Thursday, July 30, 2015

Forget lift, some are already talking about QE4

Thought for the day
"If Winter comes, can Spring be far behind?"
-          Percy Bysshe Shelley (English, 1792-1822))
Word for the day
Accouterment(n)
Personal clothing, accessories, etc.
(Source: Dictionary.com)
Malice towards none
How long could we afford to put the matter of terror attacks to rest just by blaming Pakistan, without assigning any local accountability?

Forget lift, some are already talking about QE4

Post Lehman collapse, for once it appeared that the US is becoming a marginal force in the emerging global order. Emerging economies like BRIC, South Africa. Mexico, Indonesia etc. asserted themselves as leaders in a new multipolar world. G-20 was formed to undermine the supremacy of G-3, G-8 etc. The global multilateral financial and development institutions also saw rise in influence of these countries in their affairs.
However, the events of past six years indubitably establish that Uncle Sam may have lost a few battles, but it is certainly on course to win the war. Consider this:
(a)   Plagued by sub-prime crisis which crippled its financial institution, the US did not bow down. It successfully transmitted the disease to these resurgent emerging economies and rescued its financial institutions.
Most emerging economies, especially India and China are now struggling with huge sub-prime assets with no clue as to how to get rid of these. After all their machines do not print US$ and Uncle Sam has stopped his printers.
The troubled US banks and financial institutions are strongly back in business and to their old ways too.
(b)   Many influential voices from the US have already suggested that the era of global economic cooperation and coordinated policy action seen during 2008-09 crisis is over. Fed chairperson Yellen has been quite categorical on many occasions that we will do only what is in the best interest of the US. If monetary tightening in the US disrupts common man’s life in 100 countries so be it.
(c)    US exported deflation to the world through persistent zero interest rates and strong USD. This deflationary spiral has brought the commodity driven economies to their knees. The threat of petro dollars is mostly off the table now.
(d)   After attaining a degree of energy independence, the US also does not bother about situation in Middle East or South Asia.
Iraq was raided merely on the basis of unfounded doubts about weapons of mass destruction. Syria has actually used these weapons and no action has been taken. ISIS is brutally beheading people at virtually at will. We are yet to see a comprehensive plan to check the menace. Sanctions on Iran have been lifted. Cuba is a friend. Ukraine is left for EU to sort out with Putin.
(e)    Large ownership of US treasuries by Chinese and Japanese have been a point of pressure for US for long. However, some recent reports are suggesting that even this pressure point is gradually releasing as China has been forced to sell huge chunks of US treasuries to stem the rot in their financial markets.
As per a JPM report, YTD China has sold around half a trillion dollars worth of USD assets, rather unwillingly. More such sale is expected in coming months........(more on this tomorrow)
There are speculations over how it would impact the Fed's monetary policy decision. But one thing is certain - Uncle Sam will be the only one left laughing when cows come home.

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