Debt Rattle Mar 24 2014: How Charles Ponzi Met His Maker

By The Automatic Earth


Werner Wolff Sidewalk sign, New York City August 1963
Obama has apparently asked Chinese President Xi Jinping for help in “restraining” Putin, but China has filed a lawsuit against Ukraine in a London court for the return of a $3 billion loan linked to spot and forward purchases of grain for future delivery to China. Obama talked to Xi man to man at a nuclear safety summit in The Hague where everyone who’s someone in high power circles (well, the public ones) is being dined and feted as we speak. Except for Putin.

What good discussing nuclear safety is without the no. 2 nuclear power on the planet is a good question that nobody seems in a hurry to answer. That idea maybe seems to be to isolate Putin so much he’ll start to feel lonely and come begging to be allowed back into the party. Just for the fun of it, he declared sanctions against 22 Canadians. Who are probably all at that summit. Which costs the Netherlands $150 million or so for two days, disrupts traffic and daily life for millions of people, and won’t have any tangible results because the US saves those for 2016 in Washington. They’re going to have to invite Vladimir back by then, or look even more useless.

Xi Jinping has other issues than Ukraine on his mind. China manufacturing numbers fell, again, and it’s getting harder to come up with yet another piece of positive spin. If Xi can lock in a good deal with Putin over gas delivery, he’s going to take it. The trouble between east and west is sweet sweet music to his ears. Russia and China share a very long border, and neither have a border with the US. What’s not to understand? it’s not as if Obama can afford to declare sanctions against China.

But Xi’s biggest headache must be, as the WSJ reported, that China’s real estate market is in trouble. A first developer in Changzou has started cutting prices on some of its projects, and people are livid. Ironically, the developer, Wharf Ltd., stated to WSJ that “China’s housing market has already become very market-based, price adjustment according to market changes is a normal market behavior … “. And that is about as ‘be careful what you wish for’ as it comes. Because China’s housing market is nowhere near normal market behavior, but Wharf Ltd. is getting it there. In economic times that are nowhere near as hopeful and giddy and the sky is the limit anymore as they were when most Chinese “investors” bought all their empty properties.

Of course, Wharf Ltd. is very aware of the risks involved in lowering its prices, so the company must be desperate, have scores of properties that are not selling, and trying to catch a last lifeline. And if that is true for Wharf Ltd., there is no way it’s not equally true for who knows how many of its peers. And all the tens of millions of investors will now scrutinize market prices. And wait before they buy. Or not buy at all. This is how bubbles burst, and how Charles Ponzi met his maker. It’s a blueprint for how to make demand and prices fall. And in China, anger is real anger, not the pussyfootin’ way Americans and Europeans accept their fate and their losses.

Xi must be so scared of what could happen. And it’s funny that while the shadow banking system played -and still plays – a large role in building the China housing bubble, and Xi has a hard time reining it in just because it’s so huge, Europe is actually talking about re-establishing a shadow banking system in order to get its economy going again, complete with a return to the trade in asset backed securities. That’s like saying alcohol really screwed up my life, but boy, was it good while it lasted. So barman, fill ‘er up! Ah, Europe, the birthplace of civilization…

As long as all those dozens of leaders remain in charge that are now nuclear summitting in The Hague, having flown in on their private Jumbo jets with dozens or even hundreds of staff in tow, we will never solve any of out problems. Because these people are interested only keeping that life and those lifestyles going as long as they can. If it takes shadow banking, or calling in the local mob, or it takes victimizing their own people, or even sending them into war, the vast majority of leaders may hesitate, but it won’t be for long. It’s not going to work out great for all of them, but they’re going to give it their best shot and die trying. Power’s addictive even before you have it. Could it be that money is too?

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