GLOBAL: Quick Macro Comment
The main issues weighing on the minds of global economists in recent days are those surrounding "rebalancing." Vis-a-vis, the US as a central driver of the global economy needs to reign in it's twin deficit. The main pieces to this reblancing will be a weaker dollar to boost exports and higher real interest rates to reign in both consumer spending and bolster the credit markets.
However, with the Fed nearing the end of monetary tightening, with only one or two more ratchet ups (to about 3.75%), the US dollar should exhibit some signs of moving southward. It has remained not only resilient, but moreover is showing buoyancy in forex markets, trading against both the euro and yen at similar levels to 2Q04.
On more close examination at US economics, the some analysts are focusing on the relative flattenning of the yield curve. History teaches that the yield curve has strong cyclical correlation. The Fed has tightened, the curve has flattened and so growth should slow. If the US slows, then the Global economy slows, and rebalancing down occurs.
The flip-side to this argument, which was popular 4Q04, was that Foreign Central Banks (Japan, ex-Japan) would continue to finance the US Debt and push Europe to actively or passively as well, causing a rebalance upwards.
These two arguments are of course not fleshed out (oil prices, inflation, CPI are key items which would create more models) but illustrate the changing global economy. Both of the aforementioned arguments are models derived from a anglo-saxon centered global economy. However, as the nations of the East (namely China) integrate further and more inextricably with the Global economy, new paradigms of thought will need to emerge.
**lending weight to the "conundrum" of interest rates, is the inability of central bankers to put forth a concensus explanation as the results from the coming G7 meeting London will likely echo the uncertain conjecutres put forth at the International Monetary Conference this past Tuesday in Beijing. <1> <2>
Thoughts I will try and find time to explore are:
1) The exhibited tendency of Asian nations to accumulate savings. How does this offset the US low savings problem.
2) Introduction of a overwhelming new production base. China was once linked only to the global economy by its low labor cost and so was only introducing labor intensive low-margin goods to the global market (hence "made in China" became synonymous with low end goods). However, the China of today has ascended into the WTO and is bringing its potential to bear on the global market. The scale of China's production capability is expanding near exponentially, and though we have seen the US and Euro throw up anti-surge measures in textiles, China offers so many other products at ultra-competitive prices that China will remain a key supply side trading partner.
3) The Asian region is increasing its interdepency and intra-regional trade. Japan and China is an intersting pair to watch as economic opportunity struggles against historical tension.
However, with the Fed nearing the end of monetary tightening, with only one or two more ratchet ups (to about 3.75%), the US dollar should exhibit some signs of moving southward. It has remained not only resilient, but moreover is showing buoyancy in forex markets, trading against both the euro and yen at similar levels to 2Q04.
On more close examination at US economics, the some analysts are focusing on the relative flattenning of the yield curve. History teaches that the yield curve has strong cyclical correlation. The Fed has tightened, the curve has flattened and so growth should slow. If the US slows, then the Global economy slows, and rebalancing down occurs.
The flip-side to this argument, which was popular 4Q04, was that Foreign Central Banks (Japan, ex-Japan) would continue to finance the US Debt and push Europe to actively or passively as well, causing a rebalance upwards.
These two arguments are of course not fleshed out (oil prices, inflation, CPI are key items which would create more models) but illustrate the changing global economy. Both of the aforementioned arguments are models derived from a anglo-saxon centered global economy. However, as the nations of the East (namely China) integrate further and more inextricably with the Global economy, new paradigms of thought will need to emerge.
**lending weight to the "conundrum" of interest rates, is the inability of central bankers to put forth a concensus explanation as the results from the coming G7 meeting London will likely echo the uncertain conjecutres put forth at the International Monetary Conference this past Tuesday in Beijing. <1> <2>
Thoughts I will try and find time to explore are:
1) The exhibited tendency of Asian nations to accumulate savings. How does this offset the US low savings problem.
2) Introduction of a overwhelming new production base. China was once linked only to the global economy by its low labor cost and so was only introducing labor intensive low-margin goods to the global market (hence "made in China" became synonymous with low end goods). However, the China of today has ascended into the WTO and is bringing its potential to bear on the global market. The scale of China's production capability is expanding near exponentially, and though we have seen the US and Euro throw up anti-surge measures in textiles, China offers so many other products at ultra-competitive prices that China will remain a key supply side trading partner.
3) The Asian region is increasing its interdepency and intra-regional trade. Japan and China is an intersting pair to watch as economic opportunity struggles against historical tension.
(Exports FOB, Imports CIF)
posted by howa at
6/07/2005
