From QE1, most of emerging market countries had learned extreme inflow of liquidity, causing serious inflation in the each territory. They adopted on some regulations like “Tobin Tax” to control capital inflow. From, QE2, FRB came to know the liquidity that was derived from the program went to commodity market, making bubble in oil price, gold price, and agricultural price. Egypt and Syria that are lack of food suffered from such an increased food price went through drastic political revolution, the event that forced Mubarak and Gaddafi to be dethroned. Afterwards, strong regulations like Volcker Rule and Dodd Frank appeared to control the capital inflow to commodity market. After QE3, what happened? The money was not able to find to go without US, the US that went through tough deleverage process for past 4 years. Unlike forecasting, the liquidity was gathered in US financial market, driving USD to be appreciated, treasury bond price to go up, interest rates to go down, and stock price to go up. Thanks to unprecedented low interest rates, US housing market has recovered rapidly. On the other hand, emerging market countries were likely to control the capital inflow and inflation risk. Additionally, they were intended to sell their goods to US consumption market as they has done for last 20 years. As can be seen from the state of union in 2011, Obama declared that US will make 5mil jobs specifically in export sector. To get there, not only competitiveness but also great market to buy the US goods are essential. I strongly believe that US manufacturers have sufficient ability to compete with global player, the competitiveness that is the most significant milestone that lots of US companies are coming back from emerging market. But it looks like there are no great consumption market to buy competitive US goods. Most of eligible countries like China and Korea are likely to suppress the inflow of capital inflow to deprive the counties of the bubble risk. With announcing of “exit strategy”, the countries would be very embarrassed. Until now, they have fought with capital inflow. But suddenly, the foe is changed with capital exodus! Chinese financial institutions were dependent on hot money from Hong Kong because Chinese central bank did not supply liquidity to suppress inflation. Announcement of “Exit strategy” deprived the liquidity from Hong Kong, driving them not to find money anywhere. The interest rates toughed the pinnacle, causing serious credit crunch in Chinese financial market. Credit crunch would cause lots of weak companies, banks to go bankrupt, growth rate to be dropped, the drop that is exceptionally critical for Chinese politicians because it would mean high unemployment rate. Just now, I checked very interesting news in “Yahoo! Finance”. This one! finance.yahoo/blogs/breakout/u-chinese-central-bankers-seek-calm-markets-173051193.html
Posted on: Tue, 25 Jun 2013 19:45:08 +0000