The disconnect between parochialism and a global realpolitik view is no more stark than here in the land of “she’ll be right mate” with the RBA, Treasury and the economic commentariat still at the bar slapping each other on the back, pointing at the TV in the corner and laughing at the ructions in economies far, far away.
But it exists elsewhere too, as some of the US Federal Reserve members – hellbent on raising rates – are looking everywhere for greenshoots, and confirmation that their thesis is correct. Atlanta Fed President Dennis Lockhart is guilty of this bias more so than most, as ForexLive report this morning he commented that the global selloff is “unlikely to hurt the US economy”, further:
- Seeking more hard evidence of inflation
- Inflation will be key to pace of further Fed rate hikes, need ‘hard evidence’ that 2% target will be reached
- US economy could accelerate if global conditions and oil markets improve
- Q4 data could look weak and reflect slow consumer spending, but he is mildly optimistic continue to grow between 2% and 2.5% in coming year
- Expects economy to reach full employment this year
He did hedge his bets however, stating:
Fed’s Lockhart may reconsider connection between financial markets abroad and real economy if volatility continues. pic.twitter.com/Y3b5Q5WuFz
— Mark Constantine (@vexmark) January 11, 2016
I’m all for an optimistic outlook, because in the long run, economies do grow, and prosperity usually follows. Usually.
But there’s a lot of “coulds” in that laundry list, and expectation of full employment within 12 months seems very optimistic, given the huge amount of slack in the labor market, but most telling is his absence of analysis that Chimerica itself is in trouble.
The Indians are bit more realistic, understanding the true dynamics at play between emerging markets, slowing Chinese demand and the global economy:
A deepening slowdown in China threatens to derail India’s economic growth, triggering financial market upheaval and a falling currency, Vishal Kampani, the nation’s top investment banker, said.
“If China keeps getting hit like this, the yuan has to devalue, and we will see another crisis in India,” Kampani, managing director at JM Financial Ltd., the South Asian country’s top mergers and acquisitions adviser last year, said in a Jan. 8 interview. “I refuse to believe that India will stand out and will look very different.”
A devaluation of the yuan could weaken the rupee, creating “huge problems” for Indian companies that have to pay back dollar loans, Kampani said.
China is India’s largest trade partner and third-largest export market, so a slowdown there could prolong a record slump in the South Asian nation’s overseas shipments, which declined 12 straight months through November.
A stronger USD forever and lower oil prices, in absence of nothing else, may be good for US consumers and hence the local economy – just as the viewpoint that huge volumes of dirt and higher house prices forever is great for Australia, but if the global financial juggernaut stalls, and Chimerica catches a big cold, it won’t matter a jot.