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Fair warning. Things might get a little hyperbolic around here.

We're never going back to the old world of Zero Interest Rate Policy.
ZIRP is dead.

There. I said it.

That doesn't mean we never go back to zero, or near zero rates. I just don't see us going back to zero rates that spur the proliferation of companies selling vapourware.

I think the world of tomorrow is going to be decidedly harsher than the giant adult crèches of yesteryear.

Do something that benefits society or get out the way. Solve real world problems or get out the way.

Ludacris knew this day would come.

It's not controversial to say that if a company has enjoyed near zero rates for a decade and still can't turn a profit, that company's probably NGMI.

The fist of judgement has already landed on plenty of these fallen tech darlings. There's probably more to come... πŸ‘‡

But there still seems to be a pervasive belief that at some point, the economy dives off a cliff edge, central banks cut rates back to zero and WE GO AGAIN BRO, we buildin'

Like dude, I totally, think like, it's not gonna happen bro.

The world's moving on. And although I don't buy into the completely deglobalised mercantile, multipolar dystopian narrative, it's hard to deny that things are changing, and peak globalisation has likely passed.

China's an obvious example. Both what's happening in China and the change in attitudes towards China.

Huw Pill got a load of flak for saying that Brits needed to accept being poorer because of the inflation 'pass the parcel' game.

In China, it's a similar issue. Except it's debt parcels instead of inflation parcels.

Fraser Howie explains in this Nikkei article πŸ‘‡

"The seemingly unfailing growth and lack of financial crisis in China is due to poor assets being swapped and hidden away in vehicles of which we know nothing except they have some sort of state backing,"
Such backing does not mean these entities will treat bad assets properly, he added, but "it does mean that many questions aren't asked" due to a lack of accountability and transparency.
"This process has been going on for decades right across the state sector, but we have now reached the point that China has less and less capacity to absorb such activity" as growth decelerates in the country,
"The short-term appearance is that things are fine, but what is really happening is the economy is being ever more clogged with zombie companies and assets"

So far, none of this bezzle has really mattered. Now though, local governments are struggling with the burden of high debt and fewer land sales to finance it.

Externally, China's still a manufacturing powerhouse/exporter. Despite the chat, they're still running a huge trade surplus with the rest of the world...

But the political tide is starting to REALLY turn...

Today's enormous miss in German industrial orders (new orders dropped by 10.7% compared with the previous month) was symbolic.

Obviously, there's a big overall problem with demand for German goods, but the large drop in orders for motor vehicles and motor vehicle parts (-12.2% on previous month) had a big impact on the results.

At a time when China's increasingly running a trade surplus with Europe, and 'suddenly' become a net exporter of vehicles...

And despite China's many promises to 'open up', the trust simply isn't there. Maybe one day it will be, but 'opening up' has been the promise for years now, and nothing ever seems to change.

Reliable data access is increasingly hard to come by, Chinese companies are given preference over foreign companies in China's markets and ever since Trump's trade war, the US has been pulling away from China politically.

It sounds like all words and no action. But the wheels of governments turn slowly.

The Inflation Reduction Act provisions $369 billion relating to energy security and climate change.

The CHIPS act has brought no tangible benefit as yet. Maybe it never will, but there's little doubt that the US is trying to turn inwards, especially with regards to China... πŸ‘‡

The World Is Decoupling From China
The media may blow this up at some point, as if the U.S. & China ’s relationship will suddenly end (as it did with Russia in the Cold War). But China is integrated into the global economy. Russia wasn’t.

Back in 2022, the US passed a bill squarely aimed at bolstering competitiveness with China, a cool $280 billion commitment from chips to R&D and everything in between.

The upshot of this (presuming it works) is more industrial capacity at home.

Noah Smith phrased it well

Trade policy is just about what kinds of things Americans make for people in other countries, and vice versa; industrial policy is also about what kinds of things Americans make for each other.

Basically, if the plan works, the US is going to buy more from itself i.e. more trade within US borders. Which likely means they'll buy less from China.

Not to punish China, more as an inevitable consequence of China not integrating into the free trade arena by opening their own markets and mirroring the West.

Will Europe and other allies be left behind? Well, that's not the intent, but it could turn out that way...

US Nat Sec Sullivan: β€œWe will unapologetically pursue our industrial strategy at home β€” but we are unambiguously committed to not leaving our friends behind. We want them to join us.”

Sounds a lot like an America First policy...

Back to the point. If the widely expected economic downturn materialises on schedule later this year, interest rates are likely to fall.

But it's unlikely that the response will be austerity as it was post 2008.

Governments are ready to spend right back into the economy. The EU has Next Gen EU, the UK has some plans somewhere in that political mess (Truss was right, but her timing was terrible). Even Japan's getting in on the act.

And they're all going to be competing for capital.

The US could implement some convoluted form of capital control to keep dollars onshore in conjunction with yield curve control to keep borrowing costs low (which would be massively un-American and require something on the scale of war to justify)...

Or the associated economic growth and slightly higher inflation from increased fiscal spending is likely to result in higher yields on government bonds as we begin the next cycle.

There's a demographic urgency to get things done before our populations are over the hill...

Maybe demographics and debt won't be as deflationary as feared (yet?), and a downturn would be the perfect time to monetise the debt at low rates once again, but with one key difference, scoop the dollars into targeted fiscal spending rather than tech bro shitco's...