China versus the West Economics

Dear friend, Dear HeartBody,

Last time I Wrote about the Art system in the West compared to China. Today I will tackle Economics, but while I was writing this I discovered I need to spilt up economics into 3 parts as well hahaha, so here’s part 1 on economics, China versus the West Real Estate.

As we all know China was for decades one of the most prosperous countries in the world mainly because of the Silk trading route. It isolated itself for a few decades and lost its position to the industrial revolution in the west. But be aware the Golden Dragon is returning in a way the west can’t ignore the power dragon anymore, even more they need this Mighty Dragon.

When it comes to Economics the west is mainly focused on the future that is based on the past. Any financial product is forced by the government, to put up this warning sentence ‘Results from the past are no guarantee for the future’. This sentence sais it all, it’s the core sentence of the financial attitude in the west. Its almost funny.

Let me explain:

Any country makes a budget of what they think they will be earning next year, they literally guess based on the past. How ironic, they tell any financial institute to put up this warning sentence to protect the consumer, but they do exactly the same. Who is warning who? who is checking the government? shouldn’t the government set the example? No, not the government, they reap what they seed. and yes its the lower class and the middle class that pays...

This guessed annual budget will be divided between different departments. The thing is one can’t predict the future, For example a country is guessing they will earn 1000 Dollars next year (of course the amounts are much higher but its easier to explain this way). Each department gets a part of this budget. Off course all departments will start fighting and corrupting to get as much as possible for their department. Trust me they will make sure they will spend every penny, preferably more then they got, so they can ask for more next year. Now at the end of the year due to unexpected and unforeseen issues ( there are always unforeseen and unexpected issues) the country suddenly finds it self only earning 900 dollars and at the same time all the departments spend together 1100 dollars. So there is a loss of 200 dollars. What to do? Well thank got for some innovate banking systems. You, the public can buy this depths called Bonds. And the country will pay you interest on your bonds, making the depth of 200 dollars easily go to 206 dollars. Just think about it, how weird this is, i'm financing my depth with interest...

This is done worldwide, the depth of the entire world is now around 70 Trillion Dollars. Yes 70 trillion Dollars...

As I always say behavior goes from the top down. So if this is the behavior of your government, you do the same and businesses do the same. Especially in America, people life and spend based on what they think they’re going to earn or how much their house is going to be worth in the future. Of course this works well in the beginning but like life everything starts from 0 and ends with 0, and in between it’s a messy unpredictable line full with ups and downs. The law of life, nothing lasts forever and is subject to change.There are no guarantees in life, None!!! The only guarantee life gives us is that if you're born you will die, that’s the only guarantee there is.

Lets look at the mortgage system in America, as a Messo metaphor for western Economy. Why America? well they surely exceeded every other country in the West with this crazy future based corrupted Mortgage concept.

To make it more personal i will use a character called Robert to explain what is happening.

Robert a true Aerican wants to buy a house worth 1000 dollars, of course he wants to renovate and decorate his house so he asks the bank, can I have a mortgage of 1500 dollars (150 %). Robert only earns 300 dollars a year. But banks thinking the future is always bright, especially when we talk about real estate, so no problem we give Roberts 5 times his annual income (in some cases they will go up to 8 till 10 times????). Robert starts paying of his mortgage for a period of 30 years. Having to pay the bank in the end around 1800 dollars. Do you see what is happening,the house was only worth 1000 dollars but after 30 years Robert would have paid 1800 to the bank. That’s almost double!!!!

The American dream is still alive and after 10 years Roberts house is worth 1500 dollars, now its almost leveled. The mortgage is matching the worth of the house, Roberts still has to pay 300 dollars more then his house is worth, but that’s just interest.

In the Netherlands it gets even crazier. The interest you pay on your mortgage is tax deductible. What??? Yes the interest on your mortgage is tax deductible. This was introduced a long time ago to encourage people to buy houses, because people buying houses is good for the economy. Today the Dutch government is losing Billions of Euros every year due to this system, that they can’t cancel, because if they do, more than 50 % of the Dutch will get into sever financial trouble, resulting into Chaos.

But lets go back to Robert, he’s kind of safe now, but he wants to buy a boat, a beautiful car, or a bigger house, so he goes to the bank and ask for a new mortgage and again for a 150 % based on the value of his house today. So he gets a new mortgage of 2250 (150 % of 1500 dollar) Dollars making him pay the bank around 3000 Dollar (he paid already 100 dollars interest in the first 10 years and will have to pay another 650 dollar on interest for the next 30 years).

