The world is focused on China and for good reason. Russian President Vladimir Putin recently said that China would be the world’s economic locomotive for the next century. However, the heady, high single-digit growth of the Chinese economy in the last decade has slowed, and this will have real repercussions for the world economy in terms of growth and demand for commodities. The overt manipulation of the Chinese stock market has forced the world to take a hard look at the seriousness of the Chinese when it comes to open markets and the safety of investor assets. Inclusion of the yuan in the IMF’s reserve currency basket for Special Drawing Rights, SDR, is suspect as well.Multiple reports have been released recently detailing massive capital flight from China and the redemption of hundreds of billions of foreign currency reserves to fund this movement. The massive reduction in wealth to millions of Chinese investors will further retard the government’s effort to reduce China’s reliance on business investment and encourage internal consumption. China simply can’t go on building infrastructure to goose its growth numbers. This black swan economy will take a long time to play itself out and the consequences to the Chinese government and the world are yet to be clarified.
The other major economic engine of the world, the European Union, is stagnant as well, mired deep in the tar pits of debt and lacks political and economic direction. The Greek crisis has tarnished the European brand and instilled doubt in markets that will be hard to erase. Europe will not lead the world into recovery any time soon.
Meanwhile the United States has been treading water economically with frequent head fakes that growth is about to take off and the Fed will begin raising rates, only to be disappointed with economic leading indicators, over and over again. The Canadian economy, wracked by the plunge in oil prices, has moved forward with starts and stops as well, leaving traders to read the tea leaves about the intentions of the Bank of Canada regarding interest rates.
If one thinks of the American economy as a stock and looks at the chart technically, to me this is the type of economy you want to buy—one that has experienced a steep sell-off and has recovered somewhat and now is moving sideways, waiting for that explosive move upward. The backing and filling we are seeing in the American economy is positive in my view. We are talking about a Federal Reserve that wants to raise interest rates to head off possible inflation. We are not talking about reducing rates to fund growth or another round of quantitative easing. At least, not yet.
The American energy miracle is only just getting started as well. The rumors of its death are greatly exaggerated. This is just the first retrenchment in a long bull market and transformation of global political and economic realities. It is the beginning of American energy independence and OPEC is now resigned to that outcome.
The North American economy is deep and resilient. It will recover and leap to higher heights and take investors along for the ride. Free markets and the rule of law will see to that. US Dollar strength is here to stay. The Chinese century is not ahead of us. It’s behind us. It’s already happened, like the Japanese miracle of the ‘70s and ‘80s. What the world will experience going forward is another North American century. North America, not China, will be the economic locomotive of the world.
L.Todd Wood is a former emerging market debt trader with 18 years of Wall Street and international experience. He is also an author of historical fiction thriller novels. His first of several books, Currency, deals with the consequences of overwhelming sovereign debt. He is a contributor to many media outlets and is a foreign correspondent for Newsmax TV. LToddWood.com