"The Great Debt Bubble of 2011"

The Swedish author Johan Norberg has written a must read article - "The Great Debt Bubble of 2011" - for the Spectator magazine. Norberg´s convincing analysis makes chilling reading, also for those in Europe and the US who think that the booming China will save us from a new crisis:

China’s wealth and prospects dazzle the debt-laden West. ‘Money, money everywhere,’ the Beijing economist Patrick Chovanec said in a recent survey of China. ‘Awash in luxury cars, condos and expensive jewellery, the Chinese are enjoying what looks to be an unstoppable boom.’ The prices of high-end properties in some of the wealthiest cities have almost doubled in two years. High street prices are also creeping up, prompting the government to tighten policy.

In fact, this is not the result of better prospects but of a monetary shock. Aside from the foreign capital inflows, China had its own stimulus package, as big as America’s. Beijing has printed yuan and pushed banks and local governments to spend like drunken Keynesians. Absurdly, China’s money supply is now larger than America’s, even though its economy is a third of the size. We can see the results of this stimulus in stock market prices and in new roads, bridges and housing complexes all over the country.

Not that anyone wants to travel on those roads or live in those buildings. In August, China’s largest energy company reported that an extraordinary 65.4 million residences have not consumed any electricity in the last six months — a fairly big clue that they lie empty. There are now entire ghost towns, like new Ordos in northern China, where tens of thousands of buildings erected from scratch stand empty. And yet property prices in Ordos have doubled over three years. It’s not popular demand, it’s pure speculation. In some quarters, China is being spoken of as the last, best hope for the world economy. But it might be the next bubble to pop.

In the original Superman film, the hero rescues Lois Lane as she falls from a skyscraper. ‘Don’t worry, ma’am, I got you,’ he says, midair. ‘You got me? Who’s got you?’ she replies. This is the question that no one is asking now. If China is lending to us, who is lending to China? If the governments are saving the banks, then who will save the governments? If the European Union is offering a safety net, who would be there to bail out the EU? There are other questions not being asked: which country, in recent economic history, has successfully borrowed its way out of a debt crisis? Why should it work now? And how can we justify saddling the next generation with such debt?

Read the whole article here.
Norberg also has a web page of his own.