First the quake, then the tsunami

Feels reminded about pictures of tsunami events when ignorant people moved further and further away from the shore because the sea retreated

What is currently happening on the markets is downright absurd regarding the scale of events!

An economic system breaks down

Why is that? Because an economic system that has existed for more than thirty years has been broken. The unspoken alliance of economic interests between the USA and China (“Chimerica”): China produces, saves and finances the debts of the Americans who order, lend and consume. Do we seriously believe that the break-up of this mechanism between the two dominant world powers which is now clearly becoming apparent will take place without a violent quake and then an immense tsuanmi?

We are currently reminded of pictures of tsunami events when ignorant people moved further and further away from the shore because the sea withdrew. It seems to be similar in the markets at the moment: Okay, some sell (US) chip stocks because they do good business in China and this will probably become more difficult now. But everything else is fine, seems to be the dominant belief. They will come to an agreement soon – this naive hope is obviously indelible:

Who’s more capable of suffering? China!

However for Beijing the USA has crossed a red line with the Huawei ban – and as long as the USA does not completely lift this ban there will be no willingness to talk on the part of the Chinese. But again and again economic and political pinpricks against the USA (North Korea, Iran etc.). The fact that there are already US cartoons in the Chinese media is a clear sign that things have got out of hand.

And China is more capable of suffering – and is more totalitarian. Emerging unrest in the population can be suppressed relatively easily. But the people in China will accept individual sacrifices if these sacrifices are necessary for the collective (this is the core of Confucian ideology).

On the other hand Americans are more spoiled by decades of prosperity and therefore less able to suffer when it really begins to hurt. Yesterday an (American) analyst at CNBC said that he could not share at all the optimism widespread in the USA that the USA could win the trade war – precisely because Chiana’s population is much more capable of suffering and above all millions of Americans have no financial buffer and therefore quickly slip and become restless.

The hope on the Fed

Then there is the hope – which perhaps explains the resilience of US indices – that the Fed will cut interest rates. But the suffering and the economic downturn have to start before the Fed can even think about cutting interest rates. Yesterday Atlanta Fed chief Bostic made it clear: The markets are far away from the thinking of the US Federal Reserve in its expectation of interest rate cuts in the near future.

Either way: The quake has happened. Now it’ s a matter of time before the tsunami rolls to the coast. It is certainly not unwise to avoid coastal areas now…

Impact of the tsunami on 26 December 2004 onto the coast of Thailand

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