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– Zanim przedstawię Wam, drodzy przyjaciele, szczegóły planu połączymy się z naszym bardzo Wpływowym Przyjacielem, który z oczywistych względów musi wiedzieć o naszych planach. Bankier inwestycyjny nacisnął diamentowy przycisk wielkości cytryny na swoim biurku wykonanym z drzewa najstarszej sekwoi kalifornijskiej liczącej 5000 lat i na ekranie telewizora plazmowego pojawiła się uśmiechnięta twarz Wpływowego Przyjaciela.

- Witam kolegów bankierów inwestycyjnych – rzekł – czuję się prawie jak student kończący najlepszą uczelnię na świecie, widząc tylu kolegów z roku. Rozpoczynajmy.

Zrobimy tak – zaczął największy bankier inwestycyjny. – Zaczniemy rozpuszczać plotki w światowych mediach, że kraje południa Europy zbankrutują, a pierwsza będzie Grecja. Żeby temat był medialny wymyśliłem nawet nazwę dla tych krajów – PIGS, czyli „świnie”. Inni bankierzy inwestycyjni spojrzeli z podziwem na swojego lidera, mimo że też byli mądrzejsi od zwykłych ludzi to jednak nie dorównywali Mu intelektem. – Wcześniej kupimy dużo CDS-ów tych krajów, zbudujemy potężne krótkie pozycje na indeksach giełdowych i na euro-dolarze, który powinien spaść na parytet jak wszystko pójdzie zgodnie z planem – kontynuował, a bankierom inwestycyjnym z emocji zaróżowiły się policzki. – Żeby nakręcić panikę, będziemy podsycali nastroje antyrządowe w Grecji, zachęcimy grupy anarchistyczne do walk ulicznych, wpłyniemy na agencje ratingowe żeby gwałtownie obniżyły ratingi krajów PIGS podsycając panikę. Żeby osiągnąć apogeum paniki, powtórzymy nasze zagranie z czarnego wtorku z 1987 roku, czyli wykorzystamy komputerowy handel akcjami do obniżenia wartości indeksów giełdowych o przynajmniej 10 procent w ciągu jednej sesji. Wtedy rozpoczniemy zamykanie krótkich pozycji i budowanie długich.  Jednocześnie będziemy dalej nakręcać atmosferę paniki, aż zmusimy Bank Japonii i EBC do ogłoszenia planów zakupu obligacji rządowych upadających krajów.  Jednocześnie kraje PIGS, przestraszone widmem bankructwa zaczną plany ambitnych reform fiskalnych. Po kilku miesiącach ogłosimy, że kraje europejskie poradziły sobie z problemem braku wiarygodności fiskalnej, co spowoduje gwałtowne wzrosty indeksów giełdowych. Najpierw zarobimy miliardy na spadkach, a potem na wzrostach światowych giełd.

- Wspaniały plan, brawo, genialne – rozległy się okrzyki aprobaty. – Zarobimy miliardy dolarów, a ci frajerzy z Europy znowu zostaną wyrolowani, podobnie jak na transakcjach CDO w 2008 roku.

- Koledzy – z wielkiego ekranu plazmowego dobiegł zaniepokojony głosy Wpływowego Przyjaciela – ten plan ma słaby punkt. Bardzo mocny dolar może zaszkodzić amerykańskiej gospodarce i naszemu budżetowi, bo będzie trudno spłacić narastające zadłużenie, które wkrótce przekroczy 100 procent PKB.

- Dlatego najlepsze zostawiłem na koniec – dobitnie powiedział bankier inwestycyjny i w gabinecie zapadła idealna cisza. – W 2011 roku zaczniemy medialne działania, które pokażą światu że po reformach strefa euro stała się wiarygodna, a problem zadłużenia narasta w Stanach Zjednoczonych. Agencje ratingowe obniżą rating USA, dolar zacznie gwałtownie tracić na wartości a ceny amerykańskich papierów rządowych polecą na złamanie karku. My wtedy będziemy mieli krótkie pozycje w dolarze i w obligacjach amerykańskich. Oczekuję, że dolar spadnie wobec euro z poziomu parytetu do 2.50 dolara za euro. Musimy kupić też duże ilości TIPS-ów, te papiery indeksowane do inflacji staną się bardzo drogie.

