Ken Rogoff: "China Property Market Collapse Starting"

Tyler Durden's picture

Tomorrow morning Bloomberg TV conducted an interview with Ken Rogoff in Hong Kong (the same way you land in New York before you take off in London via the now defunct Concorde) in which the Harvard professor recently made famous for his words of caution that overlevering sovereigns always eventually leads to economic slow down, financial collapse, and ultimately bankruptcy, warned, when discussing China real estate, that "you’re starting to see that collapse in property and it’s
going to hit the banking system." With this coming days ahead of the massive Agri Bank of China IPO, it is interesting just how much influence the person who has been warning all along that the world is headed on an unsustainable path will finally have, now that the permabullish cackle of the MSM punditry has finally been discredited as futures are about to reenter triple digit reality. Oh yes, and score one for Jim Chanos, and all those who have long been warning about the inevitable Chinese bubble pop. Additionally, in discussing the suddenly prevalent topic of perpetual
stimulus, and particularly envisioning Paul Krugman's thesis that the
world will end unless another couple of trillion are thrown into the
fire of irresponsible deficit spending, Rogoff says "I couldn't disagree more... Just to keep drinking bottles of aspirin because you are worried you are going to get a headache, or it is going to turn into a migraine, it's too much prophylaxis."

Full clip although none of this is news:

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Survivor Rat's picture

I think it should be TDs since there are obviously many people posting under the name Tyler Durden. I agree with the sentiment. This is the best reporting on the web. 


If you find something interesting send it to they'll post it if its good, but they'll edit the crap out of it and not give you credit. Small price to pay for the greatest compilation of relevant financial information on the web.

Nolsgrad's picture

credit is given where credit is due noob

MarketTruth's picture

+1  Sent in two tips and BOTH times got credit. Of course it has to be very good/breaking news and not just the same ol' same ol'.

Augustus's picture

The collection of financial information is superb.  It is when they stray into some of the nonsense conspriacy theories or well blowouts ending the world that they lose sight of what makes it a superior blog.  In any event, this is another good catch for good commentary and thanks.

jeff montanye's picture

yes.  which nonsense conspiracy theories were referenced?  the public record is damning enough.

tom a taxpayer's picture

He who will not economize will have to agonize.
Chinese philosopher & reformer (551 BC - 479 BC)

bigdumbnugly's picture

you sure that's not a jesse jacksonism?

Ted K's picture

If there is too much price inflate, you must capitulate.

Bernanke will raise the interest rate, when he is done with the masturbate.

----Legal Pundit Johnny Cochran?????

Cursive's picture

I don't think more debt is a prophylaxis.  Rogoff is just another Keynesian.  Better than Krugman, but not the solution.  Debt avoidance and debt default are the prophylaxis.

bull-market_3.0's picture

I disagree. He's not Keynesian. He's only advocating stimulus if the system gets really bad. 


"don't down bottles of aspirin because you are worried about a headache but use fiscal tools if the situation warrants it."

Also, he's studied 800 years of financial crises, so it seems to me that if he believes easy money practices are the most sufficient way of dealing with this problem, then it probably is. Not because he's Keynesian, but because in 800 years of financial crises, that is what he came to the conclusion of. Not necessarily stimulus, but definitely not austerity measures.

Great Post TD. Really bringing the double dip into question.

ThreeTrees's picture

he's studied 800 years of financial crises, so it seems to me that if he believes easy money practices are the most sufficient way of dealing with this problem, then it probably is

I disagree that his studies lend any further weight to his analysis.  Bernanke's studied the Great Depression more than the vast, vast majority of people and, well...

What matters is the framework,  Bernanke's is broken and Rogoff is only dipping his toe into real Economics when he starts talking about debt-fueled bubbles and deleveraging.  Enough of the trees, it's time to study the forest.

And saying things like "it doesn't necessarily mean we're about to go negative-it's possible, but I wouldn't say that's at all a baseline case," is pussyfooting around the issue.  That's like saying, "It probably won't rain tomorrow.  It's possible!  But we average more sunny days a year than rainy ones, so it probably won't rain."  Puh-lease.

bull-market_3.0's picture

To be fair you make a very good point that Bernanke studied the Great Depression at length.

I agree he is playing both sides to an extent, but the future is a function of probabilities. If you watch the clip, he certainly leans heavily one way but mentions the other side so that you know his view is not a 100% conviction. Sort of like how investment advisors will recommend a stock but then proceed to indicate all the risks associated with it. He would look like a fool if he did not acknowledge the possibility of a double dip. Nevertheless he clearly sees it as a low probability event.

