Home Buying Down Payment Requirements

The PRC is reducing the size of down payment it requires for a Chinese citizen to buy a home from 25% to 20% of the purchase price. For those who already own a home and haven’t yet fully repaid that mortgage, the mandatory down payment on the purchase of a second home is being reduced to 30% from 40%. This is that government’s attempt to stimulate a slowing economy by inducing more consumption and thereby growing jobs. Supposedly.

The moves, though, raise the question: why is the PRC government mandating this sort of thing at all?

Oh, wait….

PRC Markets

The PRC stock market tanked again earlier in the week. It’s a broader drop than just a fall in the PRC’s benchmark Shanghai Composite Index, though.

China’s outstanding margin loans—money investors borrow to buy stocks—declined for 16 consecutive sessions to Jan 22, the longest losing streak on record, with 209 billion yuan ($32 billion) worth of leveraged bets unwound during the period.

“Volume is getting very thin, as there are hardly any fresh inflows, and the process of deleveraging is continuing,” said Chang Chengwei, analyst at brokerage Hengtai Futures [a PRC-based financial investments player].

Empirical Socialism

Bernie Sanders style. You remember him: the Independent Senator from Vermont, Democratic Party Presidential candidate, avowed Socialist, and as of Monday night’s Democratic Party Town Hall “debate” an avowed Democratic Socialist. In that “debate” (because it really wasn’t a debate; the three candidates appeared sequentially and answered carefully selected questions—and not even the same ones), Sanders assured us, one and all, that he really will raise taxes on us if he’s elected President.

From The Washington Examiner we get a list of just how bad his tax increase will be.SandersTaxes

The Supreme Court and Utilities

The Supreme Court on Monday upheld the federal government’s ability to spur incentives for industrial businesses, schools and other large energy consumers to reduce power usage at times of peak demand.

The court, in a 6-2 ruling by Justice Elena Kagan, said the Federal Energy Regulatory Commission acted within its powers when it issued an order in 2011 requiring higher levels of compensation for some power customers that agreed to reduce their electricity use.

The Court likely is right on this, in that FERC’s rule is within the confines of the underlying law. However, this still is the government picking winners and losers, and this still is the government dictating to private enterprise what it must do.

Another Advantage

…of low oil prices. Low prices are good for American consumers, especially in winter, when we not only have to drive, but we have to heat our homes.

Here’s an additional advantage, though.

But falling crude prices, US-led sanctions and diminished oil exploration threaten Russia’s oil industry and raise questions about its capacity to continue underwriting President Vladimir Putin’s ambitions at home and abroad.

Sanctions hurt Russia in a lot of economic ways, but that interference with Putin’s designs on eastern Europe can last only as long as the sanctions régime holds up. The falloff in exploration actually would work to Russia’s (and Iran’s) benefit, were it to last a long time, as that would diminish supply relative to demand, and so would raise oil prices.

More Regulations

Jason Godsil, founder and CEO of Godsil Motorcars, is building a new car that will run on natural gas; he’s in the design and prototyping stage. Joel Feder, of MotorAuthority, asked this question and got an answer that should be embarrassing to the Obama administration and its predecessors.

What’s the largest unforeseen issue you’ve encountered?

EU Stimulus

Mario Draghi, of the European Central Bank, wants to keep stimulus efforts going, even with low oil and gas prices (even in Europe) having a dragging effect on inflation. Here’s the kicker, though:

Central bankers sometimes ignore falls in oil and food prices, arguing they are highly volatile and often beyond their influence because they are formed by global market forces. But Mr Draghi said the governing council is worried that a long period of low oil prices may lead to declines in the prices of other goods and services, and perhaps wages, through what central bankers term “second-round effects.”

Job Security

On the matter of competition and business imperatives, particularly involving big data, Margrethe Vestager, European Commissioner for Competition, had this to say at her speech to the Digital Life Design conference in Munich:

If a company’s use of data is so bad for competition that it outweighs the benefits, we may have to step in to restore a level playing field[.]

Continuing:

We continue to look carefully at this issue….

Never mind that they’ve found nothing:

this certainly doesn’t mean we never will[.]

There isn’t any wrong doing, but we’re going to keep looking for it, anyway. Because jobs. Because government bureaucrat jobs.

A Cost of Inexperience

What’s wrong with China’s stock market?

Just about everything, according to a statement from Xiao Gang [at the time, Chairman of the China Securities Regulatory Commission] delivered at a national meeting of Chinese securities officials….

In the statement, Mr Xiao defended his handling of successive market meltdowns, blaming the “abnormal volatility” on “an immature market, inexperienced investors, imperfect trading system, flawed market mechanisms and inappropriate supervision systems.”

He got that last part partially right—and only that much.

What’s wrong with the PRC’s stock market is inexperienced regulators and the idea that a functioning national economy can be managed—governed—from the center.

This Would Be Foolish

Don’t chase the market, guys.

financial markets are volatile and downward pressures on inflation are building. The employment picture gives officials an incentive to raise rates to prevent the US economy from overheating, but market instability and the inflation outlook provide reasons to hold off.

Market instability isn’t relevant to this. Further, rising interest rates are inherently inflationary—and the Fed has said for a long time that it wants a 2% inflation rate, which is substantially higher than what the current inflation rate has been for the last several years.