short history of financial euphoria - j.k.galbraith

tara73

just finished reading 'a short history of financial euphoria' from j.k.galbraith.

It sums up in a few pages and clear words the history of the financial booms and speculation periods. from the tulips maniacs 17 sth.to the '87 crash.

just our situation at the moment is missing, as it was written 1990...but he predicted it in general.

One person who speaks (or writes) so much more than the truth, he gives a simple but correct analysis of the human psyche regarding our financial system and how we forget about the crashes in one generation. so it will always repeat itself.

I think it should be made obligatory to be read and discussed in schools from age 16 or so.

can only recommend it.

Icepick

tara73 wrote: »

just finished reading 'a short history of financial euphoria' from j.k.galbraith.

It sums up in a few pages and clear words the history of the financial booms and speculation periods. from the tulips maniacs 17 sth.to the '87 crash.

just our situation at the moment is missing, as it was written 1990...but he predicted it in general.

One person who speaks (or writes) so much more than the truth, he gives a simple but correct analysis of the human psyche regarding our financial system and how we forget about the crashes in one generation. so it will always repeat itself.

I think it should be made obligatory to be read and discussed in schools from age 16 or so.

can only recommend it.

Introduction to economics and personal finance should be in primary school curriculum.
Instead you have religion and other useless things.

ardmacha

The mechanism of booms is pretty obvious. It would make no difference studying this at school as people would simply convince themselves that "this times it is different".

andrew

Manias, Panics, and Crashes: A History of Financial Crises, by Charles Kindleberger, is also a very good book on this topic. An important thing about bubbles (that's pointed out in the book) is that they're very difficult to spot beforehand. They exemplify the saying that 'hindsight is 20-20.'

Scofflaw

andrew wrote: »

Manias, Panics, and Crashes: A History of Financial Crises, by Charles Kindleberger, is also a very good book on this topic. An important thing about bubbles (that's pointed out in the book) is that they're very difficult to spot beforehand. They exemplify the saying that 'hindsight is 20-20.'

It's a fair point - after all, what if the fundamentals really have changed, and it really is different this time?

Unfortunately, of course, when you start trying to work out whether the fundamentals have changed, you discover that economics is not a hard science, and there's almost infinite room for disagreement on what fundamentals are important, and whether they genuinely have changed.

On the other hand - as an economist might say - has there ever been a national property boom that produced a sustained long-term rise in house prices? What examples are there of asset booms where the price not only rose relatively rapidly, but stayed at the new higher level?

For example, we have at the moment a huge amount of disagreement over whether higher oil prices are "here to stay":



Does the current price boom in oil reflect genuinely changed fundamentals - peak oil, for example, with higher extraction costs - or is it a temporary result of the US meddling in the Middle East and the current Arab Spring?

cordially,
Scofflaw

liammur

Scofflaw wrote: »

It's a fair point - after all, what if the fundamentals really have changed, and it really is different this time?

Unfortunately, of course, when you start trying to work out whether the fundamentals have changed, you discover that economics is not a hard science, and there's almost infinite room for disagreement on what fundamentals are important, and whether they genuinely have changed.

On the other hand - as an economist might say - has there ever been a national property boom that produced a sustained long-term rise in house prices? What examples are there of asset booms where the price not only rose relatively rapidly, but stayed at the new higher level?

For example, we have at the moment a huge amount of disagreement over whether higher oil prices are "here to stay":



Does the current price boom in oil reflect genuinely changed fundamentals - peak oil, for example, with higher extraction costs - or is it a temporary result of the US meddling in the Middle East and the current Arab Spring?

cordially,
Scofflaw

I think oil is different, and will continue to go up. Gold would be far more likely to crash imo.

Scofflaw

liammur wrote: »

I think oil is different, and will continue to go up. Gold would be far more likely to crash imo.

Gold is very obviously a bubble - what change in the fundamentals has there been? - but oil may or may not go back down again, depending on whether the current price rise is being driven by any actual long-term change as opposed to short-term ones.

