Tag Archives: global politics

The Fury Of American Voters Is In Its Infancy

voteMy Comments: Writing about personal finance matters is something I enjoy. Given my limited vocabulary, however, I resort to finding stuff written by others that resonate with me and then sharing with others. Sometimes it works and sometimes it doesn’t.

Mix this up with the current political climate and there is an added resonance for me. I’ve argued for years now that a growing disconnect between the ‘haves’ and the ‘have nots’ in this country will lead to rioting in the streets if it’s not addressed. The fascinating thing is an increasing hubbub in the background that this disconnect is being recognized. And that’s a good thing.

I pray that enough young voters show up at the election sites to make their voices heard.

Roger Altman, April 4, 2016

There is a deep anger in the American electorate that explains the rise of two candidates whose presidential campaigns would, in previous election years, have been killed off well before now. It explains why voters are prepared to overlook the relentless insults of Donald Trump, the Republican frontrunner, and the avowed socialism of Bernie Sanders, the main rival to Hillary Clinton for the Democrats, while embracing their unorthodox stances on trade, healthcare and much else. And it explains why two-thirds of Americans say the country is on the wrong track.

At its heart, this anger is economic. Ever more Americans are having trouble making ends meet. Many of the jobs created since the financial crisis are low-wage. And voters do not expect better incomes in the future. For a nation accustomed to believing that each generation would live better than its predecessor, this is a bitter pill.

This economic pressure is not temporary either, because the trends undermining incomes — technology and globalisation — are in their early stages and still accelerating. All the talk from Mr Trump and Mr Sanders about building border walls and killing trade agreements misses the point. Such steps would have no discernible impact on these powerful trends. What is needed are bolder income support policies to cushion workers against them.

How weak are incomes? Today’s real median household income is $53,600, down nearly 7.5 per cent from the peak seen 20 years ago. And real median wages per hour have fallen 4 per cent since the financial crisis. Further, while 14m net new jobs have been created since the crisis, nearly half of these are in the low-wage sector, as defined by the Bureau of Labor Statistics. Of the new jobs that will be created between now and 2025, according to the BLS, more than 90 per cent will pay $36,000 or less annually. In 2013, 22 per cent of children, at some point that year, did not have enough to eat. This cannot be the America we want.

There are two reasons for the downward pressure on income. One is technology. In earlier periods, technology created as many decently paid jobs as it destroyed. That is no longer the case. Just look at total private-sector employment: it has returned to pre-recession levels; but the proportion of decently paid jobs in manufacturing, construction and information services are below the levels of 10 years ago.

Sales of US-made vehicles, for example, are at record levels today in America but automation has sharply reduced employment in the industry. Digital processes, still in their infancy, are reducing innumerable categories of white-collar employment, such as customer service.

Then there is globalisation. Even a generation ago, the US was the biggest market in the world for many products. No longer. Whether it is toothpaste, cars or consulting services, rising living standards across the world have generated a much bigger market for many of America’s products. In response, businesses have created more jobs — with lower pay — overseas than in the US. Africa, the largest emerging global market, is just coming into focus.

On this basis, American incomes will remain weak. Which is why we need to provide a more effective education system. If one-tenth of working-age men who do not have a university degree were to earn one, the 35-year decline in median wages would disappear. So we must make a greater effort to help students complete their degrees.

We also need to provide greater income support for middle and low-wage workers. There are two possible approaches. First, double the impact of the earned income tax credit (EITC) by raising both eligibility levels and payment limits. Second, combine this with a higher minimum wage linked to inflation. Such moves would boost take home pay for tens of millions of working Americans.

Yes, doubling the EITC would cost taxpayers another $60bn annually. But this is not a big sum by federal budget standards and could readily be financed by phasing in higher taxes on dividends and capital gains. Many forget that tax rates on income from capital are not high by historical standards.

In the longer term, it is possible that more advanced technologies will permanently reduce the demand for human labour. If this ensues, we may eventually consider a universal guaranteed income for working age adults.

The point is that the income pressures we see today are going to continue. If we ignore them, voter anger will intensify. It could make Mr Trump’s brand of authoritarianism look moderate.

