Why stock markets are no longer reflecting the economy – Asia Times

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Lately, economists have been making a reasonably convincing case as to why stock markets are supposed to be suffering a setback, and yet continue to rise.

Even in Japan, a country mired in recession, stocks are trading at levels not seen for a long time.

Some would say that it is all due to a super-optimistic outlook; for example in the case of the US, the uptrends in the S&P 500, Nasdaq etc are due to an expected cut in interest rates.

Meanwhile, in Japan, the good momentum is explained by the conitunity of ultra-loose monetary policy and the regulator’s reluctance to end Abenomics.

But here’s the catch: Everyone seems to be turning a blind eye to the mountain of problems piling up. And we’re not just talking about regional banks and commercial real estate.

We’re talking about colossal debt bubbles that will never be paid off. Another risk is rising tensions, not only in armed conflicts but also in trade disputes.

For instance, US presidential hopeful Donald Trump is waving the tariff stick against European and Chinese products. Obviously, such protectionism will not be conducive to economic growth.

Why else are stocks skyrocketing?

First, investors are afraid they’ll miss out on this historic rally. It’s all going well now, so why not keep the party going?

Then there’s the feeling that, for many, stocks aren’t just about making money; they’re a kind of shield against geopolitical uncertainties and inflation. 

And the bigger the company, the more trust folks seem to have in it. That has made everyone forget about things like fair value.

The third factor is in the head: Thanks to the US Federal Reserve bailing out regional banks last year, many people are convinced that Big Brother will come to the rescue if things go wrong.

But here is the risky part: Spending all the ammunition now means that regulators will not have much left to intervene later (one only has to look at public debt and its servicing costs to understand why).

So when will a market crash become a reality?

For the tide to turn, one of two things has to happen: Either the money flooding the market dries up (which seems rather unlikely given the $6 trillion in money markets), or curveballs start coming our way. 

For example, if US regional banks fail left and right, it will create a domino effect that will eventually spill over to Europe and even Asia. But for that to happen, government support would have to disappear.

What we see in the market does not reflect the state of the economy. And the worst thing is that the positivity is based not so much on hopes for a bright future as on believing in the help of regulators.

But this is a slowly ticking time bomb that will eventually explode, and the longer we wait, the greater the damage will be.

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Why are India’s farmers protesting again?

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NEW DELHI: Thousands of Indian farmers on tractors are riding towards New Delhi in a revival of past protests that saw highways into the capital blockaded by agricultural machinery for more than a year. Prime Minister Narendra Modi’s government was pressed into a rare retreat in 2021 after a successful campaignContinue Reading

Year of the Dragon: navigating a multipolar world – Asia Times

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As the Year of the Dragon begins, it brings opportunities and challenges for China, whose geopolitical dynamics are closely intertwined with global affairs.

Against the backdrop of the ongoing war in Ukraine and the conflict in Gaza, China is at a crossroads in shaping its relationships with major geographic regions such as the Americas, Europe, Russia, Africa, the Middle East and Asia.

The emerging multipolar world order, which highlights the decreasing influence of the unipolar paradigm, emphasizes the importance of China’s diplomatic skills in navigating these turbulent waters.

The rise of China, particularly its economic growth highlighted by its gross domestic product reaching US$17.52 trillion in 2023, has been a significant factor in the Sino-American relationship. However, political posturing and technological skirmishes began to take their toll as their trade fell to $664.4 billion in total volume for the first time in four years.

On the other hand, Washington’s trade deficit with Beijing fell to the lowest in 13 years and stood at $279.4 billion. Furthermore, China is the second-largest foreign owner of US debt, with $769.6 billion as of 2023.

So all of these highlight the interdependence of the world’s two largest economies and make managing their bilateral relationship with care and caution necessary. This will remain true no matter who is in charge of the White House after the upcoming presidential elections.

China and Europe

Last year marked the 20th anniversary of the comprehensive strategic partnership between China and the European Union, established in 2003, with trade reaching $800 billion that year.

Although Beijing’s economic prowess in the European theater has positioned it as a formidable partner, geopolitical tensions, aggravated distrust, and European trade grievances related to perceived unfair treatment have contributed to China’s changing pattern of investment in the region. This means that both parties must engage in open and independent dialogue to manage potential risks and prevent future disappointments.

China and Russia

Russia has emerged as a key strategic partner of China, but their relationship is complex, given the power dynamics at play. While they share a common adversary in the West, they must navigate their relationship carefully.

The two countries have strengthened their bond through shared interests, and their economic entwining is exemplified by the Power of Siberia pipeline and increasing bilateral trade.

Their natural-gas exports recently reached record highs, with bilateral trade hitting $240.1 billion in 2023. This solidifies the deepening alliance between the two giants as they face shifting global dynamics.

China and Asia-Pacific

China’s presence in Asia is undeniable, and its influence is steadily growing. As countries in the region seek economic partnerships and strategic cooperation, they increasingly turn to Beijing.

