The Great Wall Of Money | Zero Hedge

The Great Wall Of Money | Zero Hedge



Excerpted from Hindesight Letters (authored by Ben Davis),



China is in severe trouble and that trouble has already been reverberating around EM exporters for a number of years. It is just one of many dollar currency peg countries that have experienced tightening conditions because of higher US interest rate guidance and dollar strength. An unwelcome addition to their own domestic issues, but always a circular outcome, as they are inextricably linked to the US by their Bretton Woods II relationship. By devaluing and thus de-stabilising the 'nominal' anchor for Asian exchange rates, they will crush the growth engine of the developed countries on whose consumption they so rely on.



Since 2009, we have forecast and documented the unwinding of the Bretton Woods II currency system. Financialisation of our economies and markets, which escalated post-2008 at the instigation of governments and central bankers, is going to go into full reverse for all asset classes. Economies and markets are so entwined that a drop in asset classes will lead the world back into recession. In 2013, we believed the odds had tilted firmly towards increasing debt deflation at the hands of China. Large current account deficits had led to unsustainable debt creation, and as a consequence the trade deficit countries were the first to experience a severe financial crisis. However, on the other side of the equation, the surplus countries were now experiencing their reaction to the crisis.



In November 2013, we wrote: "The deleveraging process which began in 2008 has been a slow burner but is likely now in full swing. The deflationary risks are very high. China is the driver. All eyes on China."



We conceive that this slow-burner of deleveraging, which has occurred since the 2008 crisis, is potentially about to engulf all asset prices. We are beginning to think the unthinkable – that just maybe asset prices will back up 20 to 30% and fast and that through the autumn we could experience even greater price depreciation.



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