2009-09-17

The Political-Financial Complex

Blog: The Circulation of Real Estate Investment
房地产是个好媒介
The Chinese government benefits from the real estate bubble because it owns much of the land in China. The banking-consumer-developer relationship terminates with land purchases from the government. The only major downside with this system is that it causes the government to favor land shortages and high prices. However, the Chinese system has nothing on the bubble that grew in the United States.

In America, the financial system plays the role of real estate. Money moves between the banks, consumers and business, and the system terminates when government takes its slice through direct taxes on income and payroll. If the banks falter, consumers and business have less money, thus pay fewer taxes, and the government must shrink in absolute terms and quite possibly in relative terms as well. That's why we're seeing the desperate attempt to restart the system and/or increase government power, a la Hoover and FDR in the 1930s, if that fails. In order to keep its income up, government must increase the debt. If consumers won't do it, government will.

Karl Denninger discusses the end game here and updates it here.

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