The Regional Comprehensive Economic Partnership (RCEP) agreement, signed by 15 Asia-Pacific nations in 2020, created a trading bloc representing 30% of the global economy. This has further cemented China’s economic dominance in Asia and presented a united front against protectionist policies.

Trade within the region has reached almost $2 trillion, highlighting China’s pivotal role in the economic landscape and stability of the area.

China and Africa

China’s influence in Africa is growing rapidly, with trade volumes reaching almost $300 billion. As part of its Belt and Road Initiative (BRI), China invests in infrastructure development across the continent, which is expected to spur economic growth.

However, there are concerns about African countries becoming too dependent on Chinese debt, and some worry that China’s efforts could amount to a form of “neocolonialism.” Hence these issues raise important questions about how African nations can balance economic development with protecting their sovereignty.

China and the Middle East

In the Middle East, China has been focusing on resource-rich lands and strategic corridors, as its energy security is closely linked to the region’s stability. In 2022, Beijing’s trade with the region amounted to more than $500 billion, and energy imports were crucial in driving its economic growth.

Additionally, the BRI has extended its influence in the region, with Chinese investments constantly increasing in the Middle East, making their relationship about something more than just oil.

Despite economic interests, China faces diplomatic challenges in balancing stability in the Arab-Israeli arena, including the conflict in Gaza.

In 2023, total trade between China and Israel amounted to more than $20 billion, while trade between China and Palestine was more than $150 million the year before. This suggests that China faces a challenge in promoting its economic interests in the region while dealing with the complexities of the geopolitical situation.

With the ongoing conflict in Gaza, China can showcase its diplomatic skills by acting as a mediator, which could be seen as a replacement for the United States’ inaction.

BRICS

In the complex network of global relationships, the BRICS alliance has emerged as a significant player in shaping the new world order. The combined economic power of Brazil, Russia, India, China and South Africa challenges the Western world’s dominance. The alliance is driven by shared developmental objectives and a commitment to multipolarity, which aims to reform global governance structures.

As of 2023, the BRICS nations were home to more than 40% of the world’s population and contribute to nearly a quarter of the global GDP. The BRICS countries are making efforts to challenge the hegemony of the traditional Western-led institutions such as the International Monetary Fund and the World Bank with initiatives such as the New Development Bank and the Contingent Reserve Arrangement.

In light of the ongoing conflicts in Ukraine and Gaza, China’s diplomatic approach is being tested. The country’s focus on non-interference is consistent with the principles of BRICS, as it seeks to balance supporting its allies and maintaining a neutral position.

Though China’s involvement may be limited to economic and diplomatic efforts, avoiding military engagements demonstrates a commitment to stability and a cautious approach to international conflicts.

The Dragon has emerged as a powerful force in global affairs, casting a shadow that reshapes the international landscape with power and poise. However, this mythical and majestic creature can only succeed if it continues to ignite economic collaborations while carefully controlling its fire to avoid geopolitical conflagration.

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Govt aims to triple farm incomes

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PUBLISHED : 15 Feb 2024 at 04:00

The Ministry of Agriculture and Cooperatives has sought approval for next year’s fiscal budget of 411 billion baht, more than three times higher than the previous budget, based on the expectation it will triple farmers’ incomes within four years.

Chantanon Wannakejohn, secretary-general to the Office of Agricultural Economics, said the ministry is seeking this amount for its short-medium and long-term plans to increase farmers’ incomes as they are the largest group of workers in the country.

“Under the 411-billion-baht budget, we hope to see incomes among farmers rise threefold by 2028, which is the ministry’s main focus,” he said.

Mr Chantanon said the short-term plan would require 81.6 billion baht, which would be used to promote agro-tourism activities, find new markets, deal with fishery problems, solve debt issues, and tackle haze pollution. It would also be used to set up plans responding to the environmental crisis, promote carbon neutrality, and suppress meat smuggling.

He said another budget of 1.4 billion baht would be needed for a middle-term plan, adding the ministry wants to promote advanced farming technology such as precision farming systems.

Mr Chantanon said a further 26.5 billion baht would be needed to manage free-trade agreement discussions with international partners, promote new crop plantations that better fit environmental and economic changes, and support the processing of crops.

A budget of 301.9 billion baht will be needed for the long-term plan to be allocated for improving water management and crop production and upgrading land titles for farmers.

Mr Chantanon said this year’s fiscal budget of 120.6 billion baht should be announced in the Royal Gazette by April.

The fiscal budget for 2025 will be forwarded to the Budget Bureau and cabinet for consideration.

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Agriculture ministry aims to triple farm incomes

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PUBLISHED : 15 Feb 2024 at 04:00

Agriculture ministry aims to triple farm incomes
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The Ministry of Agriculture and Cooperatives has sought approval for next year’s fiscal budget of 411 billion baht, more than three times higher than the previous budget, based on the expectation it will triple farmers’ incomes within four years.

Chantanon Wannakejohn, secretary-general to the Office of Agricultural Economics, said on Wednesday that the ministry is seeking this amount for its short-medium and long-term plans to increase farmers’ incomes as they are the largest group of workers in the country.