- To mi się podoba – wtrącił Wpływowy przyjaciel – dzięki wysokiej inflacji wartość realna długu USA spadnie, dzięki czemu wyjdziemy z pułapki zadłużenia, a Żółtki poniosą gigantyczne straty.

- Dodatkowo – mocnym akcentem zakończył bankier inwestycyjny – potwornie silne euro wepchnie Niemcy w głęboką recesję w 2012 roku. Wtedy rozpoczniemy ostateczną grę na rozpad strefy euro. Oceniam, że każdy z nas zarobi przynajmniej po 10 miliardów dolarów na operacji Kasandra.

- Brawo, zdrowie, wiwat – rozległy się okrzyki na cześć bankiera inwestycyjnego, a Jego sekretarka, zeszłoroczna miss świata wiosła na tacy kieliszki i butelkę najdroższego szampana, którego butelka kosztuje 10,000 dolarów.

- Koledzy – podniosłym głosem zakończył bankier inwestycyjny wznosząc toast. – Jeszcze nigdy w historii ludzkości, tak niewielu nie zarobiło tak wielu pieniędzy kosztem tak wielu. Bankierzy wstali z foteli ze skóry z penisa rzadkiego białego wieloryba i zaczęli składać sobie gratulacje. Chyba rzeczywiście wykonuję robotę Boga – pomyślał bankier inwestycyjny.

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Nowe:

Oto przykład ciekawego artykułu, jeżeli takie poglądy będą dominowały to euro będzie kontynuowało marsz w kierunku parytetu, co akurat byłoby korzystne dla unijnej gospodarki.

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It turned out that 2008 outcomes were very far from my expectations. Until mid-2008 majority of my forecasts were “in-the-money” but then the financial crisis shock hit much stronger than anticipated and the world economy bubble popped. I still think that my 2008 forecasts are fundamentally correct and once the credit crisis shock wears out the fundamental processes will produce strong Asia, strong soft and hard commodities.

Forecasting 2009 is very difficult. On the one hand leading indicators suggest that we are about to experience a very severe global recession. US consumer sentiment and Japanese business sentiment are at lowest levels for decades, banks are planning to reduce credit supply even further in 2009, the world monetary policy is approaching the zero bound which leaves only exotic policy options for policy-makers, truly uncharted global waters. On the other hand world governments and central banks have already pumped more than 11 trillion dollars (including guarantees) to reduce the credit crisis impact on the world real economy and at some point in the future, when this money will start moving around the globe the growth recovery and inflation will emerge. So forecasting 2009 is really about timing of the turning point. Some economists see it in 2009 (second half), some in 2010, some expect 5-10 years of global stag-deflation.

Now my black cat (in reality Nelson is grey with black stripes) and my crystal ball are ready, let’s get those forecasts rolling. First global then Poland-specific.

My 2009 forecasts

• Crisis and recession.

All large industrialized countries will be in recession, with US facing the biggest output drop among large economies amid largest past excesses. Hard economic data will be very gloom for the entire 2009, but leading indicators will begin to flash a possibility of mild recovery here and there in 2010. But I do not expect a linear sequencing, there will be premature hopes and continued negative surprises, which will be reflected in major stock exchanges performance. Brace for continued rollercoaster rise, but this time around there will be both, sharp ups and downs. Global inflation will remain very low, dangerously low in some places in 2009, before it shows its ugly face again in 2010, 2011 at the latest.

• Obama xiānsheng (先生,which is Chinese for Mr, Sir)

In line with IMF and Paul Krugman recommendations new US administration will embark on a massive spending plan, worth much more than one trillion dollars. On the international arena we will see a major breakthrough regarding US international initiatives. US will no longer act and the global policeman, or global policy agenda setter. It will become global policy agenda facilitator, bringing new global players together, and most notably China. There will be few dangerous places in the world in 2009, think of Palestine and Jewish-Arab conflict, or India-Pakistan affair. This sets the stage for more intense terrorist activities, which may constrain US president foreign policy options.

• Protectionism

With global growth faltering politicians in many countries will embark on protectionist path (import tariff on cars in Russia, broad import tariffs in Ukraine, import tariffs on steel in India already imposed in 2008). This will be very dangerous and can lead to a prolonged global recession. Combating protectionism will require major international diplomatic effort and understanding that free trade is one of the most important global public goods.

• New Bretton Woods / New G??