Still, a short-term rise is not quite the same as a bubble.

cordially,
Scofflaw

Brussels Sprout

The price of Apple shares is probably another good example right now.

liammur

With the Fed and others printing money like mad, this is where the value of gold may rise, but I'm not attracted to it. Oil may go down if the world economy continues to slow but overall I think supply for it will ensure the price remains very strong.
As regards Apple, it would take a brave man to short it, but a competitor will one day challenge them or they lose their focus. Short term though it will remain very strong.

tara73

Scofflaw wrote: »

It's a fair point - after all, what if the fundamentals really have changed, and it really is different this time?

but this is exactly the crux the author is referring to and where it's all about.
that's what people want to believe in their euphoria but it is never different. a bubble stays a bubble it's just the euphoria of the good times and money flowing easily what makes people deluded and not wanting to think of the inevitable crash some day.

Scofflaw wrote: »

For example, we have at the moment a huge amount of disagreement over whether higher oil prices are "here to stay":

Does the current price boom in oil reflect genuinely changed fundamentals - peak oil, for example, with higher extraction costs - or is it a temporary result of the US meddling in the Middle East and the current Arab Spring?

I don't think people with a clear mind think oil prices will stay forever that high. The problem with this seems that people still only think in time scales of 5-10 years and call this 'a forever time'. forever means forever, not 5, 6, 10 or even 100 years.
so surely nobody with a bit of a functioning brain thinks oil prices stay forever high.

one possibility for them to fall could be a great breakthrough in renewable enrgies/a new efficient technology in energy gains.

and regarding spotting bubbles and speculation, I think he clearly explains how to spot them and opens the eyes for people who don't know.
that's what makes this book so valuable.

liammur

tara73 wrote: »

but this is exactly the crux the author is referring to and where it's all about.
that's what people want to believe in their euphoria but it is never different. a bubble stays a bubble it's just the euphoria of the good times and money flowing easily what makes people deluded and not wanting to think of the inevitable crash some day.




I don't think people with a clear mind think oil prices will stay forever that high. The problem with this seems that people still only think in time scales of 5-10 years and call this 'a forever time'. forever means forever, not 5, 6, 10 or even 100 years.
so surely nobody with a bit of a functioning brain thinks oil prices stay forever high.

one possibility for them to fall could be a great breakthrough in renewable enrgies/a new efficient technology in energy gains.

and regarding spotting bubbles and speculation, I think he clearly explains how to spot them and opens the eyes for people who don't know.
that's what makes this book so valuable.

But you have to ask yourself, what is high for oil/gold etc. Just because it was $50 a barrell X number of years ago, and today it's over double that, doesn't necessarily constitute a bubble.

Scofflaw

tara73 wrote: »

but this is exactly the crux the author is referring to and where it's all about.
that's what people want to believe in their euphoria but it is never different. a bubble stays a bubble it's just the euphoria of the good times and money flowing easily what makes people deluded and not wanting to think of the inevitable crash some day.

Sure - that's why I said it!

tara73 wrote: »

I don't think people with a clear mind think oil prices will stay forever that high. The problem with this seems that people still only think in time scales of 5-10 years and call this 'a forever time'. forever means forever, not 5, 6, 10 or even 100 years.
so surely nobody with a bit of a functioning brain thinks oil prices stay forever high.

one possibility for them to fall could be a great breakthrough in renewable enrgies/a new efficient technology in energy gains.

and regarding spotting bubbles and speculation, I think he clearly explains how to spot them and opens the eyes for people who don't know.
that's what makes this book so valuable.

Out of interest, does he cite any counter-examples, where the fundamentals really had changed? Or is regression to the mean the invariable outcome?

cordially,
Scofflaw

tara73

Scofflaw wrote: »

Out of interest, does he cite any counter-examples, where the fundamentals really had changed? Or is regression to the mean the invariable outcome?

no, that's another point he makes, there's never, ever been a soft landing from a real bubble. but that's what people hope for when the economy starts to get down, it was all over the media in ireland.
soft landing, nice word anyway.

I think there are existing some clever speculators who know when to get out.
but a real bubble means a real crash.
it's actually very methaphoric: think of a real soap bubble. it may land somewhere but within seconds it will burst eventually:)

Brussels Sprout

tara73 wrote: »

no, that's another point he makes, there's never, ever been a soft landing from a real bubble. but that's what people hope for when the economy starts to get down, it was all over the media in ireland.
soft landing, nice word anyway.

I think there are existing some clever speculators who know when to get out.
but a real bubble means a real crash.
it's actually very methaphoric: think of a real soap bubble. it may land somewhere but within seconds it will burst eventually:)

So does that mean that there is going to be a real crash in China then, which by all accounts is experiencing a property bubble at the moment?

andrew

Scofflaw wrote: »

Sure - that's why I said it!



