What a Property Bubble Looks Like

LvMIC:

Though this video is well over a year old, it’s still pertinent today as it demonstrates the sheer amount of resources that become dedicated to a central bank fueled frenzy.  Behold, a 30 story hotel completed in just 15 days in China (ht Zerohedge)

Impressive as such a feat is from the point of admiring man’s ingenuity, such a scene was common during the heyday of the boom years.  As I have written about before, the bursting of the Chinese property bubble is well underway.  The BBC, joining with a number of mainstream news outlets,  reported on the trend just a week ago:

As the gleaming skyscrapers, the fancy shopping malls, the towering apartment blocks have all gone up, property prices have risen with them.
They have increased at least fivefold in the last decade in cities across China, according to state media.
But in recent months, those in the property sector have gone from giddy to gloomy.
That is because property prices are beginning to fall and sales are down sharply.
Property developers are slashing prices by as much as a third in some new projects across the country.

Despite the national government’s best effort to cool inflation and limit the damage the bursting bubble will bring, the only tried and true method of achieving a market correction is to let the market work it out on its own.  After years of incrementally raising banking reserve ratios, the government cried uncle about a month ago and lowered rates by 50 basis points to head off its slowing economy and manufacturing sector.  Like a drug addict who viciously attacks anyone attempting to take away their stash, an economy dependent on continual inflation and cheap credit reacts much in the same way whenever a central bank tries to ween it off its dependency.

The collapse of the housing bubble in the U.S. brought a renewed interest in Austrian school of economics.  We can only hope China’s will bring the same result.  Perhaps Mises’ all important lesson of credit expansion will finally be widely acknowledged by those who see the printing press as God’s gift to man:

“There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.”