Retail sales were up 17 percent from year ago levels while year-over-year growth rates slowed during all four quarters of 2011 as the government tightened lending and found other ways to rein in soaring home prices and cool inflation.

So far, it looks like they’re succeeding. Hopefully, they won’t be too successful.

Word came in this report this morning from The Age in Australia that Economist Steve Keen of Debt Deflation fame is garnering new respect as home prices there are set to drop by about four percent this year with even lower prices in store for 2012.

No news stories about home prices in Canada have crossed my computer screen lately, but, my guess is that, with the global economy and financial markets teetering, there are a lot of new home buyers and investors who are rethinking their purchase decision.

In China, we see shades of the U.S. housing bubble circa 2007 as the LA Times reports the natives are really getting restless, recent homebuyers now protesting outside of the offices of builders who have slashed prices to spur sluggish sales.

Home prices nationwide declined in November for the third straight month, according to an index of values in 100 major cities compiled by the China Index Academy, an independent real estate firm. Average prices in the Shanghai area are down about 40% from their peak in mid-2009, to about $176,000 for a 1,000-square-foot home.

Sales have plummeted. In Beijing, nearly two years’ worth of inventory is clogging the market, and more than 1,000 real estate agencies have closed this year. Developers who once pre-sold housing projects within hours are growing desperate. A real estate company in the eastern city of Wenzhou is offering to throw in a new BMW with a home purchase.

The swift turnaround has stunned buyers such as Shanghai resident Mark Li, who thought prices had nowhere to go but up. The software engineer closed on a $250,000, three-bedroom apartment in August, only to watch weeks later as the developer slashed prices 25% on identical units to attract buyers in a slowing market.

Outraged, Li and hundreds of others who paid full price trashed the sales office, scuffled with employees and protested for three days before police broke up the demonstration. Walking away now would mean losing the $75,000 down payment that he borrowed from his working-class parents.

“I still haven’t told them,” Li, 29, said of his home’s plummeting value. “It will just make them worry, and it’s already too late.”

This is well worth reading in its entirety to better understand two fundamental differences between the U.S. and China and how their outcome might be very different than ours.

First, this was a government-engineered slowdown that looks to be accomplishing its objective, however, the fear is that it could be too successful (in which case, the government will likely reverse course). Second, home purchases in China include hefty down payments, unlike the NINJA loans and their ilk  that were common when the U.S. bubble burst.

Today, the Chinese services sector notched its weakest growth in three months and, after the central bank loosened bank reserve requirements last week after two years of tightening, policymakers fret that slowing growth could lead to social unrest. Amid daily calls by pundits for a “hard landing”, the LA Times reports that the planned economy is in trouble.

According to an official New China News Agency report published Saturday, China’s top security chief warned provincial officials to brace for unrest if financial conditions continue to deteriorate.

Zhou Yongkang, a member of China’s nine-person Politburo Standing Committee, said the country should focus on developing better social management -– a euphemism for control aimed at stamping out opposition and unrest.

“The Party and the government have always paid a lot of attention to social management … but it still cannot keep up with the changes in economic and social development,” Zhou reportedly said, using typically dense party jargon.

“Faced with the negative impact of the market economy, we still have not established a complete social-management system,” Zhou continued. “How to establish a social management with Chinese characteristics to suit the socialistic market economic system in China is the most pressing task we face today.”

With the labor market now showing some distress as the number of strikes and other protests escalates, income inequality is an increasingly important issue to workers with increasingly idle hands and this is not good news for the government.

As Hu made clear yesterday, from the perspective of the Chinese, they had no part in making any of the rules in the current global monetary system and feel little compulsion to play by them. Mindful of the Japan experience in the late-1980s when strong currency appreciation led to massive asset bubbles and two lost decades, they’re not likely to simply comply with the wishes of the West when it comes to their currency.

China can break free of the dollar trap

Chinese officials are understandably angry about the irresponsible brinkmanship demonstrated by their American counterparts in recent weeks. Unfortunately, anger counts for little in international finance. The danger facing the US is that after Tuesday’s debt deal any sense of urgency over a dire fiscal situation will dissipate. The danger for China is that it does not learn the right lesson – namely, that now is the time to end its dependency on the US dollar.

China is worried about the possibility of a US default for obvious reasons. As the largest foreign holder of US Treasuries, either a default or a downgrade would bring huge losses. Even after this week’s debt deal, however, the risk remains that US debt will continue to grow to the point where its government is left with no option but to inflate the burden away.
…
If there is any lesson China can draw from the US debt ceiling crisis, it is that it must stop policies that result in further accumulation of foreign exchange reserves. Given that many large developed countries are simply printing money (and the recent rumours are that the US might return to quantitative easing) China must realise that it can no longer invest in the paper assets of the developed world.

