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.
5. The Waldorf Astoria building in New York has recently been purchased by Chinese Angban Insurance Group for the possibly inflated price of almost $2 Billion. (http://www.forbes.com/sites/erincarlyle/2014/10/15/stories-from-the-waldorf-astoria-chinese-acquirer-buying-link-to-glamorous-past/)
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.