Out of interest, does he cite any counter-examples, where the fundamentals really had changed? Or is regression to the mean the invariable outcome?

cordially,
Scofflaw

Price changes are limited way of detecting bubbles, because what defines a bubble (in part) is why people buy a certain commodity, not just the evolution of that commodity's price. If a war broke out in the middle east tomorrow, the price of oil would sky rocket. If, a week later, aliens came down and gave us an abundant oil substitute, then it would plummet again. The price spike would look like a bubble, but it wouldn't really be one.

A bubble is characterized in part by (as Kindleberger says) a period of 'overtrading.' This is when demand for the commodity at hand is driven by speculators, or by neophytes (the classic taximan/average joe neighbour) who are getting into the commodity just because everyone else is getting into the commodity. Also, this is the point at which people being buying the commodity in installments, or with large loans, under the assumption that the price will keep rising.

And so the bubble isn't the price change, it's what drives the price change. But then, how do you measure what's driving a price change? If you have a situation in which fundamentals are causing the price of a commodity to rise rapidly, then you've also got a situation which is ripe for a bubble, since the fundamentals induced price rise is ripe for the aformentioned speculation which produces a bubble. So even when fundamentals do change it's difficult to separate the 'bubble' part of the price change from the 'fundamentals' part of the price change.

And so it might be that no, no commodity has ever seen a fundamentals induced bubble-esqe price price rise and stayed at a permanently high plateau, because if it did, the initial price rise would probably induce a bubble in the first place.

Scofflaw

And - although I'll probably get the book, and indeed Kindleberger (having heard Ronan Lyons recommend it) - what does he suggest as bubble detection techniques?

It strikes me that there's almost certainly something one can do with the Net these days in terms of bubble detection.

cordially,
Scofflaw

moycullen14

andrew wrote: »

Price changes are limited way of detecting bubbles, because what defines a bubble (in part) is why people buy a certain commodity, not just the evolution of that commodity's price. If a war broke out in the middle east tomorrow, the price of oil would sky rocket. If, a week later, aliens came down and gave us an abundant oil substitute, then it would plummet again. The price spike would look like a bubble, but it wouldn't really be one.

A bubble is characterized in part by (as Kindleberger says) a period of 'overtrading.' This is when demand for the commodity at hand is driven by speculators, or by neophytes (the classic taximan/average joe neighbour) who are getting into the commodity just because everyone else is getting into the commodity. Also, this is the point at which people being buying the commodity in installments, or with large loans, under the assumption that the price will keep rising.

And so the bubble isn't the price change, it's what drives the price change. But then, how do you measure what's driving a price change? If you have a situation in which fundamentals are causing the price of a commodity to rise rapidly, then you've also got a situation which is ripe for a bubble, since the fundamentals induced price rise is ripe for the aformentioned speculation which produces a bubble. So even when fundamentals do change it's difficult to separate the 'bubble' part of the price change from the 'fundamentals' part of the price change.

And so it might be that no, no commodity has ever seen a fundamentals induced bubble-esqe price price rise and stayed at a permanently high plateau, because if it did, the initial price rise would probably induce a bubble in the first place.

Probably a good example of this at the moment is Apple's share price. Sure, it is driven by fundamentals but when it is front page news on the Irish Examiner you know you are entering 'overtrading'. There is some anecdotal evidence that any investor/fund must have Apple as part of their portfolio so as not to be seen as a fool who missed the opportunity. Interesting to see what happens.....

liammur

moycullen14 wrote: »

Probably a good example of this at the moment is Apple's share price. Sure, it is driven by fundamentals but when it is front page news on the Irish Examiner you know you are entering 'overtrading'. There is some anecdotal evidence that any investor/fund must have Apple as part of their portfolio so as not to be seen as a fool who missed the opportunity. Interesting to see what happens.....

When a company has $100 bln in cash reserves, and is making billions more, i'm finding it rather hard to see it crashing.

KyussBishop

Scofflaw wrote: »

It strikes me that there's almost certainly something one can do with the Net these days in terms of bubble detection.

I wonder this myself; how transparent are the markets, i.e. how much data about them is publicly available online?

I'm sure there are some very standard statistical mathematics for detecting stuff like this, but I wonder if the publicly available dataset is too limited to do this.


