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Macro Watch Q2 2014 - A Synopsis

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Macro Watch Q2 2014

A Synopsis

Macro Watch: Second Quarter 2014 has been uploaded and is now ready to watch.

This quarter there are seven videos, (with 130 charts and slides). Here’s what they cover:

1. Treacherous Markets Ahead. I believe the stock market may be particularly tricky during the rest of this year. Liquidity will shift from being very excessive in the second quarter to being scarce in the third. Therefore, the markets could first experience a boom and then a bust. I also discuss how the Fed is likely to respond.

2. The Fed & Its Challenges. The challenges that the Fed faces over the short-term, the medium-term and the long-term are very different. Each requires a unique response. The Fed must try to prevent an asset price bubble over the next three months. During the second half of the year, it must attempt to prevent a stock market crash and recession. Over the long run, its challenge will be to continue driving the economy by pushing up asset prices, even after asset prices have become dangerously inflated.

3. Austrian Economics: Right & Wrong. No one explained the role credit plays in creating economic booms and depressions better than the Austrian Economists. In this video, I explain why it is crucial that our generation draws the right conclusions from what they taught. This one’s going to provoke some controversy.

4. What Drives Currencies? Trade imbalances, interest rate differentials, fiat money creation and central bank policy do. I discuss each of these and explain what they tell us about which way the major currencies are likely to move from here.

5. China’s Economic Crisis. China’s economic growth model is in crisis. Export-led growth is coming to an end. Investment-driven growth is unsustainable. Credit-fuelled growth is destabilizing. In this video, I explain why a sharp slowdown in China’s GDP growth is inevitable and what that will mean for the rest of the world.

6. Credit Growth Update. In this age of fiat money, credit growth drives economic growth. This video reviews the latest credit data from the Fed’s fourth quarter Flow of Funds statistics. We find that credit growth is not accelerating and will remain too weak to generate economic growth. That suggests the Fed will have to carry on driving the economy by creating money and pushing up asset prices.

7. Economic Update. The US economy weakened during the first quarter. US imports have stopped growing. The US current account deficit is correcting. In short, the driver of global economic growth has gone into reverse. That explains why the global economy is so weak.

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Original publish date: March 31, 2014

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