Tuesday, September 01, 2009

Tiny bubbles...

When I first saw this quote circulating earlier this week, I thought it was a bit from The Onion or maybe The Daily Show. While many people believe that central banks are doing their best to create another asset bubble, no one would be so bold as to say that in public would they?

Well, apparently the head of the China Investment Corp felt up to the task.

"It will not be too bad this year. Both China and America are addressing bubbles by creating more bubbles and we're just taking advantage of that. So we can't lose," he said.

Well, maybe he views that he can't lose, but as we've seen bubbles tend to end badly and tend to hurt the man on the street that doesn't have $298 billion to invest (rough estimate of the value of the China Investment Corp).



Anonymous said...

When the Fed gives us the GDP and factory output numbers what is the calculation as related to the CFC program. If a car sold for $25,000-but the Fed kicked in $4500- so the consumer only paid $20,500- is GDP calculated on $25g's or $20g's.
Extrapolated out, what's the $3bil mean for the month and quarter?

The Artful Blogger said...

It's a really good question. I suspect that GDP will be calculated on the full value of the vehicle rather than the discounted number but I've been unable to confirm my assumption.

Since most of the vehicles purchased under CFC were smaller cars, the average price will probably come in somewhere around $22k (just a guess). Assumming 650k cars under the program that gives you about 14 billion of gross receipts in Q3 that otherwise would not have been realized. While $14 billion is a big number keep in mind that it's less than 0.1% of our annual GDP, so while it may cause the GDP to turn positive in Q3, that may be old news by the time the data is released.

Really good question!!

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