What is Janet Yellen, new Fed chairman, really worried about?
It won’t happen tomorrow but slowly but surely the world is moving from dollars. The petrodollar system which has been key to the world economy over the last 40 years is eroding. More and more country to country deals are being done in currencies other than the dollar. The economic world as we have known it, after Bretton Woods in the Cold War Era, the post Cold War era, and the post 9-11 era is fundamentally shifting. The dollar is not what it once was. It is no longer “almighty” and one should be prepared.
The Chinese have poured stimulus on top of stimulus already. An archipelago of idiot central planning projects stretches from the Ordos desert in the north to the lush mountains in the south. High rises reach to the sky but are empty, in the middle of cities which are empty, in a country which is anything but empty.
Remember when we couldn’t keep the White House open, “The People’s House,” because of the budget impasse? Michelle Obama not taking just one of her vacations (paid for by you and me) would have paid for the tours and staff at 1600 Pennsylvania Avenue for at least a couple of years.
Though we gave a mixed review to The Economist’s Index of Crony Capitalism, we are very pleased that such an index now exits even if it is flawed. (Too much focus on billionaires, not enough focus on broader more middle class crony capitalism. The index also encourages the idea that crony capitalism, which is created by regulation to a large degree, can be regulated away.)
China is an amazing political and economic entity. Watching it is fascinating.
Is it slowing? How much? Is it a lot? Is it a lot more than even the pessimists think? Is the Chinese banking system looking at a “black hole moment”? Can the banks be bailed out by the Chinese central bank without setting off a worldwide economic wildfire? No one knows the answer to these questions, including the powers that be in China.
China is the ultimate crony capitalist state. It is a country which is built on lies on top of more lies on top of more lies on top of more lies.
The economic tide has been going out for quite a while, but the pace has just quickened in emerging markets – big time. Things have become quite unsteady and no one knows whether the current instability will trigger something broader in the developed economies. China is slowing. Japan has horns locked with China economically and increasingly politically. Europe is catching its breath before another wave rolls through.
I am not saying this is the capitulation. Who knows? Frankly no one. But it’s time to pay attention if you have money in the market.