Because the US economy will somewhat copy China’s dirigisme
The cold war with China in which the Biden administration, willy-nilly, will find itself immersed will coincide with a self-reform of US capitalism that will borrow many of its elements from China. The analysis by Alessandro Fugnoli, chief strategist of the Kairos funds
When Franklin Delano Roosevelt became president of the United States, the first step he took in international politics was the recognition of the Soviet Union. It was the year 1933, the wounds of the Great Depression were still fresh and industry and finance hoped that the diplomatic thaw would open the doors to the Russian market, which at that time appeared to be expanding thanks to the forced industrialization policy set. from the five-year plans.
Roosevelt had a good opinion of the Soviet Union, in particular of the concept of planned economy, and with the New Deal he tried to create a capitalism with some features of socialism (big government, highly progressive taxation, capillary regulation of the economy with priority to employment, support for trade unions). In exchange for these attentions, the Soviet Union made commitments that were certainly not burdensome, such as guaranteeing religious freedom for Americans in Russia and limiting support for American revolutionary organizations.
The relationship between Roosevelt and Stalin was very good during the Second World War and there are those who argue that if Roosevelt had not passed away prematurely in 1945, he would have remained good afterwards. In reality, as Mary Glantz documented in her book (FDR and the Soviet Union, 2005), just as Roosevelt and Stalin began to dialogue in the first half of the 1930s, the American deep state was rowing against and preparing the ground for the future. cold War. When Truman became president, anti-Soviet positions clearly prevailed and became official doctrine in the following decades.
That said, neither Truman, a Democrat, nor Eisenhower, a Republican, ever thought of accompanying the start of the Cold War with the dismantling of the New Deal. Eisenhower didn't touch an iota of the welfare state and criticized big government in words, but he was in fact a director himself when he launched the great public program of accelerated construction of the American highway network. In short, the cold war against the Soviet Union coincided without too many problems with the structural adoption by America of the political and ideological elements of the adversary.
Something similar comes to mind when you hear Russell Napier parodying the doctrine of post-Maoist China (socialism with Chinese characteristics) and talking about capitalism with Chinese characteristics to describe the West of the next decade. In other words, the cold war with China in which the Biden administration, willy-nilly, will find itself immersed will coincide with a self-reform of capitalism that will borrow many of its elements from China. Think of big government, ultra-rigid policy on climate and technology, reregulation, the merger between central banks and governments, the defense of national champions and the abandonment of competition, financial repression, control of the yield curve, banks as branches of the central bank in charge of distributing publicly guaranteed loans, the use of stock exchanges as monetary policy tools and the use of finance and savings for industrial policy objectives.
Moreover, the New Deal of the 1930s and the Green New Deal of tomorrow have in common the fact that they are vigorously reflationary measures that follow phases of deflation in which capitalism first flourished luxuriantly, but then withered. In this sense, the Bidens and Yellens of tomorrow may seem very different to contemporary eyes from the Trump and Mnuchins of yesterday, but they are actually even further away from the Clintons and Rubins of the 1990s, those who deregulated finance, carried the budget surplus public and professed the strong dollar. Seen from up close Biden is a re-globalizer, seen from a distance is a reflationary like and more than Trump.
How should those who invest in this new world behave? There aren't many alternatives, you have to go with the flow. Invest as you are told, Chris Potts warns, or you will be expropriated (by inflation, negative real returns, rules and taxes, ed ). So bag (and credits), with a strong green color.
As in China, two alternative spaces will remain open. The first is that of limited stock market bubbles, with the regulator that directs the general index and pushes it towards the desired objectives (see yesterday's Powell blessing the level reached by financial assets) and some play areas in small and medium technology Shenzhen or Silicon Valley where you can speculate without limits. The second space is the opposition of his majesty constituted in China by those who buy houses as a safe haven and in the rest of the world by those who buy gold and bitcoin. Opposition because those who exercise it proclaim distrust of inflation and the stock market. By His Majesty, this opposition, because those who buy Chinese houses, gold and bitcoin are actually participating in the great reflation party, the same in which the stock exchanges participate.
Coming to the short term, the grand finale of 2020 and the beginning of 2021 loom as the clash between vaccines and reflation on the one hand and, on the other, the sad reality of the pandemic and its tail that is looming even more poisonous for January and February. Let us not forget that the end of the year and January, for the markets, are the time of hope that, like snow, covers every doubt and every ugliness.
Those who have dollars for structural diversification reasons should dedicate them to the most aggressive part of the portfolio, high beta American stocks, emerging bonds, high yield credits. Also to be considered are the local currencies of those emerging countries (including China) which traditionally revolve around the dollar and which at this stage are appreciating against the American currency.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/perche-leconomia-usa-cerchera-di-copiare-un-po-il-dirigismo-della-cina/ on Sun, 10 Jan 2021 06:41:21 +0000.