“If we don’t buy this apartment, we’ll miss the chance to get rich.”

Mr. Trump blames bad trade deals as helping the Chinese profit at the U.S.’s expense.  Undoubtedly we could have better trade deals, if we made them one-page long rather than the monstrosities that Washington normally cooks up.  Nevertheless, I remain convinced that on balance free trade agreements are beneficial, leading to higher standards of living than we would otherwise have had.  I assert that our economic problems are primarily located in Washington DC, not in Beijing or Mexico City.

When Mr. Trump talks about China doing so well relative to the U.S., we can reasonably question whether it is because of poor negotiating by U.S. in trade deals or other actions.  In the U.S., we have an administration that has not supported private sector economic growth; indeed many industries have been in Mr. Obama’s crosshairs (coal, banks, the fossil fuel and power industry generally, among others).  This is contrasted with the Chinese economy, where industry has been welcomed.  As the old adage goes, “capital goes where it is welcomed, and stays where it is well treated.”  The U.S. has not treated capital well, whereas the Chinese have aggressively courted it.

But getting to the headline of this post, China’s economy has also been supported by perhaps the biggest bubble of all time.  China responded to the financial crisis of ’08 by increasing credit and debt in their economy massively, creating bubbles throughout China, with the bubble growth accelerating over the last few years.  But no where so much as in real estate.  In this sad story, one couple has recently divorced in order to avoid the subsequent limitations that the government has put in place to slow the out-of-control housing situation.

Earlier this year, Mr. and Mrs. Cai, a couple from Shanghai, decided to end their marriage. The rationale wasn’t irreconcilable differences; rather, it was a property market bubble. The pair, who operate a clothing shop, wanted to buy an apartment for 3.6 million yuan ($532,583), adding to three places they already own. But the local government had begun, among other bubble-fighting measures, to limit purchases by existing property holders. So in February, the couple divorced.

“Why would we worry about divorce? We’ve been married for so long,” said Cai, the husband, who requested that the couple’s full names not be used to avoid potential legal trouble. “If we don’t buy this apartment, we’ll miss the chance to get rich.”

Bubbles are inevitably fueled by credit growth, and they grow as self-reinforcing asset inflation drives perceived values far above fundamentals.  Once people believe that an investment can’t lose, leverage will grow dramatically as people chase essentially free money.  Is this happening in China?  You tell me.

“The only thing I know is that buying property won’t turn out to be a loss,” said Cai, citing two decades of rising prices as proof. “From several thousand yuan a square meter to more than 100,000 yuan. Did it ever fall? Nope.”

7 thoughts on ““If we don’t buy this apartment, we’ll miss the chance to get rich.””

  1. The whole situation is crazy, the fact that the couple is divorcing to get rich, and the fact that the government is a proponent due to regulations!

    1. Funny. What you tax, you get less of. What you subsidize, you get more of. I must admit, married for 28 years this month, I must consider the financial benefits a divorce may yield. Fear not Dr. Haymond. Your former roommate is not unraveling, just thinking cynically today.

      China is in trouble. All leadership relies on the consent of the people and they are doing what the Saudi’s have been doing for many decades. They take as much as they can, and give back to the people only enough to keep the peace. Kleptocracy is word I have heard before. But, just like the Saudi’s who have run out of control of the world’s oil supplies (hence, prices) the Chinese government is running out of faith to print their money from. Just like California house prices. Appreciation of housing prices only does you good if you can take that appreciation and buy in a low cost environment (out of state). You certainly can’t use it in California as all houses prices go up in any given market. Stipulate housing prices continue to rise forever in China, you can only extract the value if you don’t need to buy a house in China. But if the world will not accept your debased currency, then you will also not be able to buy a house outside of China. Someday, when I don’t know, the Chinese people will figure it out and then chaos, maybe?

  2. This is so crazy, I cannot imagine getting a divorce just so that I could be more wealthy. It’s ridiculous the extent that people will go to just so that they can have more money.

  3. I really feel bad for this mentioned couple. Having more money isn’t going to make them any happier. Actually, it may make things even worse off. I think they’ll be disappointed in the results if they go through with this.

  4. It really is crazy to think that married people would split and get a divorce just so they can get more money. Money is such a problem in our world because people have begun to place money’s value over relationships with other people!

  5. It’s sad how much power and influence power has on people these days. This is why we, as Christians, need to proclaim the Gospel and tell the truth that will set them free of these sins, which is Jesus! It’s sad that divorces happen because it has a big impact on children and the money isn’t worth it. No wonder divorce rates are also very high in the United States.

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