Stimulus Addiction, Debt Woes, & Manipulation Schemes Abound
from Outsider Club Folks, there’s an alarming trend quietly emerging beneath all the distracting headlines this week — and believe me, I know there are more than plenty to take your breath away lately. Earlier this week, Jason Simpkins touched on a few scary scenarios currently underway within the world at large, explaining how each will have a detrimental, and very direct, impact on each one of us sooner than we realize. In the wake of global stimulus addiction, flawed monetary policies, and rampant manipulation schemes, sh*t’s really beginning to hit the fan. Global financial leaders are stuck in between a rock and a hard place… Without much choice, they’ve been forced to settle for new, lower standards of “normal.” And I for one am concerned about what this means going forward. If you read Jason’s piece earlier this week, you know the People’s Bank of China cut interest rates by 0.25%. But that’s not all… According to an article I read yesterday in The Wall Street Journal:
China lowered its economic growth forecast to about 7% for 2015 at the opening of the country’s biggest political event of the year, ushering in what leaders have dubbed a “new normal” of slower growth in the world’s second-largest economy. The move signaled Beijing won’t take dramatic action to raise the growth rate above last year’s level, which at 7.4% was its lowest level in nearly a quarter-century. At the same time, its leaders signaled concerns that an even sharper drop in growth risks higher unemployment and social unrest. In remarks before the country’s lawmakers on Thursday, Premier Li Keqiang listed the challenges to the Chinese economy, including sluggish investment growth, overcapacity, deflationary pressure and increasing public demand for better social services.
China’s walking a fine line, no doubt. It’s instigating major reform, but trying desperately to refrain from completely crushing growth potential. Now that it’s easier to borrow money, China’s ever-expanding debt bubble is liable to hit crisis levels in no time. Already, it’s amassed the highest level of corporate debt in the world; a staggering 125% of GDP. That’s pretty intense stuff. And although I know China’s endgame here is to magically rekindle all that growth-centric economic magic via these motions to spur increased bank lending, “such moves could set back its efforts to shift away from excessive reliance on exports, a bloated property market and government spending”, warns economics team leader for The Wall Street Journal, Mark Magnier. It didn’t work last year and I don’t foresee it faring well this year either. Who Cares About China’s Monetary Policy? China’s latest decisions have illuminated a frightening force at play. World leaders are addicted to stimulus in lieu of its long-term, dire consequences. And unfortunately, that’s it. That’s the king play we’re working with here. That’s the master plan. No Plan B. Print monopoly money, lower interest rates to encourage lending, make people feel temporarily optimistic based on artificial growth just in time for the House of Cards to collapse on top of its faulty foundation. But constituents aren’t blind to the facts. The Wall Street Journal reports:
“Lower interest rates aren’t such a help,” said Chang Wenfei, general manager of Ake Electronics, a maker of smart gadgets in the southern city of Foshan. Canon Inc., the Japanese maker of cameras and printers, has been feeling the impact from China’s austerity campaign, with weaker demand from government agencies and state-owned businesses, said Hideki Ozawa, the president of Canon China. Although purchasing power is rising among middle-class shoppers, he said, “it’s not strong enough to lift up the whole economy,” he said.
It’s no different here in the U.S. The Federal Reserve‘s lofty goal of “printing” our way out of the Great Recession was a dud, but that didn’t stop the rest of the world from following suit. Indeed, our financial leaders have set a dangerous, and expensive, precedent. It will take decades (and probably much longer) to climb out of the trenches we’re still digging. Continue Reading>>>