The world has been controlled by devil agreement with money and debt. Simply if you want to get rich, service more debt. There is no exit to exponential growth. Every year, no country is able to declare negative GDP growth. No question that money supply has to go exponential but is productivity doing same?
US enjoys divergence of the only country that can “normally” increase rate. It’s arguable whether raising rate in this most liquid era is supposed to reduce inflation or would it trigger more inflation? I’d think the second. If rate has to increase, it may show some sign of ‘inflation’ or an effort to push cost higher, regardless whether it’s artificial or not.
There’s a question whether flattened yield is a sign of recession like in past 60 years. To different to previous ones, there is a huge derivative position that could suppress rate of 10y. Other than that, Federal Reserve is still having 1.8T excess in balance sheet that can be orchestrated on USD and longer maturity bonds to maintain yield curve from being inverted in real. Currently I don’t think we should be afraid of recession as long as policy makers keep on their normalization path. They still have enough ‘tools’ to keep the party going.
Recent trade war is merely a way to push others to change their policy rather than to bring down global economy growth. Higher wage growth which can support fundamental of higher rate is not yet seen. It’s no surprise that there is still in huge difference in productivity between US and China to push wage growth higher. I would think trade war is a way to support inflation, therefore the excess balance can last longer.
For decades, there was huge amount of commodity funds created within developed countries. However they have not been performing well since the eclipse of 2008 spike. Indeed petro-yuan is now challenging superiority of the master, America and his allies. The global consumption was driven mainly in developed countries and now being challenged with raising of huge emerging middle class consumption. Have a look consumerism in Asia, China and India or in dramatic way, watch millions of “crazy rich Asians and Indians”. Their raising middle class can easily exceed America consumption soon and the world could be challenged again. The amount of consumption growth in US had been slow down while old generation huge saving in China for example is now inheriting their saving and leverage them to their children.
When we enjoy good life, we take advantage of cheap labor, and so is happening in Iran. Iran is a country who can sell oil cheaper to China, India and Europe. When China contracts to survive on inflation threat, Iran supply is becoming prominent to billions of poor people in China, India and as well for Europe. However it causes economy issue to UAE who have been enjoying long decades of good life and oil prosperity. Even when foreigners are leaving the UAE country, due to slow down of economy, existing citizen is still unwilling to go back to hard working. In order to satisfy human basic instinct of not working hard, it may need a cost of war with Iran and asking higher price of oil. Any effort and shift of this have caused volatility in commodity market which is unfortunately has been long tightened well in petro-dollar.
Shouldn’t buyer be the king? Since the eclipse of 2008, commodity funds shift their crown to new leaders. Manufacturing has been shifting to cheap labor and will always be. The material to manufacture is oil and commodity. Since massive boom of manufacturers middle class, it’s no longer end of line or consumer who decides the material, it’s the manufacturer who buys the material decides the fate of oil.
However it’s not easy to replace dominance of developed countries, simply due to amount of money held with them is still too big and none is able to challenge their over 220 T$ of shadow banking backbone. Just like casino, anytime any new player increases their money capacity, the casino has to increase capacity much bigger, just to survive. Xi has promised more open world to their commodity space in effort to allow global inflation, but again everyone is cautious to put their money in other backyard since there is a lot of uncertainty with communism. It should be the main reason of global weak wage growth where the only way to increase wage in my opinion is to increase inflation expectation and reduce inflation threat to global economy. Where else we can look the threat, no other than the excess balance sheet of Federal Reserve itself.
The economy book has been long written based on America history and culture in which there was no significant competition from others. I’m still amazed on how people are, as usual, brainwashed by media on their view on China with trade war of tis tat. If we put ourselves on their feet, we are same greedy human who is basically lazy and being carnivore. A lot of their old generation are working for life and death and those money is now going to their children who are now creating millions of new middle class of consumptive generation while developed countries have been taking advantage of debt and inflation to service their bigger and bigger deficit. I’m not saying trade war is bad nor see end of deficit, I see it as a good negotiation of both same human race. I believe the end result of the trade war and any like this, should come back to basic instinct of human, debt and inflation, once and for all. If China and other countries could have less inflation threats, I believe we will see a lot of smiley faces, and me, the end of my great inflation expectation bubble burst.
In summary, I haven’t seen economy is working normally after one decade of easing and 3 years of normalization and I doubt it will. It is still money who decides the economy and no longer university economy theories. It’s true that past performance never dictates future return but money always does. Hedge funds nowadays are so dumb, that their job is only to make sure the policy makers are still on their money side, else they will dump position, regardless of theories or even facts. Economist or big funds will keep brainwashing media with negative idea, to help policy makers have enough professional economy research to keep money life support flowing. It’s not money allocation based on economy numbers, but the other way around, since most of economy numbers are now artificial/man-made anyway. One day I may publish my own decades of experience of what i called money theory, dedicated to my beloved daughter who is still 3 years old. She may then rewrite all outdated economy theories.
It’s merely my 3 cents and not in any case of financial advice.]]>