Well, the US FED governor and former Treasury Secretary (Summer) start to sing the same tune as us after our posting.
We had stated that there would be a financial crisis in the 2nd half of 2022 and the US FED would start to reduce its assets in the 2nd of 2022.
The former US treasury secretary had stated that the US would slide into a recession in Q3 2022 because of skyrocketing inflation. Well, he's right about one thing: The US needs the FED rates to be higher than the inflation rate to contain the sky-high inflation.
Furthermore, Fed's Brainard is expecting a RAPID reduction in FED assets in the 2nd half of 2022. The pace of asset reduction will determine the severity of the financial crisis. In our worst-case scenario, a 50% reduction in FED assets will trigger a very severe financial crisis in 2022. Therefore, the keyword here is RAPID which is fast and furious.
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2 comments:
With the expectation, it is greater ratio than the fear happened in 2020? With the interest rate keep hike, many analyst recommend the US bank stock as the biggest benefit sector, but I reckon as the real financial crisis comes, even the bank stock have major reversal for downtrend.
By this US asset return, would it been China take opposite method to stimulate its china stock after recent lockdown in different china states.
How would you view on the global financial transition switch play?
The conventional wisdom is that the financial industry such as the banks will benefit from a rising interest rate environment. This is because of the interest rate differentials between the long and short tenures in mortgage loans and deposit rates that the banks will pocket as net interest incomes. In a nutshell, the banks pay very low deposit rates and charge much higher interest rates for mortgages to earn the incomes.
I had stated in Jan 2022 that the US and China had diverging economic policies and China would be embarking on QE in 2022. Why did I say so?
http://sg-stock.blogspot.com/2022/01/analyses-of-us-main-street-economic_9.html
I had noticed that China's credit impulse had reached its trough at the end of 2021 and China made good use of this golden opportunity to reduce its debts in 2021 while the US was still embarking on its QE. The US QE had prevented any major disruption to the financial markets while China was doing its QT.
We had also projected a financial crisis in 2022 in April 2021 and we believed China would have noticed that things were not going to be rosy in 2022 too.
http://sg-stock.blogspot.com/2021/04/another-constellation-is-aligning-and.html
Just as we had expected, China cut its official rates in Jan 2022 because it had already prepared its economic ammunition in 2021.
http://sg-stock.blogspot.com/2022/01/china-will-be-cutting-its-rates-very_17.html
China will definitely continue its QE further into 2022 because the recent PMI had dipped below 50. China has to maintain minimum GDP growth of 5% in order for its economy to absorb its annual fresh graduates of around 9m. Thankfully, China has much lower CPI than the west and this allows China to execute its QE without much consternation.
Meanwhile, the US and EU will have to embark on their QT aggressively because of their high inflation rates. They're really way behind their inflation curves. The EU will be the first to collapse if it cannot contain its sky-high inflation, particularly the PIGS (Portugal, Italy, Greece & Spain). Spain already had inflation protests recently.
Last but not least, I wouldn't bet on China's QE to save the world because China won't be printing money like the US did in the past. This was the rationale behind the banks' recommendations to invest in China.
http://sg-stock.blogspot.com/2022/02/analyses-of-us-main-street-economic.html
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