The People’s Bank of China must stop buying US dollars and allow the renminbi exchange rate to be decided by market forces as soon as possible. China should have done so a long time ago. There should be no more hesitating and dithering. To float the renminbi is not costless. However, its benefits for the Chinese economy will vastly offset those costs, while being favourable to the global economy as well.

Someday, the Chinese (and the Japanese) will surely catch on – maybe today is that day…

U.S. consumers, hobbled by debt and high unemployment, have been deleveraging, a process that will take another 3 to 5 years, Stephen Roach, Morgan Stanley’s non-executive chairman and the author of The Next Asia told CNBC on Tuesday.

According to Roach, American consumers, whose buying habits account for 70 percent of America’s gross domestic product (GDP), had effectively become “zombies” after the financial crisis.

“In the last 13 quarters since the first quarter of 2008, consumer spending growth in the United States has grown an average annual rate of 0.5 percent. Never before has the American consumer…been this weak for this long,” he said. “So something big is going on post-crisis and that’s why I refer to them as the zombie generation.”

Oh well, American consumers have been called worse.

Just the fact that the label “consumers” is so thoughtlessly applied to the greatest generation of shoppers the world has ever seen – as if they were locusts – should have been a tip-off that the late-1990s/early-2000s U.S. spending boom wouldn’t last.

The whole “everyone gets wealthy through asset inflation” approach worked pretty good there for a decade or so, but, it just might be time to finally ditch the old adage, “Never count out the American consumer”. It sounds like Roach has already counted them out.

Yesterday, I posted a graph of the relative size of the US Interstate and Chinese Expressway systems, and pointed out that they are now of roughly equal size.  Commenter Joel noted, based on personal experience, that the Chinese system is comparatively empty.  Statistics on the size of the two vehicle fleets bear this out.  The graph above is based on FHWA data (via the Transportation Energy Data Book), and the Chinese NBS Table 16-25, and includes both trucks and passenger vehicles for both countries.

Absent a sharp slowdown in growth in China, I’d say there is good reason to fear the growing number of gasoline/diesel powered vehicles in the Middle Kingdom.

Skip to about 10:30 to hear Faber comment on what disturbs him the most these days:

For my taste, in front of luxury hotels there are far too many Ferraris, Maseratis, Bentleys. That is not a good sign. You should see depression when conditions are depressed. I see a boom everywhere, except for the working class and except for the lower middle class. But among the well to do people, the wealth that is floating around and the prices you pay for high end properties is incredible, and I think that will come to an end, and a lot of people will lose a lot of money … This gives me a bad feeling because I’ve seen so many emerging economies when they were booming, that was the time to get out.

Time to Wake Up: Days of Abundant Resources
and Falling Prices Are Over Forever (.pdf)

comes this observation about  humans in general that provides a brief diversion from what is otherwise a rather grim outlook for our collective future, price-wise.

As a product of hundreds of thousands, if not millions, of years of trial and error, it is perhaps not surprising that our species is excellent at many things. Bred to survive on the open savannah, we can run quite fast, throw quite accurately, and climb well enough. Above all, we have excellent spatial awareness and hand eye coordination. We are often flexible and occasionally inventive.

For dealing with the modern world, we are not, however, particularly well-equipped. We don’t seem to deal well with  long horizon issues and deferring gratification. Because we could not store food for over 99% of our species’ career and were totally concerned with staying alive this year and this week, this is not surprising. We are also innumerate. Our typical math skills seem quite undeveloped relative to our nuanced language skills. Again, communication was life and death, math was not. Have you not admired, as I have, the incredible average skill and, perhaps more importantly, the high minimum skill shown by our species in driving through heavy traffic? At what other activity does almost everyone perform so well? Just imagine what driving would be like if those driving skills, which reflect the requirements of our distant past, were replaced by our average math skills!

We also became an optimistic and overconfident species, which early on were characteristics that may have helped us to survive and today are reaffirmed consistently by the new breed of research behaviorists. And some branches of our culture today are more optimistic and overconfident than others. At the top of my list would be the U.S. and Australia. In a well-known recent international test, U.S. students came a rather sad 28/40 in math and a very mediocre eighteenth in language skills, but when asked at the end of the test how well they had done in math, they were right at the top of the confidence list. Conversely, the Hong Kongers, in the #1 spot for actual math skills, were averagely humble in their expectations.

Obviously, there was a huge opportunity lost here when Grantham failed to comment on the skills of Asian drivers, perhaps drawing some broader conclusion that, while likely being politically incorrect, would possibly set some expectations for answering the question of  U.S. vs. China  dominance later in this century.

We are a laughing stock throughout the world … If oil prices are allowed to keep inflating, if the dollar keeps going down in value – which is not good because you’re going to pay $25 for a loaf of bread pretty soon – if you look at what’s happening with our food prices, they’re going through the roof. You know, we could end up being another Egypt – you could have riots in our streets also.

BTW: I don’t know where part 2 is, but, there are highlights of it in this item over at the Economic Collapse blog where this video was spotted.