Recently, one of the lead stories on Bloomberg proclaimed: “The Greenspan put is now the Zhou Xiaochuan put.” Alan Greenspan, of course, was the long-serving Fed chairman, whose tenure started in August 1987. Zhou will soon be retiring after 15 years as head of China’s central bank, the People’s Bank of China.
The point of the Bloomberg article was that today it’s China’s central bankers who, by raising or lowering rates, can exert the greatest control over the global economy, taking over a role that used to be held by the U.S. It’s an observation that echoes what I’ve been arguing for the last two years, i.e., that today the most important economy when it comes to our financial markets isn’t ours, it’s China’s. Events have backed up that view: as I’ve pointed out before, our stock market throughout this year and even in 2016 has clearly been swayed in significant part by the economic data generated in China. And there’s good reason to believe that will continue to be the case.
Recent news reports confirming that China plans to start trading an Eastern oil benchmark denominated in yuan backed by gold – something we have been predicting China is almost certain to do – sounds right on target to us. And it casts a dark shadow over Western hegemony, in that such a benchmark, which you could label “petro-yuan” as opposed to “petrodollars”, easily could threaten the dollar’s role as the world’s primary reserve currency. Such a shift would almost surely mean that sharp gains in oil would be much more felt by those holding dollars than those holding yuan, inflicting pain on the U.S. economy and on Americans.
Our message: the U.S. can rely on China only up to a point. After that, if we don’t rely on ourselves and focus on building our infrastructure and ensuring ongoing access to critical natural resources, our next crisis may end up with a world in which we find ourselves clearly playing second fiddle to China.
(Source: The Complete Investor, 10/10/17, Stephen Leeb)
Barbara A. Culver
CFP®, ChFC®, CLU, AEP®