In his most recent SCMP opinion piece, independent economist Dr Andy Xie discussed why 2021 is the year of living dangerously.
Vaccination is unshackling major developed economies and money is flowing into real economies, sparking overheating and inflation.
This may spell the end of the speculative boom in both traditional financial markets and new products like cryptocurrencies and NFTs.
Major central banks are still reluctant to talk about tapering the unnecessary Covid-19 quantitative easing to cool inflation. When markets panic over inflation, which is likely to occur this year, they will be forced to unwind.
World debt, according to the IIF, reached US$281 trillion or 355 per cent of GDP in 2020. It increased from US$142 trillion in 2007, which preceded the 2008 global financial crisis. Low interest rates have made high indebtedness more stable, because it becomes easier to borrow more to pay off old loans.
As the global economy hasn’t grown much, you can be sure that much of the increase is in dodgy stuff, like “stir-frying” stocks, cryptocurrencies and NFTs. The debt is backed by something with value from a trading perspective, but has zero value in terms of fundamentals. When the party winds down, how much debt will be hanging in mid-air?
This year is a turning point one way or another. The inflationary trend is keeping central banks from adding more liquidity, even if they don’t unwind their assets, while the real economy demands more money to keep pace with inflation and more speculative assets compete for liquidity, too. The party is passing midnight, just wait for the big bang.
Read the rest of the SCMP article here.
Dr Andy Xie 謝國忠, is an independent economist, director of Rosetta Stone Advisors and is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States.
He was a part of Morgan Stanley in 1997 and the Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. He also spent two years with Macquarie Bank in Singapore, an associate director in corporate finance and five years as an economist with the World Bank.
Dr. Xie earned a PhD in economics in 1990 and an MS in civil engineering in 1987 from the Massachusetts Institute of Technology.