1980’s Kamikaze
Capitalism.
Speculative episodes and euphoria seem to occur during periods in
the shift of the balance of economic power between nations. Two examples: the
Tulip Mania appeared in Holland not long after the Dutch “economic miracle” and
Amsterdam's rise to prominence as the centre of world trade. And
secondly, the New York stock market boom in the early twentieth century
occurred as the USA overtook Britain as the worlds leading industrial
powerhouse.
In the mid 1980's America was struggling with growing trade
deficits, while Japan had trade surpluses. The Reagan government also
produced large budget deficits, "that were only sustained by the
willingness of Japanese investors to sink their country's trade surplus into US
Treasury Bonds" (Chancellor, Devil Take The Hindmost: A History Of
Financial Speculation).
Not only was that trade surplus spent on US Treasuries, but also investors
spent up on other assets luxury goods, fine art and property, often at above
it's real value. “The rising value of (Japanese) land became the engine for
creation of credit in the whole economy,” (Chancellor).
Non-bank, loosely regulated lending in Japan was occasionally
offered at double the value of the property. The price of a small apartment in Tokyo exceeded the
lifetime earnings of an average graduate salaryman. Multi-generational hundred year mortgages were undertaken to
purchase property. All this on the
speculation of continued domestic property rises which at 1990 prices, equaled
four times the real estate value of the entire US!
The Rockefeller Center was purchased by Japanese interests, as was
the Exxon Building, Columbia Pictures and even Pebble Beach Golf Club. A new anxiety that "Japan is
buying up the United States" was written about in countless magazines and
papers, and this deluge of Japanese capital revived some sense of WW2-type xenophobia
in America. These fears occurred simultaneously with a rise in
Japanese self-confidence and nationalistic pride.
This Japanese capital expansion and financial speculation, in almost
everything it seems, had not really had a precedent in Japan. That
economy and culture was strongly anti-individualist, community based,
hierarchical, state controlled and supposedly more stable, according to
Chancellor.
However, when speculation came to Japan in the 1980's, "it
burrowed so deep in the Japanese system that when it departed, after a mere
five years, the system was in ruins." Many of the Japanese owned US properties were eventually
repatriated to Americans at discounted prices, compared to their inflated sales
prices. (Pebble Beach at a $300 Million Loss).
Ultimately, the social consequences of speculation became evident in
Japan that were not intended by the government. It was only then, that for reasons of social control rather
than economic side effects, that a decision to prick the bubble was made,
(Chancellor).
"History
doesn't repeat itself, but it does rhyme." (Nucky Thompson,
Boardwalk Empire, Season 5).
2000’s China and
US Self-Confidence.
1. Surely we are, and have been witnessing an economic balance of
power shift back the USA since the GFC troughs.
2. America has been struggling with a large deficit, while China has
had trade surpluses.
3. Chinese surpluses have been sunk into US Treasury Bonds.
4. Chinese surpluses have been spent on US and world property, often
at inflated prices.
6. The “China is buying up all the property” fear, has been
published repeatedly.
7. Chinese nationalistic pride and self-confidence has risen, and
been shown on the world stage increasingly over this period, nowhere more so
than South East Asia.
8. The Chinese economy and traditional culture is somewhat anti-individualistic,
heirarchical, and state controlled.
Cronyism was rampant in both Japan and China.
9. The height of Japanese speculation occurred during the later half
of its economic rise and then its market top, as has China’s - so far at least.
10. Much of the
speculation that has occurred, is on the back of rising property prices
domestically, as evident in Hong Kong and China (plus the empty cities issue
adding to this risk).
11. Much of the speculation has created ever-increasing disparities
of wealth in China, as it did in Japan.
Social side effects have been occurring in China and Hong Kong in the
form of protests and a greater awareness of the public of the ultra-rich
disparity.
I would argue that Occupy Central in Hong Kong is not just about the
universal suffrage and right to vote, but that it also encapsulates issues such
as Mainland control and perceived unfairness in the city, and issues about
housing prices and wealth.
History would argue that we should see speculation right to the
pivot point, and then a decline in China’s economy, and that of the export countries
it supports.
The probable current economic balance of power shift, should lead to
a beginning of speculation in the USD on top of its recent new gains. Ultimately a repatriation of many of
the American-located sold properties back to their own citizens at discounted
prices seems reasonable to expect. Conversely, Australia and NZ as more reliant on China’s
economic health, may not see that happen, as many Australians or Kiwi’s wouldn’t
be in a position, or have the confidence to buy at that time.
And finally, a return of US self-confidence would only serve to bring
more people back into the market. All we need to see is that Templeton Optimism
to start it off. The many effects
of a strengthening USD and consequently lower commodity/energy prices could be
that catalyst. People would be
more optimistic as their purchasing power rises.
This view is essentially nothing new to anyone studying economic history, but I found reading about the historical parallels REALLY interesting
today, sitting in the sun at HK Islands Delaney’s Bar, watching massive
container ships full of cheap junk, sailing east into the Pacific Ocean.