2009 will possibly become a milestone in forming new global governance structure, although the process will be long and last years if not a full decade. IMF will not be endorsed as a global stability supervisor unless major governance changes take place and BRIC countries receive more voting power. It is also unsustainable to have all head offices (IMF and World Bank) in Washington. With videoconferencing broadly available there is now room to relocate IMF/WB head offices to Europe and Asia. Such a move could indeed increase the odds of transforming outdated Bretton Woods governance model into a new one, that reflects 21^st century power structure. Consequently the old G7/G8 group should be replaced by new G8, with European Union having one seat. First informal meetings in such company may already take place in 2009.

• Dollar

In 2009 dollar will begin its long term journey, once travelled by the British pound in early 20^th century.

• Climate change

2008 was a relatively good year, with relatively few climate disasters (UPDATE: according to Munich Re report 2008 was a terrible year regarding natural catastrophes, taking away some 220,000 lives, despite the fall in overall number of disasters by 22 percent to 750). However there is strong rising long-term trend of climate disasters, and if 2009 is just an average year we will see much more adverse climate than in 2008. This will speed up climate change politics, with US joining EU efforts to reduce greenhouse gasses emissions. Carbon emission rights trading will become the next big market and despite global investment recession, investments in renewable energy will go up and then will soar in 2010 with returning high energy prices.

• Commodity prices and Russia

2009 will be a recession year so commodity prices will remain low, reducing investment in traditional energy (oil in particular). With global energy demand recovering in 2010 this capacity constraints will begin to bite and oil prices will rise, possibly sharply. I think that this rise will take place in 2010, if recession is longer than in 2011. In such scenario Russia will continue to experience capital flight in 2009 and one cannot rule out that it will lose most of its 450bn currency reserves and will need IMF help again (or a loan from China?). 1998 déjà vu.

• European Union / Euroland

Scary times. With Germany shrinking as much as 3 percent in some scenarios European Union and Euroland will face a once in a lifetime test, a survival test when it comes to European solidarity.  While Iceland, Denmark and even UK sends smoke signals to join using shortcuts, the real question is how European politicians will behave when truly hard times come, when deep recession and unemployment bite. We have already seen Berlusconi “buy Italian” campaign. 2009 will witness Mr Populist vs. Mr Economist, 12-round, heavyweight fight.

• Poland’s strategy

By now ruling politicians understood that economic misery will last longer than one year and that 2010 may be more difficult than 2009. Prime Minister Tusk will run for president in 2010, so economic gloom may severely inhibit his chances to replace Kaczynski at country top post. It bodes well for government anti-crisis activity, as always when political incentives are right then economic and reform miracles can happen. So expect rapid implementation of government anti-crisis plan, with a lot of help offered for firms which will be deprived from access to bank credit. However, with fiscal picture rapidly deteriorating  Poland will likely delay its decision to join ERM2.

• Poland’s growth outlook

My central forecast is 2- growth in 2009, and 1+ growth in 2010, conditional on government acting quickly and decisively. Exports and investments will decline in 2009, and private consumption will slow, despite tax cuts. Consequently government spending will have to go up, geare towards building hard and knowledge infrastructure, very needed and long overdue investment in the country future. If done well may keep Tusk as prime candidate for president, if done badly may cost him political future.

• Poland’s politics in 2009

While European Parliament elections in 2009 (4-7 June) will be a political non-event in Poland, I see a large likelihood that some important political processes will begin in 2009 and accelerate in 2010 before presidential elections. Firstly, the young generation (people who started their adult professional life after 1989) will have a stronger voice in Polish politics. Will they form their own party and score well in 2010 (president elections) and 2011 (parliament elections), it is still a tough call. But three things indicate that it can happen: (1) economic gloom and doom in 2010 will make people unhappy about the ruling party; (2) Obama way of winning, using internet and social networking shows that young, open minded, globally-minded generation can and should replace older layer, which is busy fighting yesterday wars that nobody understands.  Thirdly look at the following questions. Why after 20 years of reforms Poland is a laggard in global competiveness ranking, it fell last year from 68th to 76th place. Why after 20 years of reforms we still do have decent roads and railway tracks? Why Poland scientific output places us next to Albania at times when knowledge and innovation determine country future standard of living. Why at times when internet access is key to success, Poland has the highest digital exclusion rates in Europe? The why list is very, very long.