The writer is founder and executive chairman of Evercore and was deputy US Treasury secretary under President Bill Clinton

Britain Is Sleepwalking Into A New Recession

My Comments: Never mind for the moment whether Britain decides to leave the European Union or not. They are now a key player in the world economy and a critical player in the world’s efforts to push back against terrorism.

Removing themselves from the EU “…because we had it better before…” is similar to the old king standing on the beach telling the tide to recede. There’s a parallel in this country by folks wanting to ‘take back America”. Not going to happen, if for no other reason than they cannot answer the simple question “from whom”.

There’s more to this article that I’ve put here in this post so if you are still interested, go to the link at the end and see the rest of the reasons behind this argument.

Jim Edwards Mar. 12, 2016

There are two types of people in Britain right now. People who are asleep, and people who are awake.

The sleepers think that the economy has never been better. Jobs are up. Unemployment is down. Things are good. Most people, including you, are asleep.

And then there are the people who are awake. We call these people economists. They spend their time looking into the future, and mostly they see an economic slump coming. They are alarmed by it. That’s why the ECB reduced interest rates to zero last week.

But weirdly, it feels like we’ve never had it so good. Here is our current situation according to a great set of charts from Barclays:

Technically, we’re at full employment. Self-employment rates are high. The current employment rate is the highest since records began in the mid 1970s.

But economists don’t care much about the present. They want to know what’s going to happen next. And what they’re seeing is scary. The economy is slowing down, and many of the key indicators are in decline.

We’re sleepwalking into the next recession.

Scroll on for a scary look at the future …

Wages are up and hours worked are down. That’s a good thing for workers. It may even be holding back growth overall — ideally, you want everyone to be as productive as possible. But the fact that workers can reduce their hours while pay stays high in a low-inflation environment means this is as sunny as it gets for workers.

Job creation in the UK is fantastic right now — the bulk of new jobs are high-skilled, the kind that carry high wages, and high productivity. There are fewer low-skilled jobs being created. But that is pretty much the end of the good news because …

CONTINUE-READING

Oil Wars; Saudi Arabia May Have Screwed The Pooch

oil productionMy Comments: If you are concerned about how fracking is an environmental threat, this might interest you. Much of our collective angst is driven by the runup to next November’s presidential election. All the while, however, there are forces at work beyond our control that will greatly influence how our lives play out over the next 20 years, much less the next four.

This article, from the New York Times, describes events in the Middle-East that impact the oil dependency of the United States, how Russia and other influential countries around the world react to each other, and, by extension, effect our economy and how we define what is in our best interest for the next generation of Americans.

By ANDREW SCOTT COOPER MARCH 12, 2016

FOR the past half-century, the world economy has been held hostage by just one country: the Kingdom of Saudi Arabia. Vast petroleum reserves and untapped production allowed the kingdom to play an outsize role as swing producer, filling or draining the global system at will.

The 1973-74 oil embargo was the first demonstration that the House of Saud was willing to weaponize the oil markets. In October 1973, a coalition of Arab states led by Saudi Arabia abruptly halted oil shipments in retaliation for America’s support of Israel during the Yom Kippur War. The price of a barrel of oil quickly quadrupled; the resulting shock to the oil-dependent economies of the West led to a sharp rise in the cost of living, mass unemployment and growing social discontent.

“If I was the president,” Secretary of State Henry Kissinger fumed to his deputy Brent Scowcroft, “I would tell the Arabs to shove their oil.” But the president, Richard M. Nixon, was in no position to dictate to the Saudis.

In the West, we have largely forgotten the lessons of 1974, partly because our economies have changed and are less vulnerable, but mainly because we are not the Saudis’ principal target. Predictions that global oil production would eventually peak, ensuring prices stayed permanently high, never materialized. Today’s oil crises are determined less by the floating price of crude than by crude regional politics. The oil wars of the 21st century are underway.

In recent years, the Saudis have made clear that they regard the oil markets as a critical front line in the Sunni Muslim-majority kingdom’s battle against its Shiite-dominated rival, Iran. Their favored tactic of “flooding,” pumping surplus crude into a soft market, is tantamount to war by economic means: the oil trade’s equivalent of dropping the bomb on a rival.

