Friday, March 4, 2011

China's gov't taking strong steps to fight property speculation

We would never do something like that here because Wall Street runs policy and we have been propagandized into believing that the markets need to be left alone and "free." What a joke. Meanwhile, we see massive speculation in food and fuel, driving up the costs for everyone. It's gonna end very badly.

" February, the State Council raised the minimum down payment for purchases of second homes to 60 per cent, up from 50 per cent, and urged local governments to set price targets and cap the number of homes residents are permitted to own.

As a result, in Beijing, legally registered residents are now no longer permitted to buy more than two homes, while those without Beijing registration cannot buy property at all unless they can prove they have paid taxes there for five years.

In Shanghai, those without residency documents must pay taxes in the city for a year, and all second-time purchasers will now be subject to a new real-estate tax aimed at financing the building of affordable housing.

“We can see that the government is sending a strong message - houses should return to their basics, which is to be as a shelter by function, and not a vehicle for speculation,” said Andy Zhang, managing director of the China operations for global real estate brokers Cushman & Wakefield."

Chinese officials are not shy when it comes to stopping the speculators. Too bad we don't have that here. It might have helped to deflate the housing bubble before it caused such a crisis.


Tom Hickey said...

The problem is getting a handle on leverage. Crazy not to after publication of Hyman Minsky's financial instability hypothesis. The outcome is baked in unless leverage is managed. Oh, right, that's what the Fed was supposed to be doing.

Anonymous said...

Interest income is a fiscal channel the Fed has to inject reserves and transaction fees are a fiscal channel to drain reserves. The Fed has authority to set and adjust fees under Monetary Control Act of 1980 ("Over the long run, fees shall be established on the basis of all direct and indirect costs actually incurred in providing the Federal Reserve services priced"). If inflation is an indirect cost of monetary operations over the long run, then the Fed should price transaction fees accordingly. :o)

Tom Hickey said...

Interest income is a fiscal channel the Fed has to inject reserves and transaction fees are a fiscal channel to drain reserves.

While the Fed has direct control over transaction fees, I don't see it having direct control over the interest paid. T-bills are sold in $10,000 denominations and the yield is determined by the discount at auction. Isn't the coupon rate of notes and bonds set by Treasury with yield determined in the auction? I am under the impression that the Treasury "consults" with the Fed on coupon rates and term distribution, but I think it is officially Treasury that sets the rate.

Anonymous said...

The market price at auction will vary true, but the yield curve starts with the Fed Fund rate as set by FOMC, no?

Having said that, I don't understand why the 3 month and 6 month T-bills are less than FFR and the 1 year T-bill roughly the same as the Fed Fund overnight rate of .025%.

Tom Hickey said...

Right, but it is interest actually paid out, not yield that increases nongovernment NFA. That's determined by the coupon rate.

Yield fluctuates wrt market price, but the coupon rate is the same for the life of the bond. FFR affects changes yields, not coupon rate. The overnight rate (FFR in US) and tsy yield curve function as benchmarks for other rates depending on spreads.