American Economics Thread
- Thread starter Bernard
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I feel like we are going to have a tough period in which Western countries are going to have to learn to not be so reliant on China. This doesn't mean we need to cut-off trade with China, but some element of domestic industry will need to be established.
If you look at the Inflation Reduction Act and the massive impact it will have on US lithium-ion battery production that still does not translate into the US being a dominate producer of lithium-ion batteries, just having a bigger share of the global pie. According to a Visual Capitalist graphic I recently viewed, the US would go from something like ~6% of global battery production today to 10% by 2027. That is factoring in a 10x production increase for the US. China would have a 66% share of global battery production in 2027, about 10% lower than now. So China's position would not be undermined, but these countries would have a much better domestic supply.
That is assuming China sit on its ass doing nothing. Remember China is not the number 1 producer until recently. The gap is widening fast, it is not static. By the time US doubled the production China would tripled. This is because the rate of increase is behind China; second order difference is a bitch. In the best case scenario China eats 85% of market US grow from 6% to 10% by outcompeting Koreans.
The Fed has no gut to make tough decision. Now, it is once again at the mercy of the market forces to prevent inflation and overheating and resurgence of bubble. Doing a 0.5% basis rate hike might hurt the economy but would ensure no resurgence of inflation next year.
I believe the source I had also built in Chinese increases in production as well. Though you could very well be right!
Raising rates is a tough decision.
Do you think it's "easy" to continually risk recession?
A recession is better than stagflation. It is about the Fed's credibility on the line. Late 70s and early 80s is a very painful period for regular Americans. The Fed fought hard to tame the inflation and reestablish its credibility. A recession won't cripple the Fed's credibility but a resurgence of inflation next year would have dampened the Fed. Remember that for the last few recessions, it is the Fed and its softness that make the bubble bigger and more the popping of the bubble more painful.
And United States is in either recession or stagflation, but regardless of that. What does that have to do with the Fed making a "tough" or "easy" decision? Regardless of whether the interest rates were raised by 0.25% or 0.5% or a full percentage, the Fed is continuing to keep rates high. It is actively monitoring the situation and try to make the best decisions it can, regardless of how it looks politically.
The 70s and 80s were a painful period because Volcker raised rates so aggressively. Stagflation is mis-represented because most people haven't studied its history and/or they didn't live through it. To be fair, neither have I.
But, in terms of the economic pain, stagflation is particularly feared because Volcker had to induce a deep recession to end high inflation. He cut a limb to save the body. Today, United States is facing a different problem. Unemployment isn't high, it's actually extremely low with very high labor demand. Inflation is high, but has significantly come down over the last 3-6 months.
Deflating bubbles doesn't mean "popping" them, and while the world and pundits have been mocking Fed's stated goal of a "soft landing", the Fed has actually been working hard and succeeding at achieving just that.