It's definitely a certainty that some markets (e.g. off-exchange markets), are far too opaque, and this seems to currently be where a lot of the oil price uncertainty is originating from.

moycullen14

liammur wrote: »

When a company has $100 bln in cash reserves, and is making billions more, i'm finding it rather hard to see it crashing.

But we are talking about bubble effects which, by definition, involve the separation of the asset price from the fundamentals.

From Yahoo

NEW YORK (AP) -- Apple, already the world's most valuable company, hit the $600 billion level for the first time Tuesday.
Only one other company has been worth $600 billion — Apple's old sparring partner Microsoft Corp. It reached that valuation for 13 trading days around the turn of the millennium, at the peak of the technology stock mania.
At its highest level, on Dec. 30, 1999, Microsoft's valuation was $619 billion. It's now worth about $255 billion.
General Electric Co. came just short of reaching a $600 billion valuation in August 2000.
Apple shares hit $644 in morning trading, up 1.2 percent from Monday's close. At that price, the entire company was worth $600.4 billion. By midday, the shares had retreated. The stock closed at $628.44, down 1.2 percent from the day before, putting the value below $600 billion again.

The point here is Microsofts valuation fall from $600B in 2000 to $255B today. No-one would say that Microsoft has crashed or been a failure over the last 12 years but it's valuation has tanked. Same could happen for Apple - in fact it will unless they can keep getting 20% growth in markets - and that's hard to see happening. The fact that we (well me) are discussing the share price menas it's out there as trendy. We are the equivalent of Joe Kennedy's shoe-shine boys.

liammur

moycullen14 wrote: »

But we are talking about bubble effects which, by definition, involve the separation of the asset price from the fundamentals.

From Yahoo


The point here is Microsofts valuation fall from $600B in 2000 to $255B today. No-one would say that Microsoft has crashed or been a failure over the last 12 years but it's valuation has tanked. Same could happen for Apple - in fact it will unless they can keep getting 20% growth in markets - and that's hard to see happening. The fact that we (well me) are discussing the share price menas it's out there as trendy. We are the equivalent of Joe Kennedy's shoe-shine boys.

I agree with a lot of what you say. I definitely wouldn't be a buyer now. But I don't think it's a bubble. I can see a reason why it has such a high valuation. Yes, it could fall back to $500B. Lower if a competitor comes out with a blockbuster, but that's a different matter.
I couldnt see a need for apartments in Longford. This is the key difference imo.

creedp

liammur wrote: »

I couldnt see a need for apartments in Longford. This is the key difference imo.

If only the developers, planners, bankers, regulators, property supplement journalists, investors, home owners, etc had equivalent levels of foresight:)

Scofflaw

KyussBishop wrote: »

I wonder this myself; how transparent are the markets, i.e. how much data about them is publicly available online?

I'm sure there are some very standard statistical mathematics for detecting stuff like this, but I wonder if the publicly available dataset is too limited to do this.


It's definitely a certainty that some markets (e.g. off-exchange markets), are far too opaque, and this seems to currently be where a lot of the oil price uncertainty is originating from.

Sure - I don't think you could spot all bubbles, but I think you should be able to spot the big ones - the ones where the public gets involved. I'm not so concerned about ones where groups of professional players occasionally lose their shirts, but ones that produce a large debt overhang in the general economy.

cordially,
Scofflaw

liammur

creedp wrote: »

If only the developers, planners, bankers, regulators, property supplement journalists, investors, home owners, etc had equivalent levels of foresight:)

That's the mistake a lot of people make. I believe most of those you mentioned knew. However, they were all making nice money out of it and greed got the better of them, some got out in time, others didn't.

Scofflaw

liammur wrote: »

That's the mistake a lot of people make. I believe most of those you mentioned knew. However, they were all making nice money out of it and greed got the better of them, some got out in time, others didn't.

To be honest, there are so many of them caught up in it that it's unlikely.

cordially,
Scofflaw

liammur

Scofflaw wrote: »

To be honest, there are so many of them caught up in it that it's unlikely.

cordially,
Scofflaw

The key is knowing when to get out. Some did it to perfection i.e. the century homes guy.

