As the Federal reserve is suggesting that it will continue raising interest rates at least four more times this year, but most people are not confident that they are actually going to do it. The fed stopped the tightening of the monetary policy following turmoil overseas in the Chinese Markets. China’s stock market is going through a volatile period right now and the country is depreciating its currency as well affecting the world everywhere.
The situation is now that the world needs to focus on how China is going to affect the world economy and most importantly the United States. The U.S. Treasury yield should be exceeding 2.5 percent by the end of the year.
China in Focus
Many folks think that the United States is not as reliant on China as it used to be, due to factors that involve the trade links not being as large as they used to be. But with an eventual Chinese economic collapse on the horizon there is still some need to worry about the ramifications this will have for the world economy.
China is connected to many emerging markets and economies and that would be detrimental to these economies. These emerging markets make up a large part of the entire global economy.
Shanghai is down some 15 percent since the start of the New Year and the after effects are spreading throughout the rest of the world. The U.S. stock market has had one of its worst opening weeks of all time. The world partly depends on China’s growth to fuel the world economy.
What is China to Do?
Part of this problem hinges on the fact that what China used to do is no longer working as they mature as a world power and economic leader. There have been some major signs that they were in trouble for some time. The old model was a farmer moving into the industrial areas of China and keeping the economy growing. Now the shift is focused on them becoming more of a consumer-service based economy.
How they manage this transition will be the tell tale sign of economic growth or a significant downturn the economy will be facing for some time. Currently the United States is acting as a economic stable force in a world filled with impending turmoil.
As China drags down its other trading partners, demand for American products is going to start going to the wayside. On the other hand if China can slide through this transition there is room for the economy to grow and also for the United States to benefit from this as well. For example the United States is well equipped to deal with a consumer economy and booming population as it has done so since the early 1950s. The infrastructure is in place and the tables could be turned making China more reliant on the United States as they once were for their manufacturing needs. This is definitely a time of economic upheaval that can go a multitude of ways, hopefully in a positive direction.