Who can do it? One obvious candidate to lead young generation is Rafal Dutkiewicz, president of Wroclaw. Lech Kaczynski has catapulted himself from Warsaw president to Poland’s top job, so it can be done. But Polska XXI was a false start, new opening cannot be done with old pricks. So unless Dutkiewicz rethinks his strategy, he is no challenge to Tusk.

To sum up, we face a very challenging year, globally and in Poland. I listed above many known unknowns, there are also many unknown unknowns, regarding war, politics, disruptive innovations, social developments. I wish all my blog readers to do well in such a challenging environment. The best personal strategy for 2009 is to avoid excessive financial risk and invest in one’s intellectual capital. Happy New Year.

Your comments on my 2009 forecasts are warmly welcome.

Update:

Here is a link to Financial Times 2009 predictions.

And here is a link to Nouriel Roubini 2009  predictions.

And here is a link to Dani Rodrik 2009 predictions, one about China draws attention.

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“There is a study group that has been looking at the effects a revaluation would have for several months now as part of the planning for the long-term strategic future of the bank,” MEED quoted the official as saying.

The group is expected to report the findings at the end of 2008, according to the magazine.”

Bottom line: I can’t imagine that UAE economists will come up with the conclusion that in a global world it makes a lot of sense to peg to the dollar. It is likely that in the coming quarter we will more and more countries do de-peg from the dollar (for economic and geo-political reasons). This may have dramatic global concequences in the long run.

• EM shield world from recession, Gulfnews article . A quote:

“If you look at the one common thread between places like Ukraine, Nigeria, Brazil, China, India … the emerging markets that are doing well, it is a rising investment-to-GDP ratio, it is rising credit-to-GDP ratios,” said Bhanu Baweja, global head of emerging market currency research at UBS.

These markets are still under-leveraged and credit growth still has a big role to play in the years ahead, Baweja said, adding: “A stable and vibrant banking system has been the crucial part of this upsurge in growth in emerging markets.”

More scrutiny of lending policies and tougher regulation for banking supervision has helped.

Bank credit in Turkey rose to 37 per cent of GDP in 2007 from 24 per cent in 2000, in India to 52 per cent from 32 per cent and in Brazil to 44 per cent from 32 per cent, while bank credit in advanced economies fell to 90 per cent of GDP in 2007 from 93 per cent in 2000, according to the IMF.

A lot of these countries, if you look back 10-15 years ago, some of them were quite credit starved,” said Pedro Fonseca, emerging market bank analyst at Nomura.”

• Gulf inhabitants smell nicely, see Gulfnews article . A quote:

“Dubai: Per capita consumption of cosmetics and fragrances in the Gulf is one of the highest in the world, with the average purchase estimated at Dh1,229 per head, according to Eckhard Pruy, chief executive officer of Epoc Messe Frankfurt.

• Is coordinated currency intervention on the cards?. Gulfnews article . A quote:

““We’re on an intervention watch,” Stephen Jen, Morgan Stanley’s London-based head of foreign-exchange research, said. “While I don’t think we have reached the threshold yet, the argument in favour of it is gradually becoming compelling.” [...]

“The dollar’s fall will worry other markets, which are so fragile right now,” O’Neill said. “Intervention will definitely be on the minds of policy makers.”

• Merill launched exchange traded certificates that give exposure to Chinese companies in interesting sectors (water, luxury etc.). More to come. Financeasia.com article.
• Baku open a list of dirtiest world cities, see IHT article . Baku opens the list, and interestingly, Moscow is the 14th dirtiest.
• The Economist asks a question whether central banks can prevent future liqudity crises? And a link to a grand publication by Banque de France on liquidity crisis.

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You also can find a very interesting story by Benassy-Quere et al. (CEPII paper )about emergence of China as a global player and its role in the dollar oil equation. Authors find (in a cointegration framework) that in the long run 10% increase in the oil price was associated with an APPRECIATION of the dollar real effective exchange rate by 4.3%. Authors develop the model which explains why emergence of China could have reversed the relationship. In short falling dollar makes renminbi very cheap (as a currency pegged/closely linked to the dollar) which boosts China export led growth further accelerated by reserve accumulation and related monetary expansion. Because China uses a lot of energy per unit of output it leads to higher demand for oil and to higher oil prices.