But property can be illiquid unlike the financial markets. So when the government was talking about soft landing, that was the time to be getting out, they knew then the game was up. Unfortunately, many were addicted to it. The auctioneers, bankers. planners, architects were all cleaning up, the first time buyer had most to lose.

antoobrien

liammur wrote: »

That's the mistake a lot of people make. I believe most of those you mentioned knew. However, they were all making nice money out of it and greed got the better of them, some got out in time, others didn't.

Scofflaw wrote: »

To be honest, there are so many of them caught up in it that it's unlikely.

I'd say the fact that we didn't have a recession in such a long time (about 15 years) blinded most people to the signs that were there. There would have been a fair few that saw the signs but chose to ignore them.

The NTMA released an investor presentation on how the recovery is going. Page 34 has a graph on it with a comparison of house prices vs disposable income.



It's interesting to note that in 1998/1999 we had already hit historical highs, which came back a bit as the effect of the celtic tiger mean wages & salaries rose.

Anybody who said so was told that things have changed, so instead of being cautious society (thats banks, builders, government and buyers) threw the old rulebook out and wrote a new one.

Anyone found a copy of the old one yet?

liammur

antoobrien wrote: »

I'd say the fact that we didn't have a recession in such a long time (about 15 years) blinded most people to the signs that were there. There would have been a fair few that saw the signs but chose to ignore them.

The NTMA released an investor presentation on how the recovery is going. Page 34 has a graph on it with a comparison of house prices vs disposable income.



It's interesting to note that in 1998/1999 we had already hit historical highs, which came back a bit as the effect of the celtic tiger mean wages & salaries rose.

Anybody who said so was told that things have changed, so instead of being cautious society (thats banks, builders, government and buyers) threw the old rulebook out and wrote a new one.

Anyone found a copy of the old one yet?

Good post. Most bankers, politicians, and many developers were the big winners out of this, even after the crash. It was in their interests to pump it for all it was worth.

Scofflaw

liammur wrote: »

The key is knowing when to get out. Some did it to perfection i.e. the century homes guy.

But property can be illiquid unlike the financial markets. So when the government was talking about soft landing, that was the time to be getting out, they knew then the game was up. Unfortunately, many were addicted to it. The auctioneers, bankers. planners, architects were all cleaning up, the first time buyer had most to lose.

Again, no, I think a lot of people involved in the game genuinely believed that the fundamentals were sound, and that there would actually be a soft landing. I don't think it was simply a case that they couldn't quite liquidate their positions in time - there was, for example, no sudden surge in properties going on the market, or people seeking to unwind their positions, in late 2006.

On the contrary, I'd say many who benefited from it were simply at a lucky point in the game of musical chairs, and found the market drying up when they were at a "buy" point in their particular cycle.

If you were asked to do so, I think you'd be very hard pressed to name many "bankers, politicians and developers" who came out of it well.

cordially,
Scofflaw

beeftotheheels

Scofflaw wrote: »

Again, no, I think a lot of people involved in the game genuinely believed that the fundamentals were sound, and that there would actually be a soft landing. I don't think it was simply a case that they couldn't quite liquidate their positions in time - there was, for example, no sudden surge in properties going on the market, or people seeking to unwind their positions, in late 2006.

On the contrary, I'd say many who benefited from it were simply at a lucky point in the game of musical chairs, and found the market drying up when they were at a "buy" point in their particular cycle.

If you were asked to do so, I think you'd be very hard pressed to name many "bankers, politicians and developers" who came out of it well.

cordially,
Scofflaw

That's true. There were deals going on throughout 2007 and even into 2008 where you'd be sitting there (as an adviser) thinking "this is mad, we're going to go pens down any minute, there's no way the banks (incl Anglo) won't pull the funding (subtext and then we'll have to take a hit on our WIP)" and yet many of them closed.

International clients were going pens down all over the shop and yet Irish investors were still engaged in trying to catch the falling knife.

Irish Times Article on Anglo lending in 2008

http://www.irishtimes.com/newspaper/ireland/2011/0420/1224295067452.html

moycullen14

Scofflaw wrote: »

Again, no, I think a lot of people involved in the game genuinely believed that the fundamentals were sound, and that there would actually be a soft landing. I don't think it was simply a case that they couldn't quite liquidate their positions in time - there was, for example, no sudden surge in properties going on the market, or people seeking to unwind their positions, in late 2006.

On the contrary, I'd say many who benefited from it were simply at a lucky point in the game of musical chairs, and found the market drying up when they were at a "buy" point in their particular cycle.

