How is 2014 shaping up?

The Forbes blog post on PBoC suspending cash transfers during this crucial Chinese New Year week sounds more plausible than the ‘system maintenance’ explanation for suspending cash transfers.

I scoured Taiwan newspapers. There is a news story warning of an imminent default in the Chinese shadow banking world but nothing more sensational than that. Of course, there are non-economic (but important) stories – that 80% of China cities failed to meet air quality standards in December and that it was the worst month of average air quality. Then, there is the story on the number of human infections of H7N9 in China numbering around 100 since last Fall. But, none on the PBoC suspension of cash transfers.

The same is the case with Taipei Times but among its most read stories is this one on the fear of China hard landing stalking Davos. The BBC page on China leads with the violence in Xinjiang province and it also reports on the deadly avian flu.

Amidst all this, the piece by David Pilling on China’s future growth and its ability to manage the transition sounds too unusually sanguine.

This story on HSBC restricting cash withdrawals is quite inexplicable and troubling simply because there are more questions than answers.

However, in FT Asia edition, it appears like ‘business as usual’. The front page top story is about ECB preparing to fight deflation with the ECB getting ready to buy securitised loans to companies and households. European banks have not shrunk their assets. Hence, an attempt to get them to kickstart their lending sounds like a dangerous but a rather familiar policy measure these days.

The emerging market turmoil is just a very small lead in the front page. Strange.

Last week, Argentina and Venezuela devalued their currencies. The Turkish lira price of one US dollar has almost doubled in the last three years. Sounds too exaggerated to me. One of my friends pointed out to me that this is the same-old dollar liquidity issue. As the US current account deficit shrinks (see my blog post on a related issue here), the world dollar liquidity drops and all sorts of fundamental problems become too glaring, come into sharper relief and get magnified.

But it is a brave man with zero mark-to-market fears or considerations who will take positions on the Turkish lira or the Brazilian real for that matter, now.

The reality is that pre-2008, the developed world had believed that it had ushered in ‘great moderation’ and paid a price. Post-crisis, the emerging world thought that the world of capital would come to them no matter what they did. The primary source of the problem then was the developed world but the emerging world was not resilient enough then.

Now, the emerging world is the primary source of the problem and the developed world is nowhere near being resilient. Given that China, the big part of the EM world, is part of the problem now, the question to ask oneself is whether 2014 is different from 2008 or worse.


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