The last wsletter noted that the almighty US dollar has recently strengthened while the Chinese renminbi has weakened. The Forex market indicates what is going on with currencies daily but it is not exactly like a canary in a coal mine. Unfortunately an approaching crisis is not necessarily marked by ups and downs of a currency as the death of a canary is a sign of a dangerous level of coal gas in a mine.
What is extremely worrying is the number of market observers that warn of the severity of the next crisis, which may be coming in H2 2018 or H1 2019. This Newsletter has previously noted the excessive sovereign and corporate debt on a global scale as well as the enormous derivative markets that hinge on volatility. At the same time as these threats increase almost on a daily basis, the US has initiated what amounts to an international trade war.
In this context developments in China and Russia assume great importance because the US is no longer the undisputed hegemon exercising global economic and military dominance. The Chinese economy is growing at a fast pace and may soon equal that of the US while Russia has developed supersonic weapons that the US is presently unable to defend itself against should direct hostilities break out. In a tripolar world China and Russia may ally against the US.
Even as President Trump takes credit for a buoyant stock market and a 4.1% growth rate in GDP and low unemployment figures, there are serious problems that have been noted by analysts, such as debt, one-off stimulus measures like a tax cut, slow wage growth and the need for financing a federal budget deficit that will soon exceed US $ one trillion annually. Inflation will make servicing the debt difficult.
There is a tectonic shift of economic and military power underway that will bring significant changes globally. The US will soon no longer be able to inflict sanctions on sovereign nations or send in its military where and when it pleases. Pax Americana RIP.