Russell Napier on the New Monetary World Order
I'm a big fan of the historian and economist Russell Napier. He was on the ground in Asia during the Great Asian Financial Crisis and wrote extensively about it, which is one of the things he's well known for. Napier's takes on the current state of the global economy are very well regarded and lately he's been discussing the new world order that's starting to emerge due to various macro forces, including a move away from globalization toward isolation and nationalism and the rise of Trump to the US presidency.
One of the bits I found fascinating is his view that the basically zero rate environment the US experienced over the past decade was not so much due to the actions of the Federal Reserve but instead were in large part a result of China buying US bonds hand over fist for a decade in a very price-insensitive manner.
Basically, China sold so many goods and the demand for their own currency was so large that they would have to constantly swap Renminbi for dollars to keep the exchange rate down. This massive influx of US dollars was regularly moved into US Treasuries, creating a massive bid for US Treasuries and keeping rates in the US at or near zero.
Now, Napier argues, China is no longer such a large buyer of US Treasuries- instead they are more interested in buying their own bonds- and the economic landscape will change significantly as a result.
This brings up the question: minus the Chinese demand, what would the Fed Funds Rate have been over the past decade? And what will it be now that that demand is gone? I think we're already seeing signs that those 2.5% mortgages are not coming back anytime soon.
I'd highly recommend checking out some of his recent talks. Here are a couple of links to get you started.
And here's another. Won't let me embed the video but you can click the link to watch on Youtube.