You see how the American economy is driving itself based on the future. This situation goes on and on. But then something unexpected happens. A hurricane, a (market)crash, a war etc. And suddenly after 20 years Roberts house drops in value and is worth only 1400 dollars, but his mortgage is still 2250 dollars and he has paid the bank already 300 dollars on interest (100 dollars first ten years interest+ 200 for the next 10 years mortgage) That’s 2550 dollars and he still has to pay 450 dollars intersest for the next 20 years.

This agian is almost double the worth of his house. Robert loses his job or gets sick, his kids need to go to college etc. Robert is bankrupt.

But lets say Robert is lucky and got himself in a situation where he was smart and didn’t remortgage his house. (Very unlikely because every body will tell him, government, banks, friends family etc. to remortgage his house). Americans need to have to have and to consume and preferably they want it yesterday.

No Robert was smart but found himself in another situation. He bought a house with groundlease, sometimes you buy a house with ground lease, but not to worry it has been bought of for 20 years. Now what happens after 20 years, Roberts house is worth 2000 dollars (no crash happened and his house doubled in vallue in 20 years) his mortgage is still 1500 dollars and he paid allrady 200 dollars on interest so far. He's making a profit of 300 dollars after 20 years. He is doing good. he only has 10 more years to go and pay another 100 dollars before his house is his.

His house was bought in an area lets say for the sake of the example in Beverly hills before it got to be Beverly hills. You can imagine that the ground lease is going to be more then the worth of his house. suddenly he finds himself paying his mortgage and needs to pay an extreme high amount every year for the ground lease. Again Robert is going to be bankrupt soon. If not Robert prpbably his future siblings. Even if the house becomes mortgage free, the groundlease will be so high that its impossible to keep the house.

What is the secret of China and what are they doing better then the west?

Chinese learn, they look and they learn, they see what's not working and improve. The time of China only copying is far gone, they improve and start inventing themselves. Let me explain generally how the west deals with their financial situation, from top to bottom.

What did China learn? If Robert wants to buy a similar house, worth 1000 dollars in China the bank will give him maximum 70 % mortgage 700 dollars. Robert needs to be able to pay 30 % himself. You see the difference? The bank or Robert never get in trouble. Even after 20 years and there is a house market crash making his house worth 1400 dollars he’s still safe, he owes the bank 1000 dollars including all the interest for the loan and the mortgage, but he’s still safe. He still makes a profit and The bank takes no risk at all.

As I have seen, most Chinese take a mortgage of 10 years, instead as in the west of 30 years to make the monthly mortgage payments as low as possible.

In the case above Robert would have paid of his house in China after already 10 years. This is the difference between China and the West. The west keeps on spending money they don't have and the Chinese don't spend till they have it.

Just look at all the possibilities of mortgage forms there are in the west. China doesn't need or wants to play with this kind of banking tricks, because that is what it is, a banking trick. and the more complocated the sittuation gets, the more complicated the sollutions are going to be. Life is simple, but when humans find themselves in difficult sittuations they tend to make it more difficult. Chinese rather suffer for 10 years and then have a mortgage free house that then can be used as a collateral for what they want.

What about ground lease then. The ground of Every house in China belongs to China. After 70 years your house will go back to the government. That might seem unfair, but is it? I think its smart, you buy a house to life in, not as an investment. This gives China the possibility to rebuild your house after you lived in it for maximum 70 years, let a real estate building company build a new house on that ground. Of course the income of that ground for the government will be charged to the current worth. Very very smart.

Another advantage is, when the government wants to build an Art area, airport, trainstation etc. it just has to wait till this 70 years are over and they can. In the west we need lawyers and real estate agents to sell your property back to the government, making the new construction and plans almost impossible to realize.

Conclusion:

The difference between China and the West is that the West saves less and spends more while Chinese save more and spend less. Banks and govermnets in the West need to take high risks to compensate their loss, while China take less risks. who is smarter in your opinion?

The West is still stuck in their bright unrealistic imaginary future dream, the older I get the more I will earn, I will be a millionaire soon, my business is going to be a success, my house is going to be worth 10 times more. Dreams upon dreams upon dreams, that are fed by the government and businesses. It’s a future based fairy tail economy and unfortunately we all need to wake up one day and face the present.

Spend what you have, not what you think you’re going to have. A lesson I had to learn myself the hard way. A lesson the west still hasn’t learned.

Life now, afford what you can, Love, laugh, cry, live, live with Body and Heart, live fully, feel fully, touch fully, love fully, Be. Be one, be full, be One-body, Be a HeartBody.

Hug,

དཀོན་མཆོག་བསྟན་འཛིན།

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