In any case the argument for a double dip is still clearly in the air. Further, the argument of loose monetary policy or austerity is also in the air. Frankly, I don't know if Europe (austerity/conservative monetary policy) or America (loose monetary policy/inflationary "defaults") will be better off in the long run and I am open to listen to anyone's argument why Austerity / Default is a better option.

For all the hate on Loose Monetary Policy on ZH, I have yet to see an article that genuinely presents an argument why austerity / defaults would be better for the long term viability/competitive advantage/growth of a country. I welcome any links to articles, TD posting an actual article, or any comments / responses to this post that argue that side. (The media is filled with Pro Keynesian economics and I hear all their arguments. I'd like to hear the other side.)

New_Meat's picture

Can I get me a one-handed economist here? - Ned

Temporalist's picture

Give me a break he sounds like Blankfein with his "recessions happen every 5,6,7 years" bullshit.  They happen using the bubble/crash economics of the past 70 years but they could be avoided.

bull-market_3.0's picture

This is very interesting. He's saying the probability of a double dip is very low. 

I guess we can say good bye to those Dow 6000 hats.

dnarby's picture

...And put in an order for those GOLD $45,000.00 hats.

They can't pump this sucker w/o forcing liquid fund$ into gold, which will force a COMEX default and...  Whoosh!

Misean's picture

"Just to keep drinking bottles of aspirin because you are worried you are going to get a headache, or it is going to turn into a migraine, it's too much prophylaxis."

Guy thinks the recovery is on the way, and we need to worry about other issues.  He's as blinkered as the rest of the money printers.

Mitchman's picture

An unintended but highly ironic BP propaganda commercial before the Rogoff interview.  The most interesting comment is on the "moribund" European banks which unfortunately he did not get the chance to expand on. 

spekulatn's picture

most interesting comment is on the "moribund" European banks which unfortunately he did not get the chance to expand on. 



To be continued, I'm sure.

Muir's picture

...and these people intend to run off
billions of dollars of this currency.

- They wanna obliterate their debts.
- What debts?

Well, all these countries, Shel, they
all owe billions of dollars to the West.

They can never pay it back.
They're too poor. You know that.

Their only hope is worldwide inflation,
but it has to be a huge one.

I mean, so big that paper money's not
worth anything. You use it for wallpaper.


...and there's trillions of extra dollars,
francs and marks floating around?

You've got a collapse of confidence
in the currency.

People are gonna panic. There's
gonna be gold riots, atonal music...

...political chaos, mass suicide.

Right? It's Germany before Hitler.
You can see that.

Jesus, I don't know
what people are gonna do...

...when a six pack of Budweiser
cost $1000oo.

That'll be awful.


zen0's picture

looks like I picked the right year to quit drinkin'

dogbreath's picture

good thing I invested in that little ol still.  lol's picture

Tomorrow morning Bloomberg TV conducted an interview...


Hello, Billy Pilgrim.

tmosley's picture

I don't think I will be "scoring one for them" just yet.  I'm not invested in China one way or the other, but I'm not sure that property in China is at the same level of bubbliciousness that it is and was recently in the US, given the % down requirements (30% for first home, 50% for second).  It seems to me that at worst, prices just stop going up, or stop going up so fast.

I would index the rise in property values in Chinese cities to the rise in property values in US cities on the Eastern seaboard as the US industrialized.  I don't have any numbers to reference, but as with all things industrializing, the numbers would look like a bubble to people outside of the "game changing" frame of mind.  Prices might get out of hand, but they aren't going to collapse by mroe than the 30-50% down payment requirements.  People aren't going to be walking away to the extent that they have in the US.

But then, I could be totally wrong.  I haven't done my homework to the extent that I do in any sector (usually, I research for at least 3 months, more often a year before I put in more than 1%) before commiting any significant portion of my portfolio.

Muir's picture

U.S. = Champagne Bubbly "froth." (courtesy of Mr. Geenspan)

China = "I am the Walrus"

First There Is A Mountain's picture

30-50% (I haven't personally seen the 50% figure bandied about) down goes a long way towards mitigating the fallout of a housing collapse, but a Housing Price to Income Ratio in excess of 20 in some areas should give everyone reason for pause . . . They may indeed be plunking down a significant down payment, but any real weakness in the economy will expose those home prices as exorbitant to say the least, and therefore, entirely unserviceable.

No one will be in a hurry to drop jingle mail on a property in which they are so heavily invested, but I believe they will simply be forced to walk away as a function of unreasonable debt service given falling wages (which is an almost certainty with their largest trading partners screaming for "austerity"). Just my .02 . . .

Augustus's picture

The property market is about the only investment available for wealthy Chinese. Much of the empty stock is paid for. If it does have a 50% LTV loan is is still not wiped out in a decline.

