U.S. financial website Zerohedge quoted Bloomberg's economic team on June 30 as predicting that the U.S. recession rate in the next 24 months will be as high as 98%.
Meanwhile, the latest report released by the Bureau of Economic Analysis on June 29 once again cut the growth rate of the US gross domestic product (GDP) in the first quarter, showing that the annualized quarterly rate of US GDP fell by 1.6% in the first quarter of this year, compared with the 1.1% growth expected by economists, indicating that the US economy actually fell into recession. This is the second revision of US GDP in the first quarter. The report also shows that a record trade deficit has dragged down the performance of the United States this season.
The Atlanta Fed's latest GDP Model released on June 27 estimates of real GDP growth (seasonally adjusted annual growth) in the U.S. for the second quarter of 2022 at just 0.3 percent. This has become another evidence that the US economy is in recession.
The data also shows that the annualized quarterly rate of the US Personal Consumption Expenditure (PCE) price index was unexpectedly revised up from 7.0% to 7.1%; The PCE price index, excluding food and energy, was revised up to 5.2% annualized from 5.1%, highlighting that inflationary pressures remain enormous. In addition, the latest U.S. CPI inflation index for May was as high as 8.6%, a 40-year high. Meanwhile, the S&P 500 is approaching its worst first half since 1970.
Philipp Hildebrand, vice chairman of BlackRock, the world's largest asset manager, said the Fed's 2 percent inflation target could plunge the U.S. into a deep recession. Another latest survey of Wall Street professionals was quoted by U.S. media on June 30 as saying that the risk of a U.S. recession by the end of 2023 is 88 percent, up from 78 percent last month. Catherine Wood, an investor known as "Sister Wood," said the U.S. was in recession.
Meanwhile, as of June 30, the total federal debt of the United States has reached an astronomical amount of $30.55 trillion, reaching about 130% of GDP. The United States is the world's largest debtor country, and today's U.S. economy seems to be unable to move away from debt, and with the pace of interest rate hikes by the Federal Reserve, the cost of debt service in the United States is also rising. The U.S. economy may have sniffed a debt crisis.
The latest data show that in the first quarter of this year, with the Fed raising interest rates, the US federal debt interest payments increased by 11.7% year-on-year to $140 billion. The new debt king" Gundrake believes that without debt, the US economy will be negative growth. The U.S. economy may have sniffed a debt crisis.
In this way, the Fed may pass on the risks of recession, inflation, and debt in the United States to some vulnerable markets through the way of dollar monetary tightening. Carmen Reinhart, the World Bank's chief economist, said she was skeptical that the United States and the world economy could avoid a recession given soaring inflation and sharply raised interest rates.
After the Fed raised interest rates by 75 basis points this month, the latest cmE "FedWatch" tool (FedWatch) on June 30 showed that the probability of the Fed raising interest rates by another 75 basis points by July is 84.4%.
Meanwhile, Fed Chairman Jerome Powell said on June 24 that the Fed's balance sheet would eventually be reduced by about $2.5 to $3 trillion from now. This all suggests that while the U.S. economy is mired in recession, inflation, and debt risks, the Fed may pass on risk through a series of sustained tightening actions in the dollar. Under this expectation, economists note that the butterfly effect is intensifying, intensifying and becoming apparent.
The fragile market of high foreign debt and low foreign reserves has depreciated in local currencies and is at increasing risk of a debt crisis, as it is almost impossible to cope with a strong dollar cycle.
On the left is Fed Chairman Jerome Powell
For example, after the Central Bank of Sri Lanka confirmed in May that the country defaulted on its sovereign debt for the first time since 1948, Sri Lanka announced last week that its heavily indebted economy had recently "collapsed" unable to buy essentials such as imported food, fuel and medicines. And the World Bank report shows that it may take years for a growing number of highly indebted countries to see substantial reductions in their debt, with more vulnerable markets following Sri Lanka's lead.
The World Bank believes that countries such as Myanmar and Laos. They are not major players in the global market, but their economic conditions are deteriorating. At the same time, the Russian-Ukrainian conflict coupled with rising commodity prices has also faced huge shocks for countries such as Ghana and Egypt.
According to the data, at least 26 countries in Zimbabwe, Argentina, Turkey, Sri Lanka, Indonesia, Mexico, Lebanon, Nepal, Myanmar, Pakistan, Malaysia, Thailand, Peru, the Czech Republic, Poland, Malawi, Chile, Paraguay, Egypt, Mongolia, the Philippines, Bangladesh, Laos, Armenia, Ghana and Vietnam may be in the predicament of a dollar shortage due to heavy debt and insufficient foreign exchange reserves.
In Southeast Asia, for example, Indonesia's foreign exchange reserves are at their lowest level since November 2020. Malaysia's foreign reserves fell the most since 2015. Thailand's foreign exchange reserves fell to $221.4 billion, the lowest level in more than two years. This is reminiscent of the Asian financial turmoil of the 1990s, and it was dollar capital that was the initiator. Even more surprisingly, the butterfly effect of this round of dollar harvesting cycles has spread to Vietnam, which has been called an Asian economic miracle by western media in recent years.
The latest report of the Vietnamese network shows that the market value of the Vietnamese stock market has fallen sharply since the Russian-Ukrainian conflict and the Fed's interest rate hike, from a peak of about $342 billion at the end of March to $270 billion in late May. The equivalent of VND1623 trillion was sold off by buyers around the world.
Reuters analysis believes that the once hot Vietnamese economy may be becoming a victim of the strong dollar cycle. According to an earlier analysis of Vietnam's consumption situation by the Nikkei News, the Vietnamese economy may be at risk of recession for 20 years, or even vulnerable to the possibility of a recession back to its original form. Vietnam is also sounding the alarm for at least 25 countries mentioned earlier.
The core logic of the Vietnamese economy to show its fragile side to the fullest is that the Vietnamese economy is highly dependent on DOLLAR debt and does not have a strong moat of foreign exchange reserves. The data shows that Vietnam's foreign exchange reserves are only $110 billion, while Vietnam's total debt is about $160 billion, and the total debt reaches 145% of the country's foreign exchange reserves. According to the HSBC report, Vietnam is ranked as the country in Southeast Asia that needs to consolidate its finances the most.
This shows that Vietnam's past economic growth has been the product of being trapped in the black hole of dollar debt, but when the Fed tightens its monetary strategy, a large amount of money will quickly withdraw from Vietnam, in other words, the dollar capital has obtained the spread of wealth growth in Vietnam and begun to shear the sheep cycle. In other words, Vietnam may be shearing sheep.
It is worth mentioning that although Vietnam has made great efforts to develop the manufacturing industry by absorbing foreign investment in recent years, Vietnam's financial and business environment is not optimistic. Several Wall Street analysts believe that Vietnam's financial markets are not up to the level of Thailand, Indonesia and Malaysia. And at this time, when the currencies and debts of Thailand, Indonesia, and Malaysia are also in trouble, Vietnam is either inevitably harvested by dollar capital.
"The Fed's monetary initiatives have always taken a shot at vulnerable economies, like a herd of wild wildebeest crossing a river, and Lions picking on the young and weak... The other herds will move on," said fund manager Patricia Perez-Coutts. The Royal Bank of Canada said that the risk of withdrawal of dollar funds from economies with limited financing capacity is very large, and Vietnam is very obvious.
However, for smart money around the world, the flow to markets with strong foreign exchange reserve moats, complete industrial chains, and continued good prospects is becoming more clear. (End)