Before they can deal with inflation successfully, they have to resort to very serious measures like reining in money supply with the Fed increasing interest rates more aggressively, which they are contemplating. I would say that that is more likely a high certainty and with it a big recession is on the way globally. Oil and gas is just one factor contributing to the high inflation around most of the Western economies. There are much more to tackle than just starting to speculate that inflation would ease by 2023.
We are just having a glimpse of the tip of the economic problems plaguing the world. There is the larger problem of the Western Banking System's preoccupation with derivatives over the last few decades, and Big Banks are now in deep shit over the derivatives issue that has yet to be seen in perspective.
How much more money is generated with those derivatives is beyond imagination, and it looks a doomsday time bomb waiting to explode. Nothing about that is touched yet, because they think that by not discussing it, the problem is not there. It is there and how it will unwind is waiting to be seen. That will come when the US$ hegemony comes to an end. Then the shit will hit the fan in all it's glory. Lehman Brother's and Freddie Mae's collapse will feel like a Sunday walk in the park.
Anonymous
Yes, when the US$ hegemony comes to an end. However, that is still a long way to go.
ReplyDeleteFirst thing first. The near term event will be a high inflation that ultimately leads to stagflation. There will be very serious shortage of money. When money is scarce, it will drive the dollar even higher. When that happens, the dollar suddenly loses its values because people begin to realise the uselessness of the dollar. This will then drive everyone into a frantic mood. No one will want the dollar anymore.
Then that is the start of the downward trend of the useless US$.
We look at the BRI by China just from the perspective of visible infrastructure developments by China to help less developed countries move out of poverty and offer them avenues to progress. However, there are more at stake than that for China itself.
ReplyDeleteWhat is less talked about is even more important for China especially, and the strategic thinking that went into formulating this BRI move was brilliant. Over the decades China had been chalking up trade surpluses, some US$600 billion annually, with the USA. China had to find a way to recycle those accumulated US$ and not keep holding on to it waiting for them to be confiscated in the event of a conflict. China had seen all those daylight robberies, looting and piracies happening before their eyes - against Venezuela, Iran, Afghanistan and lately Russia. Russia had realised and had been preparing for this when they dumped all their US treasuries a couple of years ago, but still got caught in some way.
So, China cleverly used the accumulated US$ as loans to help poorer countries needing infrastructure developments, and gets repaid in Yuan over the tenure of the loans over many years. Significantly, it creates a global demand for Yuan, while those US$ loans extended to African and South American countries will eventually still end up in the USA, fueling all the inflation issues. That, plus the trade deals done between Russia, Iran, China and India in their own currencies outside of the US$ is putting enormous strain on the US economy. This is no small matter to counter.
In retrospect, not only are Russian Rubles now in demand for Russian oil and gas today, Chinese Yuan follows the same demand pattern, as countries in Africa, South America and Central Asia have to repay China in Yuan. Did the Russians and Chinese arrange for all this or just co-incidental? Think about it!
The whole BRI to date is said to have attracted investments totaling close to US$4 trillion according to some sources. So, that means China has recycled US$4 trillion of their estimated holdings of US$ assets of close to US$10 trillion (if I get my numbers correct from some source). With China's holdings of US Treasuries alone around US$1 trillion, there are still an enormous sum of US$ holdings available for China to spread around the world. though domestic requirements is also on the rise. And that is creating a rising problem going home to the USA to roost.
In the hands of small countries unable to formulate polices like the BRI, US$ in their hands is useless fiat money at best. In the hands of China, such fiat money is being put to use wisely, cleverly, and strategically to strengthen China's hand. The most telling factor is that China, besides providing all the financial backing, also had all the expertise of building infrastructures like HSR, airports, ports, dams etc, things which the IMF or World Bank cannot do unilaterally other than creating debt traps.
The longer the US$ hegemony hangs on, the bigger will be the bang when it happens.
ReplyDeleteIt would rather be a gradual stripping away, piece by piece, that is being done by Russia, China, India, Iran, and others that is the preferred route. BRICS will take the lead within the next couple of years, when they are economically capable of coming up with an alternative to SWIFT. That will be a big enough step to snuff out the power of the US$ hegemony, the sanctions especially.
The Derivatives issue is unsolvable. We assume the US debt was a monster. The Derivatives size dwarfs all that and it's size is unimaginable. No way the debts and derivatives can be resolved, only wait for it's detonation. And that means hell.
ReplyDeleteIn the 1980's we never thought China could rival the USA, and we brushed that aside as a long way to go, or even impossible to contemplate. All that has changed.
ReplyDeleteThree decades is all it took for China to cause so much consternation, fear, anxiety on the part of the USA, with them even resorting to consider using trade wars, technology sanctions, rallying of allies, all to counter China's rise. Everything done with rallying doggies is all geared towards countering China's rise using all manner of 'word salad' to justify their intent. Pardon the use of the phrase made notorious by Kamala Harris.
Sure, the fall of the US$ hegemony will take time, but let us not assume that time in today's timeline is going to take centuries.
UK's inflation is at 9.4% in June. Officially that is. Unofficially, a miss is as good as a mile. Take it with lots of salt.
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