Worries that China is in the grip of a real estate bubble intensified after a five-bedroom apartment in Hong Kong was sold for $56.6m this week. Andy Xie, a Shanghai based economist, argues that China is probably the most bubble-prone economy in modern times – and may be just ten years away from its final day of reckoning. The Obama administration said China’s recent moves to accumulate more foreign exchange reserves “risk unwinding some of the progress made in reducing imbalances“. But it stopped short of accusing China of manipulating its currency, while there is surprisingly little public concern elsewhere in Asia about the substantial depreciation of the Chinese renminbi.The public’s trust in banks and bankers may have begun to recover, but this week’s strong third quarter results are a cue for public outrage over bumper bonuses. The European Central Bank president told banks to return to their “traditional role of providing a service to the real economy“, accusing them of having focused too much on “unfettered speculation and financial gambling”. An FT editorial concluded that intrusive regulation was justified on bankers’ pay and risk-taking, but needed more international coordination.Countries are told to coordinate their exits from zero interest rate policies to safeguard against large capital flows, in a warning that the “soft options” adopted by policymakers risk being as expensive as the crisis.
Not so, says David Blanchflower – who has already lost 17 pounds from a diet begun after he left the Monetary Policy Committee of the Bank of England. He wants monetary stimulus maintained or even expanded for the foreseeable future. It is distinctly possible that the Federal Reserve will exit quantitative easing sooner than its counterparts, confounding expectations that the dollar will continue to depreciate in 2010.
Speculating about the chance of a strong recovery for the US economy sparks a reminder that this stock market rally resembles the bear market rally after the 1929 Wall Street Crash. The US Treasury, Fed and media are accused of failing to undertake an honest examination of causes of the financial crisis, in a cover-up destined to lead to another crash. The Fed is defended against charges of any wrong-doing during the housing boom by some unlikely supporters.