Markets

The world at a standstill

J Mulraj | Updated on January 11, 2019 Published on January 11, 2019

Thanks largely to Donald Trump, the world is at a standstill!

The US government is shut for the past 20 days. Trump is asking the Congress to release $5 billion to construct a wall on its Mexican border; Congress is refusing to. Many government employees aren’t being paid. How long can

Had Trump studied 17th century Chinese history, he would have realised that the wall did not prevent the Machurian Qing dynasty from defeating the Chinese Ming dynasty and ruling it. The $5 billion can be better utilised elsewhere.

Trump has also brought global trade to a standstill, with his tariff war on China to improve terms of trade and to insist on better protection of intellectual property. A negotiating team from the US has just concluded talks with Chinese negotiators and an announcement will be made shortly of their outcome, which, by several commentators, looks promising. Since global trade comprises a whopping 58 per cent of global GDP, the dispute, if unresolved, will hit economic growth of all countries, and, thus, impact stock markets negatively.

Perhaps an out-of-the-box idea would be if China can offer to build the wall for free, and protect IP, if the tariff hikes are rolled back and the dispute resolved! The Chinese could probably do it at half the cost and everyone would be happy.

Other balls which Trump has set rolling, which affect geopolitics and economics, are also at a standstill, including resolution of the North Korean threat, and the Iran dispute. All of these have consequences.

One of the consequences is the de-dollarisation taking place, thanks largely to the weapon of ‘sanctions’ inflicted by Trump against countries that do not toe his line. The US control over the financial system, especially SWIFT, through which money is transferred, gives it the ability to impose sanctions. China, Russia, Iran and other countries have made pacts to trade their goods/services in other currencies.

If more countries join the de-dollarisation bandwagon, the US dollar will lose its status as the world’s reserve currency, and the US will weaken its ability to raise money to fund its deficit. The US National Debt stands at $20 trillion plus change. If the ability of the US to refinance its debt is reduced, it would need to raise interest rates, which Trump is loath to do.

In India, we have a situation of various government regulatory and investigative agencies not doing their jobs, or doing it shabbily. Consider the case of Zen Shaving, a company which raised money on the Pune Stock Exchange and got listed. Since 1995, it has not filed any financial statements, which were signed by its auditor. .

The auditor, asked by the NCLT on the whereabouts of the manufacturing plant and when the last AGM was held, replied, ‘I don’t know.’ The whereabouts of the current directors are unknown and the address of the registered office is wrong.

Stock markets have risen on hopes that a trade deal between the US and China will be announced. If it is, they will rally further, at least till the next hike in US interest rates by the Fed. If the Fed raises rates, as is likely, given the strong job growth in the US, markets may, well, get ‘Fed’ up (literally).

(The writer is India Head — Finance Asia/Haymarket. The views are personal.)

Published on January 11, 2019
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