Global Economy

It isn’t that easy to have confidence the global economy because it feels as if it is built on a busted floorboard. Governments have large deficits and debt is rising worldwide. Interest rates are also still at a low. Stock markets cost more than they did in the past 100 years and China is become a bigger and bigger threat.

Chinese real estate has increased by 31% (mycpane.princeton.edu, 2018), as reported by Bloomberg. However, these flats are purchased usually only as investments and are kept vacant. The mortgage costs in China are around 6-7%(chinadaily.com, 2018), and the consumer debt-GDP ratio is larger than it was in the United States during the 2008 financial crisis. The Chinese government has two alternatives; either sustain the inflation of housing prices, or let real estate prices regularize, which would cause financial institutions to go broke. China is increasing development and they are not limiting development. Banks are going full steam ahead into the tentative real estate rumble.

The main point is the apartment’s purpose from the stat was to be an unoccupied asset and used as investment in China. It’s price will rise and rise, but at some point in time will drop along wih all real estate prices, and  both the country’s economy and banking system will go down with it. An analogy of this can be sardines that are being sold in the market when they were at a time not easily available in California. One man became sick after eating them and told the seller that they were bad sardines. The seller replied that the sardines were not for eating but for trading. The conclusion to draw is that nothing lasts forever.

Today, making an investment in this global economy is much like playing a game. You have some time to grab what’s there, but only a few will. Time will eventually be over in the game. In the past decade, being vigilant has not been tremendously useful. All assets improved in price due to low interest rates. People felt well off with these costly assets, and that fashioned some economic expansion. Due to the lower interest rates, people felt tempted to riskier assets, which formed a divergence between a person’s risk affordability and the assets in their portfolio.

By and large, it has been that the more risk one took, the more money they made, but if the risks become large, the investor will react foolishly.

This is why it is absolutely necessary to have options. With an economy built by falsely appreciated assets, means that there will always come a time when the prices will go down, but the reasons won’t always be perceptible. It could be higher interest rates, or the boom of another country’s economy, such as China; or something that we can’t even foretell. When interest rates are low, global economies are greatly leveraged, and central banks and governments will not have much control to aid. This is why it is valuable to hold stocks in healthcare companies where the demands for their products does not vary, and it is always driven by the older age bracket population worldwide.

References

1. 赵思远 . “Mortgage Rates for First-Time Homebuyers Decline in Shanghai.” Mortgage Rates for First-Time Homebuyers Decline in Shanghai – Chinadaily.com.cn, 11 Nov. 2018, www.chinadaily.com.cn/a/201901/16/WS5c3e7236a3106c65c34e4a84.html.

2. Mycpanel.princeton.edu. 06 Nov, 2018, http://wxiong.mycpanel.princeton.edu/papers/HousingChapter.pdf.

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