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Download FORBES Indonesia November 2013

by Jennie S. Bev

Often overlooked,
there appears to be a rough correlation between skyscrapers and financial
bubbles. Skyscrapers and other magnificent architectures may be useful
indicators of speculative economic bubble conditions. The Burj Khalifa, the
world’s tallest building at 830 meters, had to halt construction after the 2008
global financial crisis started.

Take a look
at some other skyscrapers. The Taipei 101 at 509 meters marked the tech bubble.
Petronas Tower in Kuala Lumpur at 452 meters marked the Asian financial crisis.
Sears Tower in Chicago at 527 meters and World Trade Center in New York at 526
meters marked 1970s stagflation. The Empire State building at 443 meters,
Chrysler building at 319 meters and 40 Wall Street building at 283 meters in
New York marked the Great Depression. The Metropolitan Life building at 247
meters and the Singer building at 187 meters in New York marked the Panic of
1907.

China itself
is susceptible to bubble conditions, if we go by building heights. By 2015,
China will house the world’s number 2, 3, 5, 9, and 10 tallest
buildings. According to Vikram Mansharamani, author of “Boombustology: Spotting
Financial Bubbles Before They Burst,” this indicator is consistent. Why? Because
magnificent architecture is built during times when investors have access to excess
liquidity, as very tall buildings require large amounts of financing.

“A period of
easy money leads to rapid expansion of the economy and a boom in the stock
market… and this is when the world’s tallest buildings are begun,” notes
economist Mark Thornton, who proposed a skyscraper index financial model to
track this correlation in 2005. Some economists have proposed this idea even
earlier, back in the late 1990s, although others have cast doubt how serious
this indicator is to predict a financial bubble.

What about
Indonesia? Many are now fascinated with the idea of building one of the longest
bridges in the world: the Jembatan Selat Sunda (or the Sunda Strait Bridge). Though
not breaking a world record, this 30-kilometer bridge would connect Sumatra
with Java and cost Rp 100 trillion. Construction is expected to start in 2015
and take a decade to complete, under current plans.

Given the
recent turmoil in the markets, and the rise in interest rates, perhaps there is
some correlation between the plans for the Jembatan Selat Sunda and a possible
end of  easy money in Indonesia. To be
sure, many expect the Fed to make good on its tapering promise sometime in
2014. The 6% growth rate of the last few years may not be true of the future,
as forecasts are getting trimmed back to 5% or even less for 2014.

While it is often hard to tell when markets are in a
bubble and about to burst, it’s much easier to see the construction of major
skyscrapers. The world, after all, is a gigantic real estate market. Next time you
visit the Petronas Tower or the Empire State Building, remember the background
of these magnificent buildings and how they were funded in the first place.[]

Forbes Indonesia, November 2013

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