HK Real Estate, GDP, Velocity of Money, M Base [Part 2]...

i have privately discussed these topics with various readers and they should have some familiarity with the blog [Part 1] right before this one.

the first chart here is chart 4 of Part 1, click on the charts for a better view.

HK Real Estate
if you look at chart 4 mentioned in Part 1 of the title, you will read then in 2008 the M base is only 800, now we have 2600 and that is 3 times as much. back in 2008, most apartments are in the range of hkd4500-5000 per sq ft, with a doubling of M base, you will surely have the real estate prices lifted towards a double or not far from it. this assumes a lot of money was channeled in that direction and it surely has since there are no yields to be found at the bank for deposits. but if you look further the M base expanded 3 times as much.

GDP
M base x Velocity of M = GDP, with so much debt and very strict lending standards, there is no way for the market to invest and also the euro crisis is putting a dent to investments, so the velocity of money trends lower thus the fed has to increase the money supply to make sure GDP is not slowing too much, yet a lot of the GDP generated is at the expense of the middle class which constrains spending and thus further investments as there is no revenue growth by volume but by price alone.

velocity of money is how many times the money base cycles through the economy, if people buy more stuff, thus more transactions and corps have more revenue and profits, so they can raise prices, increase salaries/wages and the cycle goes on. now we have the reverse due to deleveraging, people spends less on average, so corps cut back and limit wage increases though they can still maintain profits by cutting back faster than the drop in revenue and also reverse provisions.