The bottom line is that there are many models and many good stories explaining dollar and oil price changes. I like the China story, as we are finding more and more that China has an impact on dollar oil relationship, on world food prices and on world commodity prices (it uses half of world cement output f.ex.). But I think that market strongly believes in negative dollar/oil relationship, so if many investors decide to take directional view speculation can extend trends well beyond levels justified by fundamentals (do they matter these days anyway, as we are in the crisis of trust when world liqudity is abundant).

Should this be the case we could end in an unwelcome situation. Last thing the world needs today is oil price going to 200 dollars per barrel (although I did put my forecast out six months ago, that oil will go to to 200 first and then it will fall to 2 amid disruptive innovations rapidly reducing demand for oil). And I am not worried about recession, Shumpeterian creative destruction is needed these days, but I am worried about further enormous buildup of global imbalances implied by surging oil prices.

I do not know how it will end. I predict that after going to 1.50-1.60 dollar will reverse and end 2008 stronger that it started against the euro. But I am worried that monetary and fiscal medicine applied today to avoid recession will aggravate global imbalances problem. So if we avoid hard landing this time, and the global plane takes off again, the next safe landing would require enormous skills and wise coordination among global pilots.

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• Ken Rogoff on re-emerging power of trade unions , as a possible threat, a quote:

“Will the political resurgence of labor unions throw a wrench into the wheels of globalization? Or will their growing strength serve to make globalization more sustainable by fostering great equality and fairness? One way or the other, unions stand as a major wild card for the evolution of our economic system in 2008 and beyond.”

• EIU remains skeptical on Asia decoupling story: a quote:

“There is, however, a caveat. Although Asia is certainly in a better position to withstand a US slowdown than it was in 2001, it would be a mistake to assume that the region has fully decoupled from the US. Although the Asia 8 have diversified their export markets over the past two decades, the G3 (and the US in particular) remains important in terms of final demand for Asian exports. According to calculations from the ADB, 70% of trade within the Asia 8 (excluding Taiwan but including China) consists of intermediate goods used in manufacturing production processes. This is mostly a reflection of changes in Asia’s supply chains that have led to different production stages being parcelled out between different countries. In particular, China’s export juggernaut now imports components from the rest of Asia and assembles them, before shipping them off to their final destination–which is usually still in the G3. As a result, in 2005 around 61% of Asian exports were still consumed in G3 countries.

The argument that China can provide a back-up source of demand if the US falters is especially fragile. Soaring Asian exports to China do mean that China is now the largest Asian recipient of imports from the region (excluding Japan). However, most of this is the component trade. According to the ADB’s calculations, China still only accounts for just 6.4% of total Asian final demand. This is under one-half of the contribution from Japan, and less than one-quarter of the contribution from the US. This clearly suggests that China’s booming economy would be unlikely to prove much of a back-up if the US economy were to falter significantly.

Indeed, by some measures, Asia’s dependence on exports has actually increased since 2001, arguably making it more exposed to a slowdown in foreign demand. The exports/GDP ratio (measured in US dollars) increased for most Asia 8 economies between 2001 and 2006 (Indonesia and the Philippines being the two exceptions). The combined exports/GDP ratio for all eight economies increased from 57% in 2001 to 66% in 2006. Since the region as a whole is more export-exposed than in 2001, and with a large proportion of these exports still going to the US and other G3 economies, it could be argued that the Asia 8 are even more vulnerable than in 2001 to a slowdown in their main end-markets.”

• Mortgage Bankers Association on US situation. A quote:

“Below are our projections for the rest of this year and next:

• We expect housing starts and home sales to continue to trend down and reach bottom around the second half of 2008
• Total existing home sales for 2008 will decline by about 13 percent from 2007 to 4.94 million units. Sales will pick up by about four percent in 2009
• New home sales will decline by about 15 percent in 2008 from 2007 to 666,000 units. We expect sales to increase about seven percent in 2009.
• Median home prices for new and existing homes are expected to decline this year, with median prices falling about two percent. Prices should increase by between one and two percent in 2009

• Residential purchase mortgage originations will decline about 18 percent in 2008 to $955 billion from a projected $1.16 trillion in 2007. Given a recovery in sales and prices in 2009, purchase originations should be up by five percent to one trillion in 2009.

