Understanding the fluctuations of China’s real estate sector: Warwick Powell

Another excellent analysis of how the 'crisis' in Chinese house building did not lead to economic collapse as it did in the west with the 2008 banking crisis which was sparked by mortgage defaults which then threratened the viability of lenders. Essentially, the key thing is the fact that the buildings have been built and remain in China. The financial speculation that surrounds them may move offshore - but if it goes tits-up, it doesn't mean the houses disappear. Not in a sensibly planned economy.....

The Material Foundations of Value

A thermodynamics-centred framework reminds us that an economy is anchored in material reproduction, in which it is “use values” that are ultimately determinant of system viability. At its core, economic life depends on the physical capacity to produce and reproduce goods necessary for subsistence and accumulation. Surplus emerges not from speculative promises but from the actual excess of goods over the means of production consumed, or put another way, by the pursuit and realisation of improvements on Energy Return on Energy Invested, thereby creating a high level of Available Energy Potential.

Financial claims - credit, bonds, derivatives etc. - are conditional claims on future value, either in terms of exchange value or use value. They belong to what we can euphemistically call the “shell,” a symbolic and contractual superstructure that grows on the expectation of future production. When the shell expands faster than the capacity of the core to generate energetic surplus, systemic stress follows. This is the essence of the 2008 global financial crisis. It was a massive inflation of fictitious capital on the back of housing markets, disconnected from household income growth and real productive capacity.



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