At least one economist has things pretty much figured out. Vikram Mansharamani from Yale University explained to CNBC what Charlie Morris explained to Fleet Street Letter readers earlier this month: China’s exporting deflation to the world. Here’s what Mansharamani said:
I think it all started with the China investment bubble that has burst and that brought with it commodities and that pushed deflation around the world and those ripples are landing on the shore of countries literally everywhere, I mean, we’ve got a bubble bursting, I would argue, in Australian housing markets — that is beginning to crack; South Africa — the whole economy; Canada — housing and the economy; Brazil. We can keep going on and on.
He’s right. Take Brazil. Its economy shrank by 3.8% in 2015. That’s the largest contraction in twenty five years.
Now you can see why it’s so hard for central banks to hit their two per cent inflation target. The world is awash in excess capacity. Labour is cheap. Credit is cheap. Energy is cheap.
It’s going to take even more negative interest rates or a lot of money printing to create the illusion of new economic growth. If the stock market is any indicator, investors aren’t convinced that things will pick up in 2016. And then there’s the debt…
Category: Market updates