The American financial website Zerohedge quoted the Bloomberg Economics team on June 30 as predicting that the U.S. economic recession rate will be as high as over 98% in the next 24 months.
At the same time, the latest report released by the U.S. Bureau of Economic Analysis on June 29 once again lowered the growth rate of the U.S. gross domestic product (GDP) in the first quarter. The data showed that the annualized quarterly rate of U.S. GDP dropped in the first quarter of this year. 1.6%, compared with the 1.1% growth expected by economists, indicating that the probability of the U.S. economy actually falling into recession has increased. This is the second downward revision of U.S. GDP in the first quarter. The report also shows that the record trade deficit dragged down the performance of the United States this quarter.
The latest GDPNow model released by the Atlanta Fed on June 27 estimates the real GDP growth (seasonally adjusted annual growth rate) of the United States in the second quarter of 2022 at only 0.3%. This has also become another evidence that the US economy is in recession.
Data also showed that the annualized quarterly rate of the personal consumption expenditures (PCE) price index in the United States in the first quarter was unexpectedly revised up from 7.0% to 7.1%; the annualized quarterly rate of the PCE price index excluding food and energy was revised up from 5.1% to 5.2%. , highlighting that inflationary pressure remains huge. In addition, the latest CPI inflation index released in the United States in May was as high as 8.6%, setting a 40-year high. Meanwhile, the S&P 500 is closing in on its worst first half since 1970.
Philipp Hildebrand, vice chairman of BlackRock, the world's largest asset management company, said that the Federal Reserve's 2% inflation target may plunge the United States into a deep recession. On June 30, US media quoted another latest survey of Wall Street professionals as showing that the risk of a U.S. economic recession by the end of 2023 is 88%, up from 78% last month. Investor Katherine Wood, known as "The Woody Sister," said the United States has fallen into recession.
At the same time, as of June 30, the total U.S. federal debt has reached an astronomical figure of 30.55 trillion U.S. dollars, reaching about 130% of GDP. The United States is the world's largest debtor country. Today, the U.S. economy seems to be struggling to escape debt. As the Federal Reserve raises interest rates, the cost of repaying debt in the United States continues to increase. The U.S. economy may already smell a debt crisis.
The latest data shows that in the first quarter of this year, as the Federal Reserve raised interest rates, U.S. federal debt interest payments increased by 11.7% year-on-year to $140 billion. Gundlach, the new debt king, believes that without debt, the U.S. economy will experience negative growth. The U.S. economy may have sensed a debt crisis.
In this way, the Federal Reserve may reduce recession and inflation in the United States through dollar monetary tightening. Debt risks are transferred to some fragile markets. World Bank Chief Economist Carmen Reinhart said that given factors such as soaring inflation and sharp increases in interest rates, she is skeptical that the U.S. and world economies can avoid recession
The Federal Reserve added this month . After raising interest rates by 475 basis points, CME's "FedWatch" tool (FedWatch) latest showed on June 30 that the probability of the Fed raising interest rates by 75 basis points by July is 84.4%.
At the same time, Federal Reserve Chairman Powell said on June 24. It said that the Fed's balance sheet will eventually be about 2.5 to 3 trillion US dollars smaller than it is now. This shows that while the US economy is falling into recession, inflation, and debt risks, the Fed may pass on the risks through a series of continued tightening actions on the US dollar. . Under this expectation, economists have noticed that the butterfly effect has become more and more intense and obvious.
Many fragile markets with high foreign debt and low foreign reserves continue to depreciate, and the risk of falling into a debt crisis is gradually increasing. Intensified because there is little to cope with in a strong dollar cycle
Left is Federal Reserve Chairman Powell
For example, after the central bank of Sri Lanka confirmed in May that the country had defaulted on its sovereign debt for the first time since 1948, Sri Lanka announced last week that it has not been able to do so in the near future. , has been unable to purchase necessities such as imported food, fuel and medicine, and the heavily indebted Sri Lankan economy has "collapsed", and the World Bank report shows that it may take many years for more and more highly indebted countries to see a substantial reduction in their debt. , more fragile markets will follow Sri Lanka's footsteps.
