NEW YORK--(EON: Enhanced Online News)--Kroll Bond Rating Agency (KBRA) has released a new Macro-Markets report entitled “Shall We Thank ‘Uncle Xi’ for the Resurgent U.S. Economy.” The report makes the following key points:
“Shall We Thank ‘Uncle Xi’ for the Resurgent U.S. Economy.”
- As 2016 comes to an end, one of the last details of the year involves awaiting the decision by the Federal Open Market Committee (FOMC) whether or not to raise short-term interest rates by a whole quarter of a point. In many respects, the November election that has brought President-elect Donald Trump to the verge of the American Presidency also rendered the deliberations of the FOMC irrelevant.
- It is worth asking whether the renewed exuberance coursing through the veins of Wall Street is really due to the prospect of tax cuts and public spending promised by Mr. Trump, or rather the cumulative effect of eight years of extraordinary monetary policy actions. While KBRA has long believed that the positive effect of zero interest rates and trillions of dollars in open market purchases of debt were ebbing, in many respects the benefits were cumulative and seem to have become fully manifest just as the central bank is trying to normalize policy.
- Just as capital inflows from China helped to stoke the housing boom of the 2000s, ending with financial disaster in 2008, inflows from China more recently have helped to reflate sagging asset prices and then some, and arguably complemented the Fed’s actions in this regard. China remains the largest holder of U.S. Treasury debt and Chinese citizens have been spending the dollars provided by the sale of Treasury debt by the Bank of China to purchase real estate and other assets in the U.S.
- Instead of attacking China as a currency manipulator, perhaps Mr. Trump ought to extend holiday greetings to Chinese Communist Party General Secretary Xi Jin Ping and maybe even thank him for adding another trillion in stimulus to the extraordinary monetary actions of the FOMC since 2008. In many respects, the decision by Xi to allow Chinese nationals to have access to dollars and to spend these funds freely offshore may be at least partly responsible for the strong economic situation that now greets the new U.S. leader.
To view the report, please click here.
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