In 2006, Nawaf Obaid, a Saudi security adviser, warned that Riyadh was prepared to force prices down to “strangle” Iran’s economy. Two years later, the Saudis did just that, with the aim of hampering Tehran’s ability to support Shiite militia groups in Iraq, Lebanon and elsewhere.

Then, in 2011, Prince Turki al-Faisal, the former chief of Saudi intelligence, told NATO officials that Riyadh was prepared to flood the market to stir unrest inside Iran. Three years later, the Saudis struck again, turning on the spigot.

But this time, they overplayed their hand.

When Saudi officials made their move in the fall of 2014, taking advantage of an already glutted market, they no doubt hoped that lower prices would undercut the American shale industry, which was challenging the kingdom’s market dominance. But their main purpose was to make life difficult for Tehran: “Iran will come under unprecedented economic and financial pressure as it tries to sustain an economy already battered by international sanctions,” argued Mr. Obaid.

Oil-producing countries, especially ones like Russia, with relatively undiversified economies, base their budgets on oil prices not falling below a certain threshold. If prices plunge below that level, fiscal meltdown looms. The Saudis expected a sharp reduction in oil prices not just to hurt the American fracking industry, but also to hammer the economies of Iran and Russia. That in turn would weaken their ability to support allies and proxies, particularly in Iraq and Syria.

The tactic had been brutally effective in the past. This was the grim scenario that confronted the shah in 1977 when the Saudis flooded the oil market to rein in Iran’s influence. The 1977 flood was not the sole cause of the Iranian revolution, but it certainly was a factor: The shah’s rule was destabilized just as Ayatollah Ruhollah Khomeini mounted his offensive to replace a pro-Western monarchy with a theocratic state. In that sense, the oil markets fueled the rise of political Islam.
The price of oil also helped end the Cold War. Then, like Russia today, the Communist superpower was a global energy producer heavily reliant on revenues from oil and gas. In 1985-86, the Saudis’ decision to flood the market — which some believe was encouraged by the Reagan administration — led to a collapse in prices that sent the Soviet economy into a tailspin.

“The timeline of the collapse of the Soviet Union can be traced to Sept. 13, 1985,” wrote the Russian economist Yegor Gaidar. “On this date Sheikh Ahmed Zaki Yamani, the minister of oil of Saudi Arabia, declared that the monarchy had decided to alter its oil policy radically.”

Today, in Russia, fully half of government revenue comes from oil and gas. Even if oil returns to $40 a barrel — it twice fell below $30 earlier this year — that depressed price still creates “a dangerous scenario,” according to Mikhail Dmitriev, a former Russian deputy economic minister. Inflation in Russia hit double digits last year; its sovereign wealth fund, which bails out struggling Russian companies, is depleted; and factory closings are fueling labor unrest.

Unhappily for President Vladimir V. Putin, Russia’s fiscal crisis has coincided with his military interventions in eastern Ukraine and Syria. If Russia’s economy worsens and Mr. Putin feels cornered, he may look for ways to distract the Russian people with more rally-round-the-flag provocations, as well as induce panic in the oil markets about supplies and gin prices back up.

Future shock has already arrived for oil producers like Venezuela, whose economy has been gutted by lost revenues from oil, which makes up 95 percent of its export earnings. With inflation predicted by the International Monetary Fund to reach 720 percent this year, Venezuela has become a financial zombie state — a harsh reminder of what can happen to countries that rely so heavily on a single unstable commodity price. President Nicolás Maduro is at the mercy of the markets that, every day, nudge his tottering regime nearer the abyss.

Another oil producer, Nigeria, is running out of money, hobbling President Muhammadu Buhari’s campaign against the Islamist Boko Haram insurgents in the northeast. The plunge in oil prices has also shaken Central Asia, where Azerbaijan and Kazakhstan have expressed interest in emergency bailouts from the I.M.F. and other lenders.

In the Middle East, reduced oil revenues have restricted Iraq’s ability to wage war against the Islamic State. Persian Gulf oil producers like Qatar and the United Arab Emirates estimate collective losses of $360 billion in export earnings in the past year. Such a big budgetary hole poses problems with maintaining order at home while fighting wars in Syria and Yemen, and propping up cash-strapped allies like Egypt.

