But the good news for those of us who own Reits and good paying yield stocks is that the Fed may not raises rates in September. Good for those mortgaged to their eyeballs too. But TRE ranters will be upset that the coming collapse S’pore property prices will be again delayed once more. They want their fellow S’poreans to die for supporting the PAP. Ah well hope springs eternal.
China held firm on the value of its money for years, as other countries tried to secure an economic advantage by letting the value of their currencies slide on international markets. Some analysts see its jump into the fray as a new phase in a long-raging global currency war, Peter Eavis writes in DealBook. The plunge paused on Friday, but the renminbi was still down 4.4 percent against the dollar this week, a huge drop for China and the steepest drop since the country’s modern exchange system was set up, Neil Gough reports in The New York Times. The move could leave the United States exposed and undermine efforts to pull the world economy out of the doldrums.
The yen, the euro and several other major currencies have fallen in recent years against the dollar as the Federal Reserve has cut back its stimulus, but the countries that don’t join the devaluations can end up suffering if they export less and import more. A steep drop in the value of the renminbi could also intensify some of the forces that have caused the American economy to underperform.
Analysts also fear the currency tensions could worsen entrenched problems in the global economy, like its reliance on the dollar as a so-called reserve currency. This dependence means that the Fed’s actions can change economic conditions in other countries, and not always for the better.
The Fed now faces a problem. It is considering raising interest ratesfor the first time in more than nine years. A rate increase could drive the dollar up even more aainst other currencies, creating an obstacle to the American economy. It could also make life even harder for countries in the developing world, which could experience capital outflows. Companies in emerging markets that borrowed in dollars would have to spend more of their local currency to pay back their debts.
China, too, would struggle if there was an uncontrolled plunge in the renminbi. Chinese entities have borrowed more than $1.6 trillion in foreign currencies. “A sharp devaluation is not in China’s interest,” said Li-Gang Liu, a China economist at ANZ Research. “That could make corporates very panicky.”
Prolonged turbulence and economic pain may then force world leaders to think hard about whether the international system can be changed, Mr. Eavis writes. The easy money pumped out by the Fed over the last decade helped stoke booms in other countries that became unsustainable. As the Fed has pulled back, the adjustment has been jarring for huge economies, like Brazil and China.
“The system is coming back to bite us in the rear,” said David Beckworth, an associate economics professor at Western Kentucky University. “Maybe this experience teaches us that we are more interconnected than we ever were.”