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The Huge Gap Between the US Markets and International Trade

US Markets and International Trade
Summary
  • During the past years, advanced economies have sustained a semblance of stability by relying on historically ultra-low interest rates and massive injections of quantitative easing.
  • The Baltic Dry Index has been used as a barometer of international commodity trade. Recently, there has been much optimism about the “resurgence” of the Index as the trade truce has supported its rise back to over 1,700.
  • The current gap between US market highs and international economic realities is precipitating a global recession by 2020, given the current trends.

Globalization is not a concern to the Trump administration, which seeks to sustain high market valuations that are not supported by the fundamentals. As a result, a global recession in 2020 would not be the worst scenario.

Since the mid-1980s, the Baltic Dry Index (BDI) has been used as a barometer of international commodity trade. It is also seen as an economic indicator of future economic growth and production.

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During the years of globalization, the Index heralded the peak of the oil prices and soared to a record high in May 2008, reaching 11,793 points. But as the financial crisis spread in the advanced West, the BDI plunged by 94% to 663 points, the lowest since 1986. That’s when marine shippers were moving dangerously close to the combined operating costs of vessels, fuel, and crews.

As China and other large emerging economies chose to support the ailing advanced economies amid the global crisis in fall 2008, the US, the EU and Japan pledged they would accelerate reforms in global governance. Moreover, the central banks of the major advanced economies launched massive fiscal stimulus packages and monetary easing.

As a result, the Index returned to 4,661 in 2009. However, as promises of reforms were ignored and stimulus policies expired, the BDI bottomed out at 1,043 in early 2011, amid the European sovereign debt crisis.

During the past years, advanced economies have sustained a semblance of stability by relying on historically ultra-low interest rates (while the US Federal Reserve did exit from normalization, it is now pondering a return to rate cuts) and massive injections of quantitative easing.

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