Monday, August 31, 2015

US IS CLEVER AND ITS RATE HIKE IS BOUND

What a smooth plan to kill all enemies across the globe. The dramatic fall of the crude prices killed the Russian Economy and massive sell trigger and massive campaign of a slowdown based economy of China lead to crash of the Chinese economy. These two economies were conspirating against US economy to squeeze its neck. But US is the king of the global economy and it acted judiciously on the same. The biggest benefit of the collapse of Russian and Chinese economy would be US. China have been a home ground for US manufacturing which resulted flight of investments and jobs form US to China. Now with the slowdown of the Chinese economy those investments will be reduced as markets are drying up and hence flight of capital will be in US economy. In all these game plans income inequalities are just widening up for the common people across the globe. It might not be US 100% but to some other countries where US economic think tanks don’t have any immediate threat form that economy. In a recent survey it has been well found that US corporate are struggling to do business and also getting hammered due to intense legal actions of Chinese corporate governance.

In  between I find that US economy have to increase its interest rates so that money flowing from these emerging and Asian countries needs to parked within the economy and hence US treasuries are going to be the best place to store. Devaluation of currency is going to be great threat and moreover if someone look over the world map hardly any economy will be providing healthy returns over its investments as compared to US treasuries. Further this is the best way to unwind the capital back to home (US). The biggest threat to US economy is the bonds which are being held by the Chinese government. Recently China has sold $106 billion of US treasuries hence increase in rates of interest would save them from massive sell of treasures.   Beijing, of course, is the largest foreign holder of U.S. Treasury debt, estimated at close to $1.5 trillion. Part of that is held in custodial accounts in Europe. So, if the regime were to suddenly start dumping that debt, the effect could be cataclysmic for the U.S. economy. With the U.S. government already $17 trillion in debt — not to mention an estimated $100 trillion to $200 trillion in unfunded liabilities — more than a few experts have pointed out that the current situation is not sustainable. Hence hike interest rates and let the devil of massive collapse sleep. The world economy will be okay with the shorter jitters but not with a catastrophic collapse.

Chinese stock market correction and its shift from export driven to an internal driven consumption market are two different perspectives. A overvalued market correction was justified but to stop the outflow of capital was an error from the Chinese government.  The stock market crash and the media hype followed with a strong verdict of slowdown of Chinese economy seem to be a cold plan. Don’t forget that even a 6.5% GDP growth for china would be high as compared to US and European economy who are struggling hard to get growth. Then why we are all crying since market always follow the herd community and this time the community name is US growth is strong. US might not be in sustainable economic growth journey but to safeguard its debt it needs treasuries to return more hence rate hike theory seems okay.

3 comments:

SHANKAR RUDRA

As usual you always share with us valuable insights of current scenario in the economy both in and out.But one thing comes to my mind that even if US increases its rate, it will be maximum 25 basis points.Will that induce foreign capital to return to US since the hike will be very less to start with.
Thanks a lot
Shankar Rudra

Vinod Joshi
This comment has been removed by the author.
Vinod Joshi

With the help of your analysis we have got the right concept but just wanted to know about FII that FII will go out from indian market to US market. If yes, means correction is sure in indian market.

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