The global economy has just hit the wall. Do not underestimate
the significance of the Asian downturn. Japan saw a dramatic rebirth after WWII and China was transformed into an industrial
powerhouse from the “Free Trade” debacle. Now that the Central Bankers of the world are turning to Japan and China
to keep the financial bubble from blowing, the focus pivots to the East. Pushing on a string is no easy task. Nervously, all
eyes have to wonder if more debt will prevent the expected crash.
When the British financial press warns about Spreading deflation across East Asia threatens fresh debt crisis, people should listen.
“Deflation is becoming lodged in all the economic strongholds of East Asia. It is happening faster and going
deeper than almost anybody expected just months ago, and is likely to find its way to Europe through currency warfare in short
order.
China
is in effect strapped to the rocketing dollar through its quasi-peg, increasingly a torture machine. George Magnus from UBS
says this cannot continue. “What is happening in the property market is the tip of the iceberg for the whole economy.
China will have to resort to monetary reflation over the winter, and I think this will include a lower yuan. We are heading
into a currency war,” he said.”
The
Economist provides the establishment viewpoint of the latest strategy in Deflation, deflated.
“WHEN
people think of a large Asian country on the brink of deflation, they probably have Japan in mind. But China, the biggest
of them all, is now skirting close to outright falls in prices across a wide swathe of the economy. Producer prices have been
declining for nearly three years and consumer price inflation is mired at its lowest level since 2010.
Deflation is rightly feared by central bankers
around the world as a most destructive economic force, making debts more expensive in real terms and leading to a vicious
cycle of contraction as consumers delay purchases and companies put off investments. Yet the Chinese central bank has been
remarkably laid-back about the downward lilt in prices. The most obvious tool in its kit to arrest the slide would be to cut
interest rates, but it has not done so since July 2012; the benchmark one-year lending rate remains lofty at 6%. What explains
the central bank’s calm in the face of falling prices, and is it making a big mistake?”
This last assessment demonstrates that when the shift in direction was announced,
the financial community jumped on the bandwagon to In Change of Strategy, China Cuts Interest Rate.
“China
finally admitted it has a growth problem — and that is a big step to getting the global economy back on track.
In cutting rates, China
joins the parade of global policy makers who are stepping up their stimulus efforts to support growth. They are filling a
void left by the United States Federal Reserve, which just ended a six-year bond-buying campaign that has kept borrowing costs low and has encouraged spending worldwide.”
The admission that a massive infusion to recapitalize the international system requires a
new source to finance the retracting economies is significant. It seems that a tag team effort between China and Japan will
hit the banking houses from different directions.
Japan Fires Another Shot in Global Currency War is the analysis from the Wall Street Journal.
“The Bank of Japan 8301.TO -1.63%’s surprise move to increase its asset purchases has sent the yen plummeting, with the dollar passing through ¥110 Friday to trade at highs not seen in six years. This
is the mechanism through which Japan will try to restore inflation to its perennially stagnating economy. The BOJ describes
its actions in terms of boosting domestic growth and pricing power, but the real way it works is to export deflation to the rest of the world – it has been doing this ever since the
yen began an 30% decline versus the dollar once “Abenomics” stimulus measures were first floated in the fall of
2012.”
Japan will play the role
of the QE Federal Reserve policy and the Chinese will finally slash their interest rates. Such moves are not taken because
the global economies are prospering. Looking for actual growth is like Waiting for Godot.
The mystery that faces all economies
is when does deflation become impervious to further stimulus? How many more times can the deficits, imbalances and shortfalls
be papered or rolled over before a depression ensues.
Japan is already the poster child for negative growth and with the irrational expenditures that China has spent on
ghost cities, their reported growth rates are about as valid as a stock buy recommendation from a Wall Street firm that is shorting their
own portfolio.
Looking to the orient
to pull the world out of a lethargic corporatist spiral is problematic at best. China slowed growth now reported at 7.3 percent is seen as setting the stage that fuels debt and property bubbles. Yet the balance of trade surpluses that China continues
to build up against American consumption from their exports has never benefited economic conditions in the United States.
The Dollar Collapse site asks: Most of the World Panics — Is the US Next?