And then there is Saudi Arabia itself.

All the evidence suggests that Saudi officials never expected oil prices to fall below $60 a barrel. But then they never expected to lose their sway as the swing producer within the Organization of the Petroleum Exporting Countries, or OPEC. Despite wishful statements from Saudi ministers, the kingdom’s efforts last month to make a deal with Russia, Venezuela and Qatar to restrict supply and push up prices collapsed.

The I.M.F. has warned that if government spending is not reined in, the Saudis will be bankrupt by 2020. Suddenly, the world’s reserve bank of black gold is looking to borrow billions of dollars from foreign lenders. King Salman’s response has been to promise austerity, higher taxes and subsidy cuts to a people who have grown used to state largess and handouts. That raises questions about the kingdom’s internal cohesion — even as the king decided to shoulder the burden of regional security in the Middle East, fighting wars on two fronts. Has there ever been an oil state as overleveraged at home and overextended abroad?

Meanwhile, by concluding the historic nuclear agreement, Iran is getting out from under the burden of economic sanctions. It will not be lost on Riyadh that this adds another oil producer to the world market that it can no longer control.

The instability and economic misery for smaller oil-producing states like Nigeria and Azerbaijan look set to continue. But that’s collateral damage. The real story is how the Saudis have been hurt by their own weapon.

Andrew Scott Cooper is the author of “The Oil Kings: How the United States, Iran and Saudi Arabia Changed the Balance of Power in the Middle East” and the forthcoming “The Fall of Heaven: The Pahlavis and the Final Days of Imperial Iran.”

Obama’s Implicit Foreign Policy

flag USMy Comments: As an immigrant and naturalized US citizen, and having lived in foreign countries during my lifetime, I’m endlessly interested is world affairs.

Many of the so called ‘political elites’ these days seem to be unaware that the world today is quite different from what it was as little as 25 years ago. I, for one, would hope they start talking about the reality of the future instead of worrying about the past.

This imaginary speech by Obama reflects, in my opinion, how the global landscape has changed and how we as a people should evaluate ourselves and our elected leaders. We do it with ourselves to remain relevant with our changing environment; why not apply some of those same ideas and steps when selecting our next set of leaders.

Roger Cohen FEB. 25, 2016 http://www.nytimes.com

WASHINGTON — This is the speech President Obama did not make on his foreign policy (with thanks to Stephen Heintz, a shrewd observer of America’s role in the world):

My fellow Americans:

I have based my foreign policy on some tough realities that are hard to talk about because no American likes to hear about the limits of our power. But those limits have grown. American power in the 21st century cannot be what it was in 1945 — or even in 1990.

To say this is to be accused of defeatism, of managing American decline and of giving up on American exceptionalism. That is why I have pursued an implicit foreign policy rather than an explicit one. That is why I waited so long to give this speech on my doctrine of restraint. No president wants to make a speech called “The Consequences of the End of the American Century.” It’s political suicide.

Implicit has meant letting actions speak. Some say I have failed to understand the theater of American leadership. I’ll leave the strutting on the world stage to others.

Our world is more interdependent than ever. China, India and other nations have grown rapidly, ending an era of Western domination. The Chinese economy has quintupled in size since 1990. The wars in Afghanistan and Iraq consumed trillions of dollars but did not bring victory. The enemies we face, often groups of violent extremists, cannot be vanquished through conventional warfare.

The consequence is that American power still counts but no longer clinches the deal. Multilateral solutions to international problems must be pursued. The Iran nuclear agreement — reached with help from Russia, China, Britain, France and Germany — is one example. Another is the Paris Climate Agreement. Military power can only be used as a last resort, for clear and achievable political ends, and when there is a workable plan for post-military development. That was not the case in Iraq. Look at the price.

I know that many people think my policies have failed in the Middle East, particularly in Syria, and that President Putin has filled the vacuum. My priority was to avoid overreach in the use of American power, adjust our ambitions to the realities of the world and devote resources to neglected domestic priorities including infrastructure, inequality and health care.

In 2016, we have no business building other nations. It is for them to decide their fates. As a result, I have asked a lot of questions, so many that I hear that Bob Blackwill, a senior fellow at the Council on Foreign Relations, calls me “the king of the slippery-slope school of foreign policy.”

