Posted on 08/24/2022 4:35:20 AM PDT by FarCenter
For much of the last decade, one could invest according to the adage, "The U.S. sets liquidity, China determines growth and the rest of the world deals with the consequences." But this is all changing and Asia, previously one of the biggest beneficiaries of globalization, could be the biggest loser.
Asia has two distinct sets of problems. Shorter term, Asia relies on the dollar to provide liquidity and facilitate trade.
This is effectively the natural outcome of the U.S. absorbing Asia's vast trade surpluses. The dynamic worked well following the global financial crisis as the U.S. kept rates ultralow and pumped liquidity into the world's financial system. This turbocharged flows into the region as yield-hungry investors searching for higher returns bought everything from high-yield bonds to illiquid private assets and speculative real estate.
But with the U.S. Federal Reserve now raising rates, liquidity has gone into reverse and is flowing back out. Asia now faces an unenviable choice. Either central banks keep rates low to support the local economy and accept the loss of foreign exchange reserves in the hope they will still have enough to wait out the U.S. rate cycle, or they must raise domestic rates to try and stem the outflow, a risky path for the region's weaker economies.
Nowhere benefited from easy money more than China, which came to rely more and more on cheap debt to fuel its immense construction sector. In turn, the property boom sucked in resources from across the world and gave the illusion of a powerful economy on the rise, rather than what might prove to have been a giant, debt-fueled property bubble.
With its growing swaths of problems in real estate, China needs monetary policy conditions that are the opposite of those in the U.S. But Beijing cannot afford capital outflows, which means that any relaxation of currency controls is highly unlikely.
China's slowdown will challenge the region at the same time that liquidity is under pressure. The country's growth has pulled many countries into its economic orbit, but as it attempts to rebalance, demand for imports will also likely decline, creating a serious challenge for regional trade.
Yeah, that was prudent of us.
The U.S. Dollar hit 1.09 yesterday against a basket of foreign currencies, which was almost a 21 year high.
Also, one Euro is trading below $1.00 for the first time in 20 years.
With that kind of US Dollar strength, I am beginning to wonder if inflation will drop very quickly in the USA?
I'm afraid it doesn't work like that. Just because many foreign currencies have an even worse inflation rate than we do, doesn't mean our inflation rate is dropping bigly.
It'd be like Chris Christie's doctor telling him he needs to lose weight. That doesn't change even if Christie states to his doctor: "at least I'm not as fat as Stacey Abrams".
——the illusion of a powerful economy on the rise,-——
The preverbal chickens in China have come home to roost. The problem is that there is no roost.
Having been left holding the bag, the banking system is beyond help and cannot cope with the immense problem
The real-estate Development industry went out of control fueled by debt.
The high speed rail industry is in equally massive bad debt failure
The real estate and highspeed rail were the basis for the economy and now both have simultaneously failed.
China is in serious trouble
I agree it will not stop all USA inflation, but the price of foreign goods does drop when the USD gains value, and it will definitely help with our trade deficits.
China’s real estate bubble is THREE TIMES the size of our 2008 real estate bubble when it burst. The Great Recession did not really end until about 2016. Japan still hasn’t really recovered from its massive real estate bubble bursting in 1990.
If China takes 15-20 years to recover, it will have another huge problem. Its workforce will be old and shrinking substantially thanks to the one child policy. That will be the end of cheap Chinese labor.
A strong dollar will make our trade deficit WORSE.
I think that may be backwards. Our trade deficit is bad when we import more value than we export. A strong dollar would make exports more costly to other countries, so they would tend to buy less. IIRC.
China aims to dominate the future of robots
Government seeks to double 2020 robot-to-human ratio to about 500 robots per 10,000 workers by 2025
https://asiatimes.com/2022/08/china-aims-to-dominate-the-future-of-robots/
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