• The yield on 10-year Treasuries — the benchmark for fixed rate mortgage yields — are projected to decline in the current quarter as the Federal Reserve is expected to continue with its easing. However, we do not expect a large pickup in refi activity as we would normally do for several reasons. First, lending standards have been tightened significantly. Second, the spread between the 10-year Treasury yield and conforming mortgage rates as well as the spread between conforming mortgage rates and jumbo rates has widened. Third, home prices have declined in many areas. These factors have combined to discourage some refi activity, especially in areas with relatively high share of jumbo loans and falling home prices. Thus we project that refinance originations will decline about 14 percent to $1.01 trillion in 2008 from a projected $1.17 trillion in 2007. Refi activity will decline by another 13 percent to $883 billion in 2009 from 2008

• Total mortgage production will be down 16 percent to $1.96 trillion this year from a projected $2.34 trillion in 2007. This would mark the first time since 2000 that total mortgage originations fall below $2 trillion.
  

[end quote]

• It is not common for one country central banker to comment on what would be the right rate moves in another country. ECB Bini-Smaghi however tells markets that the Fed room to cut may be limited as it could lead to dollar depreciation. This goes against market expectations that Fed will ease aggressively this month.

• Anvid Panagariya offers comments at Vox on what India must do to modernize . He shares an observation that India exports are either capital or skilled-labor intensive, which is a puzzle, as low income country usually specializes in low-skill labor intensive exports. A quote:

“The most important factor that still holds back large firms from entering these products is a set of draconian labour laws in India. Under these laws, it is virtually impossible for a firm with 100 or more employees to fire the workers even in the face of bankruptcy. It is equally difficult for the firms to reassign the workers from one task to another. These provisions impose very low worker productivity or a high real cost of labour. Large-scale capital-intensive sectors such as automobiles, where labour costs are a tiny proportion of the total costs, can profitably operate in such an environment. But the same is not true of large-scale labour-intensive sectors labour. Few foreign manufacturers are willing to enter India outside of a small subset of capital- and skilled-labour intensive sectors.

Two additional factors have held back the labour-intensive manufacturing in India: costly power and poor transport infrastructure. Not only do firms pay a much higher price for power in India than elsewhere in the world, they also face much greater uncertainty of supply. Likewise, despite considerable improvement, the transportation network in India remains unreliable and inefficient. The time taken to clear the goods entering and existing the ports and to move the goods between ports and manufacturing sites, which is so critical for assembly and processing activities, is much higher and more variable in India than in the competing countries such as China.”

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• to solve global imbalances one would need dollar appreciating against Asian currencies, which is not happening amid renminbi slow crawling band, or policy actions aimed at raising US saving and reducing Chinese saving. Finally I subscribe to Caballero view that the key factor here are shortages of investable assets in Asia and in the Gulf.
• many people would say that Asian central banks would not welcome significant decline of the dollar as it would cause major valuation losses, however it applies only to appreciation of their local currencies it does not apply to situation when dollar goes down with respect to major currencies.
• after all, when Asian or Gulf investors buy US debt they are promised in return a certain amount of banknotes with US presidents, and with the possible absence of mark-to-market accounting practices it may not matter much what happens with the market value of this promise in the meantime. In other words, if the intention of large US debt holders is to keep it to maturity, they may exhibit large aversion to exchange rate risk (local currency) than to interest rate risk, on the assumption that in the long run the value of the banknotes with US president will be restored, ie. that current swings are transitory (will last few quarters or years rather than decade or more).
• why would large debt holders think in domestic rather than synthetic world currency terms. Because of investment protectionism present in US and in Eurozone they will not be allowed to buy sizeable assets (there are some cases when such purchases were blocked).
• could this lead to vicious circle that works like example below, I do not know, but it is worth conducting a thought exercise:
• faced with US pressure to enact anti-Chinese legislation and with pressure via enhanced IMF mandate to chase currency manipulators Asian central banks purchases of US debt may slow, leading via market expectations channel to dollar weakness
• oil exporters become very uncomfortable with situation when value of their commodity exports priced in dollars suffers from dollar weakness, and domestic currencies linked to dollar are fuelling already high inflation in some countries
• more oil exporters may decide to drop dollar pegs and move to different way of oil export invoicing, after all why expose their countries to such high currency risk.
• this affects relative asset prices even more, with possible further dollar weakness and possible further gains for emerging market currencies. Dollar will further loose its appeal as reserve currency to reserve managers. Even if it gains in value, it will not regain it status.
• I wonder whether US senators proposing anti-Chinese legislation went through such a thought exercise. Mercantilist approach does not work in XXI global economy, simply some politicians fail to grasp it.

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