Because a world in which the US dollar and the US economy continues to play its current roles in accommodating deep structural imbalances is unsustainable, a major shift is inevitable and we can’t simply call on Washington to prevent any change.
The issue should be whether Washington directs this shift unilaterally, directs it in concert with major allies, or waits until unsustainable pressures force a much more disruptive adjustment.
It’s not whether things will change but how they change.
Michael Pettis: Brexit could speed breakup of the Euro
On secular stagnation: “I don’t see growth picking up until you either redistribute income downwards — which is politically quite difficult and slow — or developed countries which are credible borrowers engage in massive infrastructure spending — which would be a great idea but politically difficult — so I’m afraid secular stagnation is going to last several more years.”
On BREXIT: “I’m not to optimistic that the Euro will be around in 10 years…BREXIT could speed up the process if England does well.”
On future crises: “It’s always the same thing: a huge switch from New York to Washington (in American terms) where policy begins to dominate the whole process…because the solutions to the problems are political solutions, not really economic or financial solutions…”
Shanghai selling pressure
A sharp fall below zero on 13-week Twiggs Money Flow warns of selling pressure on China’s Shanghai Composite Index. Breach of support at 1950 is likely and would offer a target of 1800*.
* Target calculation: 1950 – ( 2100 – 1950 ) = 1800
Michael Pettis summarizes the four challenges facing China:
- China is over-reliant on credit to generate growth;
- Attempts to boost consumption will reverse the long-standing subsidy of new investment;
- Attempts to resolve excess capacity also slow growth; and
- Unrecognized bad debt on bank balance sheets mean that growth is overstated.