If you were asked to do so, I think you'd be very hard pressed to name many "bankers, politicians and developers" who came out of it well.

cordially,
Scofflaw

I agree. It's amazingly simple with hindsight to see what was going on. Remember most people had no idea what was going on with Anglo, The Glass Bottle Factory, Jury's, the extent of the banks short term borrowing.

If the banks offer you a tracker mortgage at 0.75% above ECB rates, wouldn't you think that the extent of your exposure was to ECB rates which would never go back to the 10-15% seen for Irish central bank rates? The fact that an awful lot of other lending was outside this range is what's hitting you. The euro was supposed to be the game changer for Ireland? It was, just not in the way we thought!

Something that was touched on above that I think is crucial to the boom was people's desire to think things had changed - for good - from the bad old days of the 80s. It was nice to think that we were now on a par with Europe, the US and Britain. I think people wanted to believe this so badly. Given the way things have gone, it's hard to blame them.

As far as bubble spotting goes, we cannot agree on Apple, for example, on this forum. Now time might show Apple to have been the greatest bubble of all or not. Only time will tell.You only know it is a bubble when it bursts. It has burst therefore it must have been a bubble NOT It is a bubble, it must burst?

Economists tell you what has happened and why. They do not tell you what is going to happen.

liammur

moycullen14 wrote: »

As far as bubble spotting goes, we cannot agree on Apple, for example, on this forum. Now time might show Apple to have been the greatest bubble of all or not. Only time will tell.You only know it is a bubble when it bursts. It has burst therefore it must have been a bubble NOT It is a bubble, it must burst?

Economists tell you what has happened and why. They do not tell you what is going to happen.

I'm not sure I agree. Many economists told us what was going to happen to the Irish economy, and I think bertie ahern's quote was 'you are proven entirely wrong'

As regards Apple: take a pharma company. It's share price is going up. It has a blockbuster drug, then it loses it's patent right and has no replacement coming on stream. The shares go down?
Was this a bubble?

tara73

liammur wrote: »

I'm not sure I agree. Many economists told us what was going to happen to the Irish economy, and I think bertie ahern's quote was 'you are proven entirely wrong'

As regards Apple: take a pharma company. It's share price is going up. It has a blockbuster drug, then it loses it's patent right and has no replacement coming on stream. The shares go down?
Was this a bubble?

with apple we are talking about shares here, not? I would say they are not comparabel to the bubbles we/galbraith talks about in the book or just experienced in Ireland.
'shares are always bubbles', it's known they fall and rise, it's known to everybody it's gambling. the ordinary joe is mostly not considering buying them.

with the 'real' bubbles, like the property bubbles, people get deluded and don't think it will ever go down. ordinary joe or jill takes part:)

liammur

tara73 wrote: »

with apple we are talking about shares here, not? I would say they are not comparabel to the bubbles we/galbraith talks about in the book or just experienced in Ireland.
'shares are always bubbles', it's known they fall and rise, it's known to everybody it's gambling. the ordinary joe is mostly not considering buying them.

with the 'real' bubbles, like the property bubbles, people get deluded and don't think it will ever go down. ordinary joe or jill takes part:)

That's exactly the point I was making to the other posters. I don't think 1 can say if Apple falls, it was a bubble. There are too many variables involved. Look at Nokia, now trading at a 15 yr low, was it a bubble ? No, just a competitor (Apple & samsung) came out with superior products.

Tigerandahalf

Brussels Sprout wrote: »

So does that mean that there is going to be a real crash in China then, which by all accounts is experiencing a property bubble at the moment?

You would have to think so. Politically as well it will be difficult to manage.
The country has had 10% plus growth for a number of years now. That has to balance itself out at some stage. Up to now most Chinese had very low means. They worked all their lives mostly in rural areas. I would imagine once they got sick they died...no real healthcare...no pensions. Now there is a greater wealth there and the inevitable costs will come with that. They seem to be making some good moves like developing other industries but you would imagine that there will have to be a transitional period. There is huge wealth in China but just a small amount control it. As people have moved into the cities in recent years for work in the manufacturing areas this will put pressure on for services and if the work dries up the people become a lot harder to manage. With the wealth in China is confined to a very small group of people it's hard to see how it will be re-distributed. Many of them are spending abroad. They still need Europeans, Americans and others to buy their products. With less demand from these places and greater pressure on wages/costs China can only slow.