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It is my strong belief that everything about the current global macroeconomic picture can be summed up in one phrase - "vendor financing".
Ie: The chinese are loaning money to the americans to buy their products. The chinese get rich (on paper), the americans get cheap goods. Everyone is happy.
The question I pose, can such massive, global vendor financing adventure continue? Or is it going to have a soft, hard, or crash landing?
Historically, if we look at the Japanese, it seems like this approach can drag out for quite a long time. Indeed, the Chinese would be foolish to crash the plane that is flying the global economy because they would only cause massive unrest amongst their new middle class.
Let's assume then, that everyone is 'on board' with this keeping this economy aloft. Can we not go on doing this forever until the economies slowly adjust ?
I think so, however the US will need to start taxing consumption. I believe americans have to consume less and produce more, likewise, the Chinese will need to encourage consumption (produce less, and consume more). But this should happen on a gradual basis and in a way that doesn't fracture the world. I believe, especially with the appointing of Paulson, that this is very likely to happen.
However - there are cracks in the engines, notably the Middle East and North Korea. I think North Korea is less of a risk (China has no desire to see North Korea give Japan a reason to do a nuclear upgrade) unless they do something stupid in a colossal way (such as hand out nuclear plans/devices to terrorists). I think it's all just brinkmanship and nothing to really worry about.
The middle east, however, is filled with Al Qaeda types ... people who seem to have only one desire and that is to destroy destroy destroy. If they really wanted to do, they could might be able to create a massive disruption and this whole cycle of vendor financing could fall apart (US goes into recession/depression, and China has to deal with massive unrest from their own recession, etc).
Even then though, we may find that China could just increase its vendor financing and everything will be good to go.
The other possibility is bird flu, but really, I have no idea what's up with that or if it's just some tin foil hysteria.
The one possibility I didn't talk about, and one that I really disagree is a serious possibility, is inflation. The fact is, the world knows all about inflation. If prices go up, so will interest rates. I just don't see inflation as a real possibility ... but this is also why I believe that the next move will be up for the fed funds.
Ie: The chinese are loaning money to the americans to buy their products. The chinese get rich (on paper), the americans get cheap goods. Everyone is happy.
The question I pose, can such massive, global vendor financing adventure continue? Or is it going to have a soft, hard, or crash landing?
Historically, if we look at the Japanese, it seems like this approach can drag out for quite a long time. Indeed, the Chinese would be foolish to crash the plane that is flying the global economy because they would only cause massive unrest amongst their new middle class.
Let's assume then, that everyone is 'on board' with this keeping this economy aloft. Can we not go on doing this forever until the economies slowly adjust ?
I think so, however the US will need to start taxing consumption. I believe americans have to consume less and produce more, likewise, the Chinese will need to encourage consumption (produce less, and consume more). But this should happen on a gradual basis and in a way that doesn't fracture the world. I believe, especially with the appointing of Paulson, that this is very likely to happen.
However - there are cracks in the engines, notably the Middle East and North Korea. I think North Korea is less of a risk (China has no desire to see North Korea give Japan a reason to do a nuclear upgrade) unless they do something stupid in a colossal way (such as hand out nuclear plans/devices to terrorists). I think it's all just brinkmanship and nothing to really worry about.
The middle east, however, is filled with Al Qaeda types ... people who seem to have only one desire and that is to destroy destroy destroy. If they really wanted to do, they could might be able to create a massive disruption and this whole cycle of vendor financing could fall apart (US goes into recession/depression, and China has to deal with massive unrest from their own recession, etc).
Even then though, we may find that China could just increase its vendor financing and everything will be good to go.
The other possibility is bird flu, but really, I have no idea what's up with that or if it's just some tin foil hysteria.
The one possibility I didn't talk about, and one that I really disagree is a serious possibility, is inflation. The fact is, the world knows all about inflation. If prices go up, so will interest rates. I just don't see inflation as a real possibility ... but this is also why I believe that the next move will be up for the fed funds.
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