The World Bank believes that countries such as Myanmar , Laos and other countries. They are not major players in global markets, but their economic conditions are deteriorating. At the same time, the conflict between Russia and Ukraine and the price increase of commodities have caused countries such as Ghana and Egypt to face huge impacts.
Based on various data, Zimbabwe , Argentina , Turkey , Sri Lanka, Indonesia , Mexico , Lebanon, Nepal, Myanmar, Pakistan , Malaysia , Thailand, Peru , Czech , Poland , Malawi , Chile , Paraguay , Egypt, Mongolia , Philippines , Bangladesh , Laos, Armenia , Ghana, Vietnam at least All 26 countries may be in a dollar shortage due to heavy debts and insufficient foreign exchange reserves.
In Southeast Asia, for example, Indonesia’s foreign exchange reserves are at their lowest levels since November 2020. Malaysia’s foreign reserves recorded the largest decline since 2015. Thailand’s foreign exchange reserves fell to US$221.4 billion, the lowest level in more than two years. This reminds people of the Asian financial crisis in the 1990s, and the initiator behind this was US dollar capital. What is even more surprising is that the butterfly effect of this dollar harvest cycle has spread to Vietnam, which was once called the Asian economic miracle by Western media in recent years.
According to the latest report from Vietnam.com, the market value of Vietnam’s stock market has dropped sharply since the Russia-Ukraine conflict and the Federal Reserve’s interest rate hike, from a peak of approximately US$342 billion at the end of March to US$270 billion in late May. Funds worth up to 1,623 trillion Vietnamese dong were sold by global buyers.
Reuters analysis believes that Vietnam’s once-hot economy may be becoming a victim of the strong U.S. dollar cycle. According to Nikkei 's earlier analysis of Vietnam's consumption situation, Vietnam's economy may be at risk of recession for 20 years, and may even be so fragile that it may face the possibility of recession returning to its original shape. Vietnam is also sounding the alarm for at least 25 countries mentioned above.
The core logic of why Vietnam's economy has shown its fragile side is that it is highly dependent on US dollar debt and does not have a strong foreign exchange reserve moat to protect it. Data shows that Vietnam’s foreign exchange reserves are only US$110 billion, while Vietnam’s total debt is approximately US$160 billion, with total debt reaching 145% of the country’s foreign exchange reserves. HSBC report shows that Vietnam is listed as the country in Southeast Asia that needs to consolidate its finances most.
This shows that Vietnam’s economic growth in the past was the product of being trapped in the US dollar debt black hole, but when the Federal Reserve tightened its monetary policy, a large amount of funds would quickly withdraw from Vietnam. In other words, US dollar capital gained wealth growth in Vietnam After spread , the sheep shearing cycle began. In other words, Vietnam may be being sheared.
It is worth mentioning that although Vietnam has vigorously developed its manufacturing industry by absorbing foreign investment in recent years, Vietnam's financial and business environment is not optimistic. Many analysts on Wall Street believe that Vietnam’s financial market cannot reach the level of Thailand, Indonesia and Malaysia. At this time, when the currencies and debts of Thailand, Indonesia, and Malaysia are also in trouble, it may be inevitable for Vietnam to be harvested by US dollar capital.
"The Fed's monetary measures have always targeted fragile economies, just like a herd of wild wildebeest crossing a river, the lions will pick on the young and weak... The rest of the herd will move on," fund manager Patricia Perez-Coutts So said. Royal Bank of Canada said that economies with limited financing capacity are subject to very large fluctuations in the risk of withdrawal of US dollar funds, and Vietnam is very obvious.
However, it is becoming more clear for smart money around the world to flow to markets with strong foreign exchange reserve moats, complete industrial chains, and continued good prospects. (End)
