Former Economy Minister Domingo Cavallo, now residing far from his many enemies in Buenos Aires in a new haven that happens also to be called “New Haven” (Yale), gave me his views on what Greece should do. (Hint: it does not involve leaving the euro). I also spoke to his former underling, former Argentine finance secretary Daniel Marx, who sees things quite differently from his old boss.
What a headache of a month it has been for China’s leaders: Charismatic Chongqing mayor Bo Xilai’s ascendancy through the Communist Party comes to a crashing halt as his wife is charged with the murder of a British business associate; an outcry over the hypocrisy of the Chinese financial system leads the Supreme Court to overturn a death sentence that a lower court meted out to a woman who was formerly China’s sixth-richest woman; and now a blind activist finds his way into the U.S. Embassy and puts both Beijing and Washington into a delicate situation. Meanwhile, China’s increasingly energetic twitterati are savoring ever moment of these scandals and finding artful ways to get around the increasingly vigilant official censors.
There’s a sense that the real world of political pressure is coming to bear on the Chinese authorities and at the worst possible moment: as they prepare for a leadership transition in the fall. The single party regime is perhaps facing its biggest test.
One way to think about this is that China’s economic model, one that relied on a centrally managed marshaling of capital and human resources to spur accelerated growth in export-led manufacturing and construction is now reaching its limits, precisely because the country’s development (and the information technology that comes with it) are forcing it into a phase where consumers and workers are demanding more power. This puts immense pressure on the top-down, hyper-controlled growth model and creates giant political challenges.
Nowhere is this force for change more powerful than in the financial sector, where the authorities are being forced to give up on a deliberate policy of financial repression by the international forces unleashed by their desire to “internationalize” their currency, the yuan. China’s growth has largely been built on the back of Chinese working- and middle-class savers, who’ve been compelled to stash their hard-earned cash into bank accounts that pay them puny rates below inflation, creating a giant pool of funds with which businesses, state-owned enterprises and local governments have tapped cheap loans to fund land purchases and a manic construction drive. All that is challenged by the increasing options that Chinese savers have to find higher rates outside of the banking system. And if the model end, it has profound implications for Chinese “miracle,” as well as for economies that have depended on it, such as Australia’s. Read all about it in my latest “FX Horizons” column.
If — and it is a big IF – the Federal Reserve turns to the printing presses again with a third round of “quantiative easing” (QE3), the rest of the world will get caught in the line of fire. If so, we all lose.
Here, in the debut of “FX Horizons,” my new weekly column for WSJ, I discuss the threat of a “currency war,” and the dangers it could pose to the world’s trading system. I’m not saying the Fed has much choice if the U.S. economy were to tank again, but I am saying that there are serious global implications if it does opt for monetary stimulus. It would behoove Chairman Ben Bernanke to take them into account…
If there was any doubt about the power vested in the chairman of the U.S. Federal Reserve, this year’s trading in the $4.1 trillion-a-day foreign-exchange market has put it to rest. Since the beginning of the year, Ben Bernanke has almost singlehandedly held back a world that wants to take the dollar higher.
MICHAEL CASEY is a managing editor and columnist covering global financial markets at Dow Jones and the Wall Street Journal. In a globe-trotting career of more than twenty years he has lived and worked as a journalist in Australia, Thailand, Indonesia, Argentina and the United States. He is a regular commentator and co-host on the Wall Street Journal’s News Hub and a frequent guest on Fox Business. The Unfair Trade is Casey’s second book. His first, Che’s Afterlife, was published in 2009 to widespread acclaim. He lives in Pelham, NY with his wife and two daughters.