good points about how a single party system can respond differently than the US government can

Going back as early as Charles Mackay's studies in 1841, it has been understood that real estate bubbles proceed through stages, in which the final stage represents what is now referred to as the "new paradigm" era. Everything is supposed to be different. Economic laws have been lifted and prices are allowed to rise in parabolic fashion. We can certainly see prices rising in this fashion in China, with the average citizen now being pulled into the maelstrom, confident that government or some other powerful force will keep the momentum going.

As you know, these models do not predict when the bubble will begin to collapse. Andy Xie professes that he will let you know when it has started, but he doesn't know now. Especially when the forces in support of the bubble are so powerful.

But while it is vexing not to know when, we do know if it is the major governments of the world backing a public sector debt bubble, which is now already deflating, or whether it is China's Communist Party deeply enmeshed in real estate speculation, the end result will be the ugliest imaginable.

Clearly China is in the end stages of a speculative mania over real estate, with rows and rows of unoccupied apartment buildings dotting every city, shopping malls empty waiting for buyers who do not exist, one entire city in Mongolia that is still waiting for its first resident, and now cooks and maids using all their cash to buy in to the "sure thing". The rest of us need to get to high ground before this tsunami hits.

What makes you say, other than Greece, that the public sector debt bubble is deflating. It still seems to be going strong to me.

In the U.S. Obama's hands are already constrained by the deficit nags. Long bond rates have shot up to nearly 5%, well above the lows seen two years ago when there was a global flight to quality. In this respect, while the U.S. can continue to issue large amounts of debt, it cannot do so at geometric rates of increase. On this basis, we've passed through the "deficits don't matter" fantasy phase of debt expansion, and can consider the bubble that Bush created and Obama abetted has begun to deflate.

We seem to be on the cusp of beginning to reverse course and start reducing the deficit. That is, if the Obama commission has its way and the administration feels it has leeway to enact some of its provisions. At that point I think we could truly say the debt bubble is deflating, but I have to admit we aren't there yet. There is a slow leak in the bubble but not an onrush of air outwards.

The UK appears to be in the same situation as is Australia. China in a sense is already there because it doesn't really issue debt, it racks up trade surpluses. It can deplete its reserves but it has no standing in the bond markets to start issuing large amounts of debt. So globally, we seem to have passed the point where any major government can expand its debt levels significantly.

And where might that be? Any general clues?