Tri-polar Economic Order--final part.

Art, 26 Mar 08

Aug08: When streams of poor US economic data keep pouring in, instead of parking more money into US treasury bonds, SWF and foreign capital will move out their funds in trickle to downpour into Sep08. FED will be forced to start printing large sums of money and to attract some foreigners to buy their US bonds; the yield has to increase significantly. The impact is US economy will experience higher interest (or borrowing) costs, thus further weaken the housing market rescue efforts, dragging it deeper into recession.

Oct08: When it becomes obvious to everyone that whatever US FED or government try to do, they will still not be able to hold up the US financial markets. By then, the world will finally come to the conclusion that US economic balloon has burst. US bond yields will climb above 10% (in the ‘80s, it touch 15%). US economy will no longer the most powerful or largest economy of the world. The markets may choose to switch to using EUR or some form of basket currencies as the standard of exchange, instead of USD. S&P500 will fall to 1000 or below and hard commodities will fall rapidly too, followed by the soft commodities (but to a lesser extent). The world stock markets will also be dragged down once again, but to a lesser degree, depending on the specific country’s economic strength.

Y2009: The world will be in full recession and stagnation, ie, stagflation for the next one year. We will see the mild recovery only in Y2010 onwards.

Y2010: The world will be quite a different place where three major economic blocs (Europe, Asia and US) will be jostling for economic control and command without any clear winners. Middle-East will not become a significant force with their oil as by then, nuclear energy will start to kick in, thus reducing the demand for oil, causing a drop in its prices and the wealth that was supposed to be generated for these countries. (Just like the fall of natural rubber prices, when synthetic rubber appears on the market). Japan will still maintain its significance while Russia will be an ambivalent force, being a European and Asian country at the same time, though it will exert some economy influence through its resources and technology. South America is a minor economic force due to its weak education system except for its farming and resources. Africa will remain as a continent for exploitation for its raw materials and with AIDS spreading wildly; it also limits its scope of economic influence.