Avoiding Global Deflation

There’s a relatively recent analysis entitled “The Deflationary Impact of the Coming U.S. Commercial Real Estate Bust,” by Sean Daly, posted May 27, 2010 on Seeking Alpha, that reminds us the commercial real estate bubble hasn’t gone anywhere. And if you count the vacant windows in the strip malls, it isn’t hard to see the reality. Daly goes further, and in nearly 3,000 words of commentary, quotes, captions and attributions, and over a dozen charts, explains that commercial real estate loans generally have five year maturities, and the ones negotiated during the bubble boom are coming due starting in 2011. Daly also observes that the ultimate victims this time will be the 8,000+ community banks, not the big banks and Wall St. firms. Among Daly’s conclusions as to the deflationary impact of all this is this decidedly non-trivial gem: “this vicious cycle [widespread insolvency of community banks] starts to hurt the local economies just as the municipal bond defaults start to occur…worse case, the real estate industry in China goes bad and the two downturns hit the global economy at the same time.”

As noted on a June 8th post entitled “The China Bubble,” using data from USA Today, MoneyLife, 60 Minutes, China Expat, and others, real estate values in China have appreciated at 3 to 5 times their rate of GDP growth for a decade, commercial vacancy rates may already […] Read More