It was a while ago when I read that the average income of an URBAN Chinese worker is $9 a day. those people are still trying to own a Vespa or an air conditioner. A decline in housing prices will affect them the same as a downturn in the prices of Monet paintings would affect a mechanic in DeMoine.

dnarby's picture

"The property market is about the only investment available for wealthy Chinese."

...About the only. 

About, yes indeedy.

First There Is A Mountain's picture

Am I to assume, then, that you're talking about wealthy Chinese speculators who have snapped up large numbers of apartments in areas like Guangzhou, Shanghai, Shenzhen, Beijing, etc in the hopes that they would forever appreciate? If that's the case, don't you think there are more parrallels between their housing market and ours (minus the no-doc liar loans of course) but with some similarities in that many Americans leveraged to the hilt to acquire 3,4 or even 5 homes?

I don't doubt that many of those units are paid for, but that doesn't guarantee that they won't depreciate dramatically. Not sure if the Chinese treat their homes as ATMs, but if so, there are certainly repercussions for declining home values. Furthermore, don't you think many besides the Chinese upper crust is getting in on the "housing boom"? I was in China in early 2007 and I got the impression that far more "peasants" were getting a piece of the action than you've suggested here, and I can only assume lending got considerably more liberal since then. Still, 30-50% down beats the hell out of a janitor and receptionist stepping into a $350K McMansion on combined $60K.

Circumspice's picture

$60k on a $350k house ain't half bad compared to what some people were putting down. And in some areas of the country the monthly payments (mostly pretax; 6% = $1700/mo) were doable for couples with two low-income jobs. I'm not saying it's the best loan out there, but if all the subprime loans were to two people with jobs putting around 20% down, we wouldn't have been in the mess we were in.

On the other hand, banks in the Bay Area would let you get away with 10% down, and then you could go across the street and get a HELOC for the remainder. Some people literally had nothing down. Banks like Countrywide would let you make 1% minimum payments and then just defer the interest. I moved to SF in early 2007, and asked someone why in God's name they would make loans like that. They responded, "Well, even if they can't make the payments, their home will still go up in value and they can sell it."

Now that's bubblicious.

DudleyDoRight's picture

That is the lesson the regulators imparted to the industry when they allowed Fleet bank to go on its rapacious lending tear in the south in the early to mid-1990s.  The regulators did not care that Fleet was making loans to people that could not repay.  Rather, everything was hunky dory as long as loan LTV was 50% and HPA kept rising.

Thus it seems to me that a consumer protection agency is necessary for systemic stability.

First There Is A Mountain's picture

Sorry - should have been clearer. Meant to say combined $60K income . . .

HCSKnight's picture

Everyone should watch this video, one will learn a lot more about ZH's penchant for Chicken Little headlines than reflecting what was said...


zhandax's picture

Key BS indicator on the front end, "in our book"

Eric Cartman's picture

Krugman is such a fool. Doesn't say much about winning the Nobel Prize. Than again, the reason he won the Nobel Prize has nothing to do with this global economic disaster. It's like winning a pie eating contest and then thinking you are so great with food that you're gonna give nutritional advice. 

williambanzai7's picture

There are four places Chinese men like to put their money...

Horse racing

Real estate


Mistresses and massages

In that order

Draw your own conclusions

williambanzai7's picture

Gold is number 1 for the women. The men like to buy it for their mistresses.

Spitzer's picture

This chick has a unique accent, she ends the last syllables of her words so quickly.

dehdhed's picture

i think i heard her say once that she's canadian

Spitzer's picture

bs, really ? I just assumed that she never crossed the pond

Jim_Rockford's picture

Kind of like Marla in the trillion dollar pyramid?

Akrunner907's picture

Real estate prices have to slide........This a near zero cost for the economy because a lot of it will be absorded by loses in paper equity.  It will not be all painless, but it will allow income levels to support the coming taxes.  Of course that is only if the wheels don't come off the cart....

Caviar Emptor's picture

On the subject of Double Skinny Dip: We're still deep in the ooze so it's not technically a second dip. It's a depression. NBER was wise not to call an end to the first "dip": Employment, real GDI and GDP have not returned to pre-recession peak.  

On China property market: A huge often unstated question still hanging is whether the physics of real estate are the same in a state planned and controlled economy. Technically they could order people to buy property. They could dictate prices. However China has demonstrated more adherence to market physics since the collapse of the USSR (right around when Fed monetarists and Wall Street led the US into a more centrally planned economy). In a laissez faire system, there would be huge booms and busts. Best guess? The answer will lie somewhere in between. Just as we here in the US have intervened repeatedly to avert market forces and support real estate prices, so may they do the same.