USD vs CBDC Yuan vs BTC
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Yikes, I don't know if they will have enough quota to buy all these surplus homes. The buyer of last resort may cause problems in other parts of the economy in they keep trying to cause an artificial floor.
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Local governments are told to go bankrupt to keep the central government from going bankrupt? How is that any better? Maybe it is time to start borrowing from the brics funds?
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Not that bad plan
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stackers have outlawed this. turn on wild west mode in your /settings to see outlawed content.