I’ve written a few posts about the dilemma China is in. Their industrial base has become reliant or always was reliant, on government intervention in various forms. From direct stimulus to make-work projects. But, they’re hitting a snag because as they make more capital available to the masses, the price of land is increasing. Their economy is slowing so the government wants to intervene again. But, the more they do, the more the land prices increase, creating a bubble. This is one of the costs of government intervention. Damned if they do, damned if they don’t.
So today, we see this in the US ……
The S&P/Case Shiller composite index of 20 metropolitan areas climbed 10.9 percent year over year, beating expectations for 10.2 percent, the survey released on Tuesday showed. This was the biggest increase since April 2006, just before prices peaked in the summer of that year.
Now, don’t get me wrong, we wanted to see a slow gentle increase in the home prices, as a reflection of a slow economic recovery, but, this is much too fast. And, I believe the pace will quicken. Why?
It will quicken because the stock markets are nervous the Fed will quit the stimulus. So many are looking for a different place to put the money. So now, even if the Fed decides to continue with the QE, we’ll see much of the money flowing to housing. Especially considering the at the Fed is buying up all of the trash housing notes.
Repeat after me, “The Sequel”.
Who will win the race to the bottom? The US? The Euro zone? Is China making their move?