OBELA Analysis

The reasoning of modern monetary theory holds that countries with reserve currencies can maintain unlimited levels of fiscal deficits and public debt because they have financing available. The evidence, however, shows that massive deficits do not mean economic dynamism in the US.

After 2008, federal deficits have doubled from about 60% of GDP to about 120%. Emerging nations shift their resources to China through the US deficit instead of growing, since the world is one and the borders are all open, and trade is unrestricted.

US debt in nominal amounts is more than that of the rest of the world combined. So monetary inflation exists and hits first the most deficit countries, then the least, and finally the rest of the world as imported inflation.

The US Global Build Back Better World (B3W) initiative has been exposed by President Biden to Latin America as an alternative to Chinese financing in infrastructure. It intends to tackle the Asian Giant's One Belt, One Road project under two main political lines.

The focus of the B3W project is on infrastructure development, although the G7 has turned to China for investment to renovate its own infrastructure. China is still viewed by the US as the greatest threat to national security of the 21st century, following the Republican administration.

The B3W represents for the United States a means of strategic competition with China, which shows that, at least in the short term, tensions and the refusal to cooperate with the Asian Giant will be a constant.

Evergrande's bankruptcy seems to be the most covered topic by the specialized press nowadays, they even foresee an economic crisis in China. The actual situation of the conglomerate does not mean a world crisis, although perhaps a problem for the Asian country.

China was the only large country to grow in 2020 and the first to control the COVID-19 pandemic. Its investment in fixed assets is one of the main drivers of growth. The gross value of the construction sector had a 19% growth in the second quarter of 2021, compared to 2020.

The Chinese outlook is not encouraging, but it is not catastrophic as posited. The Chinese government and press seem more concerned about international trade and energy supply than about the construction and banking sectors. The real estate bankruptcy may present a problem for the domestic market in the short term due to job losses, but experience shows that the government will not let it drift.