Monday, October 29, 2018

Hedge Fund CIO: "Today, The Chinese Are Trapped... And The Box Keeps Shrinking"

Can't say I agree with all of this piece but one bit stands out:
“Today, the Chinese are trapped. They need to keep policy easy to prevent implosion of their crazy-levered economy, but easing pressures their currency, which induces capital flight. So far, they’ve sidestepped this dilemma through capital controls and portfolio inflows (the latter a result of co-opting global asset managers and bureaucrats by getting included into global benchmarks and the SDR basket). But these are just delaying tactics.” As the box keeps shrinking.
Via ZeroHedge:
“America built the global trading system, but we don’t really need it,” said the strategist. “We defend it, but we don’t require it.” For all the free-trade talk, the US is the most closed of all major economies. “When you include Canada and Mexico – basically vassal states – you could cut off trade with every other country and America would run just fine.” Plus we haven’t even started fracking south of the border. “We built the trading system to support our allies during the Cold War. We subsidized them for so long we forgot why we were doing it. But the war is over.”

“The US pays for the security that underpins world trade,” continued the strategist. “And we provide the excess demand that allows the world’s mercantilists to function.” No large nation/block is willing to run a current account deficit like we do. “The Bushes and Clintons kept it going. Obama too. They kept the Cold War alive. And it was great for Wall Street, multi-nationals, their executives.” But it wasn’t great for most workers. “The rearrangement we see today was inevitable. It just needed a leader strong-willed enough to defy the establishment.”

“Neither Democrats nor Republican leaders wanted this change,” explained the strategist. “But almost overnight, voters have woken to the notion that China is not our friend. It’s a strategic rival.” This genie will not return to the bottle. “Neoliberalists assured us that welcoming China in the WTO would yield a win-win.” It certainly helped them get rich. “A strong China is not really a win for the US. It’s not a win for Vietnam either.” Or anyone within 1,000 miles of Beijing. “This change is generational. And the impact on China will be terminal.”...