It may not happy today, tomorrow, next month or next year, but between Europe, China, Japan, and the US, the timer will go off and bomb will explode. It is not rocket science, complicated math, or deep economic theory, it is simple common sense, what goes up must come down. Uncle FED knows that something has to change as lax monetary policy cannot continue forever, but it should be very clear that a rate increases would equal one big, bad explosion. Even the slightest rate increase will have a domino effect to the global and domestic economy.
Last week I wrote about our domestic interest rates and the things that Uncle FED would (should) be looking at for rate changes. The American FED knows that a rate hike in the US will hit Japan, their mounting debt, the lack of GDP growth, and the 20% devaluation of the Yen in the last 6 months.
I would not call Japan a small fish as the number #3 economy in the world, but what about the two bigger players, China and the US. China’s debt has jumped 87% of their GDP since 2007 and is now 200% of their $8.5Bn GDP. No other developing country has amassed as much debt as quickly, according to data compiled by McKinsey Global Institute. Despite the economy growing at the slowest pace since 1990, the Shanghai Composite Index has jumped 64 percent in the past year.
All eyes are on the FED. No question that there is a fire burning. You can go on the defense or the offense, but if you fight there is always a risk that the collateral damage can be worse than the original problem. Raising rates will make the flames grow, so the issue is how and when is it time to start fighting the fire…. but if you fight fire with fire there may not end up being anything to save when it is all said and done.
I know it is not Christmas yet, but all I want from Santa and our Uncle FED is NO rate hike in 2015!