Dear,
As you could read here some weeks ago, as we move deeper into the Systemic Crisis, countries become inter-dependents. We’re entering in a post-global era in which everybody depends on everybody, and what somebody does affects the others.
http://sapbank.blogspot.co.uk/2013/06/i-wish-it-were-your-decision-mr-bernanke.html
Chinese economy has played a very significant role in the last 20 years. Once the production costs made it impossible to grow (at historical rates) by manufacturing in Western Countries, delocalization in China was the solution for keeping high growth rates.
Trade deficit was financed with debt and we enjoyed fantastic growth rates for 2 more decades. Solvency was consumed in the process, and when solvency became scarce, growth slowed down.
Now, we’re in the middle of the Systemic Crisis, but we’ve been said this summer that as US economy is in the path to recover, interest rates will be raised.
In my opinion, for understanding the event, we must analyze who is financing the American deficit and how are they doing it.
China is the main foreign holder of US debt, with approximately 8% of the cake, but Chinese institutions have their own problems, and it’s unlikely they can keep financing the US deficit as they did in the past.
http://online.wsj.com/article/SB10001424127887324906304579036592255182758.html
If financing US debt is becoming more difficult, the logical consequence is raising the Yield, and that’s exactly what’s going on. Of course, it’s nicer saying that interest rates are rising because US economy is in the path to recover than recognising US dependency in the Financial Markets and foreign investors.
And again, we’re in an interconnected economy with a globalized financial system; as a consequence, what someone does, affects the others.
Liquidity injected during QE easing cycles found their way to inflate bubbles, mainly in developing economies, that’s why their economies performed so well in the last 4 years.
As usual, with the rise of the interest rates, bubbles start to be burst, and that’s exactly what’s starting to happen.
http://blogs.marketwatch.com/capitolreport/2013/08/21/fed-plan-to-taper-slams-india-turkey-other-countries/?mod=MW_latest_news
Interest rates rise is not the problem; it’s just the symptom of a systemic crisis generated by an exhausted model based on wasting Capital. While Capital was abundant the model work, as Capital became scarce the systemic crisis started.
Let me recommend you to read the following article, by Novel Prize, Professor Paul Krugman.
http://economistsview.typepad.com/economistsview/2013/08/paul-krugman-this-age-of-bubbles.html
Professor Krugman recommends harder regulation of the Financial System and says
“In short, the main lesson of this age of bubbles ... is that when the financial industry is set loose to do its thing, it lurches from crisis to crisis”
And I cannot agree more; but he also says
“But the Fed was only doing its job. It’s supposed to push interest rates down when the economy is depressed and inflation is low”
And I don’t agree, sovereignty and supposed independency of the Fed for determining interest rates has been as responsible as deregulation for sustaining the old model, and they’re both responsible of the systemic crisis. By the way, that’s why is systemic.
As the new model will be based in Capital Optimization, regulation will be harder, and coordination amongst central banks will be higher (coordination sounds better than lost of independence, isn’t it?)
I said it once and I will say it again.
"I wish it were your decision Mr. Bernanke"
Looking forward to read your opinions.
K. Regards,
Ferran.
As you could read here some weeks ago, as we move deeper into the Systemic Crisis, countries become inter-dependents. We’re entering in a post-global era in which everybody depends on everybody, and what somebody does affects the others.
http://sapbank.blogspot.co.uk/2013/06/i-wish-it-were-your-decision-mr-bernanke.html
Chinese economy has played a very significant role in the last 20 years. Once the production costs made it impossible to grow (at historical rates) by manufacturing in Western Countries, delocalization in China was the solution for keeping high growth rates.
Trade deficit was financed with debt and we enjoyed fantastic growth rates for 2 more decades. Solvency was consumed in the process, and when solvency became scarce, growth slowed down.
Now, we’re in the middle of the Systemic Crisis, but we’ve been said this summer that as US economy is in the path to recover, interest rates will be raised.
In my opinion, for understanding the event, we must analyze who is financing the American deficit and how are they doing it.
China is the main foreign holder of US debt, with approximately 8% of the cake, but Chinese institutions have their own problems, and it’s unlikely they can keep financing the US deficit as they did in the past.
http://online.wsj.com/article/SB10001424127887324906304579036592255182758.html
If financing US debt is becoming more difficult, the logical consequence is raising the Yield, and that’s exactly what’s going on. Of course, it’s nicer saying that interest rates are rising because US economy is in the path to recover than recognising US dependency in the Financial Markets and foreign investors.
And again, we’re in an interconnected economy with a globalized financial system; as a consequence, what someone does, affects the others.
Liquidity injected during QE easing cycles found their way to inflate bubbles, mainly in developing economies, that’s why their economies performed so well in the last 4 years.
As usual, with the rise of the interest rates, bubbles start to be burst, and that’s exactly what’s starting to happen.
http://blogs.marketwatch.com/capitolreport/2013/08/21/fed-plan-to-taper-slams-india-turkey-other-countries/?mod=MW_latest_news
Interest rates rise is not the problem; it’s just the symptom of a systemic crisis generated by an exhausted model based on wasting Capital. While Capital was abundant the model work, as Capital became scarce the systemic crisis started.
Let me recommend you to read the following article, by Novel Prize, Professor Paul Krugman.
http://economistsview.typepad.com/economistsview/2013/08/paul-krugman-this-age-of-bubbles.html
Professor Krugman recommends harder regulation of the Financial System and says
“In short, the main lesson of this age of bubbles ... is that when the financial industry is set loose to do its thing, it lurches from crisis to crisis”
And I cannot agree more; but he also says
“But the Fed was only doing its job. It’s supposed to push interest rates down when the economy is depressed and inflation is low”
And I don’t agree, sovereignty and supposed independency of the Fed for determining interest rates has been as responsible as deregulation for sustaining the old model, and they’re both responsible of the systemic crisis. By the way, that’s why is systemic.
As the new model will be based in Capital Optimization, regulation will be harder, and coordination amongst central banks will be higher (coordination sounds better than lost of independence, isn’t it?)
I said it once and I will say it again.
"I wish it were your decision Mr. Bernanke"
Looking forward to read your opinions.
K. Regards,
Ferran.
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