I’ll take that moniker, if the alternative is to embrace feel-good posturing and drift into another intractable war in which young Americans die for murky causes in the indifferent sands of the Middle East.

Should I have backed the pro-democracy uprising of young Iranians in 2009 against the regime, and might American support have tipped the balance? Should I have done more to ensure the fragile Egyptian experiment in democracy did not fail by pressing former President Mohamed Morsi to restrain his divisive Muslim Brotherhood agenda? Should I have called the coup that ousted him a “coup”?

Should I have armed the rebels in Syria, or established a no-fly zone once President Bashar al-Assad began murdering his citizens en masse, or set up a safe area to protect desperate refugees as a gage of our determination? Should I have upheld through one-off punitive military strikes against Assad the “red line” I set against the use of chemical weapons and so demonstrated to the Saudis and other Sunni gulf states that I was not, as they believe, in the pocket of the Shia world? In short, should I have kept my word and taken more risks to save Syria, oust Assad and stop Putin dictating the outcome?

Perhaps. I know members of my foreign policy team have agonized over Syria and its quarter-million dead. One or two may have been close to resigning. The refugee flow into Europe destabilizes allies. But I do not lose sleep. This job is about tough choices. Restraint was the wiser option for a chastened America unready to pass the mantle but condemned now to share it.

I have built new bridges — to Iran, to Cuba. We are working with China to advance Afghan-Pakistani dialogue and bring peace in Afghanistan. Tough love for Israel, more conditional friendships with Saudi Arabia and other Arab autocracies and a gradual reduction in the isolation of Iran are, in my view, the only path over time to a new, stable order in a Middle East where our strategic priorities have changed with energy independence.

That’s about it. You see now why I chose the implicit approach. I hope you will understand the wisdom of my restraint. Perhaps you will even become nostalgic for it. The pendulum swings — and American adventurism may well make a comeback with my successor.

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Russia Running Out Of Money

My Comments: Global media is full of woe and gloom about the near term economic future of the US and the rest of the planet. This has the potential to add to that gloomy forecast.

I have strong memories of the Cold War and the threat posed by the Soviet Union. While the Soviet Union no longer exists, it’s remnants, principally Russia, appear to be a hollow shell of what existed 40 years ago. It helps us understand why Putin and Russia are trying to appear strong and decisive about Syria and their relationship with Turkey.

But the steam is about to be exhausted. The danger is that their last gasp might engage us in yet another ground war we cannot win. I’d rather see a healthy Russia with enough sense and democracy to engage productively with the rest of the world. Fat chance.

Ben Moshinsky on Dec. 8, 2015

Russia’s economic prognosis is dire.
Here’s a map of how Russia’s been doing on a global level from HSBC:

Alexei Kudrin, who was Russia’s finance minister from 2000 to 2011, said, that within the next few years, Russia’s “reserve funds will be exhausted and they will have to raise taxes.”

And here’s its inflation rate compared with other economies:

Kudrin was speaking in London on Tuesday at a Moscow Exchange conference.

He said one of the big problems Russia faces is servicing its social security payments, particularly pensions.

Kudrin said Russia would have to find a way to cut pension payments and devolve budget powers to the regions.

He also said Russia should boost infrastructure investment by using funds earmarked for military and defence spending.

But with an election coming up in a few years and geopolitical risks increasing with airstrikes over Syria and tensions with Turkey, these types of reforms would be unlikely to happen soon.

“The main thing is we should change the economic structure,” said Kudrin. “What we’re seeing is that the current growth potential is quite low.”
This is an understatement.

Russia has been home one of the worst performing major world economies this year. It’s been squeezed by sanctions on government-controlled companies (of which there are about 1500) and an oil price crash.

It’s got both high inflation, at about 15%, and double-digit interest rates, making private financing for business difficult.

Cameron’s Cunning Plan for Bombing ISIS in Syria

My Thoughts: Now that Thanksgiving Day has passed, and Black Friday is upon us, it’s time to come back to earth. BTW, I hope you had a great Thanksgiving with family and friends; let’s do it again next year.

