Garlic Bubble?

Easy money to stimulate China’s economy has inadvertently led to a speculative garlic bubble.

The price of garlic in some parts of China has reportedly gone up from 15 to 40 times since March 2009.

China produces ¾ of the world’s garlic. Before this recent bubble, the export market for garlic has collapsed with the global economic downturn.

But a confluence of events has led to its soaring price.

First, garlic plantings have been reduced by 50% because of the weak export market.

Second, the swine flu scare has led to a higher than usual domestic and export demand for garlic because of its reputed medicinal value among the Chinese for warding off diseases.

Third, the Chinese government’s easy money policy to stimulate domestic aggregate demand has generated a large amount of speculative fortune waiting to exploit any conceivable profitable opportunity.

Speculative hoarding and flipping of garlic has thus led to the garlic bubble.

Just as the easy money in the US has fueled the housing bubble in the late 1990’s and early 2000’s, history seems to be repeating itself in China’s garlic bubble and housing bubble.