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山中无老虎,猴子称霸王 February 14, 2014

Posted by hslu in China, Cold War, Economics, Energy, Euro, Global Affair, Islam, Muslim, Oil.
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The world is full of unknowns and the world economy is still struggling to overcome the Great Recession caused by America’s sub-prime crisis and liquidity created by Alan Greenspan, the former Federal Reserve Chairman.

American government has provided enormous stimulus to keep a safety net for those who lost their jobs at the expense of trillion dollar deficits and $17 trillion national debt. The Federal Reserve has done everything it could to pop up risky assets hoping for a trickle down wealth effect. It will have unintended consequences. ECB and Royal Bank of England have pumped billions of dollar to support European economies while several European peripheral countries suffered deep and prolonged recessions. Euro has survived its worst crisis less than 20 years since its creation. Japan, in its bid to revive its sagging economic and return the country to its old glory, has embarked on massive QE program the like of which the world has never seen before. China has decided to transform its economy from an investment-led economy to a consumer driven economy. The financial and political impacts will be felt inside and outside of China for decades. Emerging markets have suffered significant decline in 2013 because of tapering by American’s Federal Reserve Bank. The 30 year long bull market has officially ended. The world has entered a new era where rising interest rates will dictate how capital flows in the next twenty or thirty years.

Arab Spring, decline of America’s standing in the world, the rise of China and its transformation, the resurgence of Japan’s far right, the conflict between China and its neighboring countries, the re-emerging of Russia on the world stage, the precarious situation of Israel, the resurgence of Al Qaeda in Lybia, Syria, Afghanistan, Iraq and many regions in Africa, Iran’s continuing influence in the Middle East, the new found importance of sub-Sahara Africa and the shale oil revolution happening in the US and other parts of the world have thrust the world into a new era where confrontations may be norm from now. Either by design, financial strains at home or Obama’s lack of ability, America has withdrawn from the leadership role of the world. The vacuum left behind is a prelude to a more chaotic world to come.

 

A Chinese proverb probably describe the condition of the world the best: “山中无老虎,猴子称霸王。”

The world economy has just licked its wound from the Great Recession. The central banks around the world have done as much as they could to repair the banks and financial institutions. Stock markets of major countries around the world are near or at all time highs. Housing market in the US has recovered and American’s wealth has, to a major degree, been restored. Many European countries have become more competitive because they have shed many of their unfavorable social programs.

With favorable economic developments began to take hold, the warning signs are just as prevalent as before with usual suspects stronger than ever notwithstanding the new conflict between Japan and China which could be very explosive on its own. It seems that the world has entered into a very precarious phase. A new world order is taking shape but it is not stable and could be dangerous to the economy and financial markets of the world. The outcome is by no means clear.

Like I said in the beginning, my crystal ball is decidedly murky.

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