The subtitle of this article, which comes from The Financial Times, reads as follows: The questions over extending air raids answered in 43 key points. I’ve added a couple of edits since most of them apply to the US as well as Great Britain.

November 26, 2015 by Robert Shrimsley

David Cameron has announced his intention to seek parliamentary approval for Britain to join the international forces bombing Isis strongholds in Syria. Assuming the prime minister wins that vote, raids will start in the next few weeks.

He has wanted to do this for some time and feels the Paris attacks have turned public opinion and parliamentary arithmetic in his favour.
Here, then, are the key things you need to know about UK intervention in Syria.

1. British contributions to the air campaign against the Islamist militants will make absolutely no difference at all.
2. No, really, none.
3. You know all those bombs already being dropped on Isis? Well, now there will be a few more.
4. But not that many more.
5. And many of those that will be dropped on Isis in Syria would have been dropped on Isis in Iraq instead.
6. What do you think we are — made of bombs?
7. But even though it will make no difference, we are going to do this anyway because Britain ( also the US ) is not a country that stands on the sidelines.
8. It is important to stress that, before the decision to bomb Syria, there was absolutely no plan on how to defeat Isis.
9. And there still isn’t.
10. But something must be done.
11. And this is that something.
12. These people are really evil.
13. I mean super-evil. Horrible.
14. So we are all going to feel a lot better about ourselves because now we are going to be in there socking it to them as well.
15. I cannot say this will beat them but I can say it will degrade them, which sounds like something.
16. We are doing this to make Britain ( also the US ) safer from the threat of Isis.
17. Even though we cannot offer a single reason whatsoever to believe it will achieve that goal.
18. Some will say that Britain ( also the US ) may make itself more of a target for Isis terror attacks.
19. But we are a target already so whatever is going to happen was going to happen anyway and doesn’t it feel better to know we’ve landed a few punches in advance?
20. We do realize that air strikes alone cannot defeat Isis.
21. But that’s all we’ve got at the moment.

France has been courting US and Russian support for a war on Isis in the wake of the Paris terror attacks. But while Russia and Turkey, a Nato member, claim to be fighting the same foe, they themselves saw armed combat this week when Turkey shot down a Russian jet on its border with Syria. Mark Vandevelde asks Gideon Rachman and Geoff Dyer whether world powers are capable of making common cause against Isis.

22. We know that these attacks have to be part of a clear and coherent strategy for isolating and defeating Isis. But we do not have the luxury of waiting for one to emerge.
23. So any ideas on a postcard please.
24. Our military strategists make clear that there can be no ultimate victory over those foul butchers in Isis without “boots on the ground”.
25. But none of those boots are going to be ours.
26. We think that stuff is best left to the military forces in Iraq and Syria that have been doing such a bang-up job fighting Isis up till now.
27. We do recognize that ultimately only a negotiated political settlement can create the conditions in which Isis can be permanently defeated.
28. That’s why we are negotiating with other countries to try to work out what that settlement should be.
29. We’re not quite there yet.
30. In the meantime, bombs away.
31. We are absolutely clear that the long-term political settlement for Syria does not include Bashar al-Assad.
32. Which is a bit of a pity because Russia and Iran are clear that it does.
33. Syria’s future must lie with the moderate anti-Assad opposition.
34. The ones that Russia has been bombing.
35. We are doing this because Britain ( also the US ) is not a country that stands on the sidelines in the face of evil.
36. We step up to the plate and play our part.
37. Like we did in Libya.
38. Which worked out well.
39. We recognize that there are people in this country with doubts about the wisdom of this action.
40. But, since those doubts are going to be articulated by Labour’s Jeremy Corbyn, ( Bernie Sanders? ) we are not too worried about that.
41. We further recognize that stepping up bombing raids could increase the number of refugees fleeing Syria.
42. But they’re not coming here.
43. Because this regional problem requires a regional solution.

China’s Currency Conundrum

china-currencyMy Comments: Our standard of living, yours and mine, used to be a function of how well we built our house and how well we managed to feed and clothe ourselves. That was perhaps 250 years ago, a single blip in the passage of time.

A blip later it’s a little more complicated. Among the forces at work today is the ability of a few billion people, living on the other side of the planet, to build their houses, feed themselves, and influence their government.

It wasn’t easy a blip ago, and it’s not easy now, just different.

October 23, 2015 Commentary by Scott Minerd

There is a striking discontinuity of thinking about the greatest economic headwind facing the world today: the slowdown in China. Investors seem to universally agree that China will continue to weigh on the global economy until it devalues its currency, yet few think such an adjustment is likely anytime soon. Passive Chinese policymaking can provide a more benign environment for risk assets in the short-term, but ultimately, it holds back the world’s second largest economy and, consequently, global growth.

The bottom line is that China cannot remain competitive if it does not significantly devalue the renminbi (RMB). Consider that Japan, China’s fourth largest trading partner, has seen its currency weaken by 35 percent against the RMB since late 2012, just before Prime Minister Shinzo Abe came to power. For China, the optimal approach would be a long glide path of currency depreciation that would ultimately act as a catalyst for stronger economic growth in China and in emerging markets. For many reasons, a dramatic adjustment of the RMB is untenable for Chinese policymakers. A sudden Chinese devaluation would pose serious financial stability risks in China and around the world. If this were to happen it could push U.S. 10-year Treasury yields below 1 percent as capital rushes to find a safe haven. To this effect, Chinese policymakers are expected to announce a 2020 deadline for dismantling currency controls as part of the country’s 13th Five-Year Plan. The current proposal, to be debated at the Chinese Communist Party’s upcoming plenum, reportedly includes an open-ended commitment to speed up these reforms. Still, China is unlikely to take any dramatic action in the near term, which is consistent with the 50-basis-point reduction in the reserve requirement ratio overnight. Expect more of the same.

In the meantime, the impact of China’s slowdown is having a marked effect on Japan, Europe, and the United States. I do not believe the situation in China will derail the U.S. economic expansion, but it poses a serious threat to Europe and Asia and puts pressure on their central banks to act. At this juncture, however, it does not much matter how they respond. If benchmark interest rates were 4 percent, for example, and quantitative easing pushed rates to 2 percent, it would have a meaningful effect on economic activity. But with 10-year government yields at 0.50 percent in Germany and 0.30 percent in Japan, further quantitative easing seems unlikely to do a whole lot in terms of stimulating economic activity, though it can boost risk assets in the near-term. Case in point is the bounce that followed European Central Bank Chief Mario Draghi’s recent comments alluding to the possibility of more stimulus in December.

In the United States, I am becoming less convinced that monetary policy will lift off this year. My base case is now that there is only a 50/50 chance that the Fed moves in December. William Dudley, President of Federal Reserve Bank of New York and Vice Chairman of the Federal Open Market Committee, recently said he believed it would be appropriate to raise rates in 2015, but later said there was no urgency, especially if data did not support the move. This tells us how ambivalent the Fed is at this point about the specific date of the first rate hike after seven long years at zero percent. I see no reason to raise rates right now: The risks associated with tightening too soon are greater than the risks of delaying liftoff until next year.

The potential for higher rates, along with the headwinds of declining export activity, the strengthening of the dollar, an ongoing inventory adjustment, and continued fallout from China, has many economists on edge. Consensus estimates for U.S. third-quarter GDP have been declining steadily and many expect 1-1.5 percent growth. I believe this is too pessimistic—consumption remains strong and a figure approaching 2 percent is more realistic. The U.S. economy is clearly bearing the brunt of the headwinds I described, but I believe the market has already discounted them. Investors are being well-compensated for risk at this point, and it is prudent to consider increasing beta exposure, especially in high-yield and bank loan portfolios. As positive seasonal factors come into play, our analysis indicates that U.S. equities may increase another 7–8 percent, and that the S&P could climb to around 2,175 in the coming months. When equity prices rise heading into the holiday retail season, consumer spending also tends to be higher. This suggests that the Christmas selling season will be a reason for investors to celebrate—especially as market participants come to realize that policymakers in China are beginning a glide path to reduce domestic policy rates, which ultimately reduce the exchange value of the RMB and improve the prospects for domestic Chinese economic activity.

The conclusion is that risk assets are back in vogue. As we have indicated in the past weeks, now is the time to increase beta by adding to equities and below-investment-grade debt.