“Under the 411-billion-baht budget, we hope to see incomes among farmers rise threefold by 2028, which is the ministry’s main focus,” he said.

Mr Chantanon said the short-term plan would require 81.6 billion baht, which would be used to promote agro-tourism activities, find new markets, deal with fishery problems, solve debt issues, and tackle haze pollution. It would also be used to set up plans responding to the environmental crisis, promote carbon neutrality, and suppress meat smuggling.

He said another budget of 1.4 billion baht would be needed for a middle-term plan, adding the ministry wants to promote advanced farming technology such as precision farming systems.

Mr Chantanon said a further 26.5 billion baht would be needed to manage free-trade agreement discussions with international partners, promote new crop plantations that better fit environmental and economic changes, and support the processing of crops.

A budget of 301.9 billion baht will be needed for the long-term plan to be allocated for improving water management and crop production and upgrading land titles for farmers.

Mr Chantanon said this year’s fiscal budget of 120.6 billion baht should be announced in the Royal Gazette by April.

The fiscal budget for 2025 will be forwarded to the Budget Bureau and the cabinet for consideration.

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Ex-CEO loses lawsuit against hawker after failed S0,000 investment in prawn noodle business

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SINGAPORE: They were childhood friends who became business partners in an award-winning prawn noodle shop, but the relationship between the investor and hawker turned sour when the business failed during the COVID-19 pandemic.

It culminated in a court case, with one of them – a former CEO who invested S$350,000 (US$260,000) in the business – suing the other to claw back what he claimed were “loans”.

However, the judge dismissed the claim made by Mr Tan Cheng Soon Don against his hawker friend Mr Teo Aik Hua.

In a judgment made available on Wednesday (Feb 14), District Judge Vince Gui stated that Mr Tan did not produce “a single shred of evidence” to prove his case.

Mr Tan “relied on nothing more than a bare assertion” that the loans were indeed made to Mr Teo, said Judge Gui.

THE CASE

The court heard that Mr Tan and Mr Teo had been childhood friends since their kampung days in Bukit Timah more than 30 years ago.

Mr Tan became CEO and director of Singapore-listed Sin Heng Heavy Machinery.

Mr Teo has been a hawker since the age of 16 and eventually sold his signature prawn noodle dish at Zion Riverside Food Centre, at a stall called Zion Road Big Prawn Noodles, or Fresh Taste Big Prawn Noodle.

The noodles won several accolades, including the Michelin Bib Gourmand in 2018. The Michelin Guide called his dish a “great bowl of noodles” rich in flavour with fresh prawns, chilli and pork rinds.

Judge Gui said this accolade was a “monumental milestone” in Mr Teo’s career, opening doors to all sorts of business opportunities.

An investor reportedly offered S$500,000 for his recipe in 2019. The Select Group, known for its catering business, also offered him a chance to run a stall at “Hawker’s Street” in ION Orchard, with the right to choose a prime spot.

However, Mr Teo was not interested in these opportunities, the judge noted, partly due to his reluctance to work with strangers and fear of being taken advantage of with his little formal education.

Mr Tan, who regularly patronised Mr Teo’s stall, offered to become his business partner to open a restaurant.

Mr Teo did not take up the offer immediately but agreed in June 2020 after hearing that Zion Riverside Food Centre would undergo renovation for a few months.

He estimated that the start-up costs would amount to about S$250,000.

The two men agreed to name the restaurant Zhi Wei Xian @ Zion Road Big Prawn Noodle and set up a company called 2 Bowls in November 2020.

Shareholding in the company was split among Mr Tan, Mr Teo and Mr Teo’s fiancee Lisa Lin at 50 per cent, 30 per cent and 20 per cent respectively.

They agreed that Mr Tan would provide loans to fund the venture, with his loan to be recovered from the company’s profits if it turned profitable. Any excess profits would be split in accordance with the shareholding.

The restaurant opened on South Bridge Road in January 2021.

Mr Teo and Ms Lin managed day-to-day operations. He introduced new dishes such as a cold crab to elevate the restaurant’s standing. He also personally selected wild-caught prawns at Jurong Fishery Port every day after midnight.

Mr Tan disbursed S$250,000 in total into the company’s bank account over about six months.

THE BUSINESS’ DEMISE

When the government tightened COVID-19 measures in 2021, such as restricting dining group sizes, business was affected.

The restaurant closed its doors at one point to cut costs.

As funds were low, Mr Teo and Ms Lin sought more loans from Mr Tan.

Mr Tan later rejected a draft agreement presented to him on Sep 21 that year. According to Mr Teo and Ms Lin, Mr Tan threw the agreement on the table and said angrily that he would not sign it.

Mr Teo then said the restaurant would have to close.

They did so a week later, with Ms Lin sending Mr Tan a letter confirming the closure and other matters.

Mr Tan replied saying he agreed on the condition that Mr Teo transferred S$50,000 into the company’s bank account and the company paid Mr Tan S$50,000.

Ms Lin replied saying that Mr Teo did not agree to bank in S$50,000. She wrote that the understanding had always been that Mr Tan contributed funds to the company while Mr Teo and Ms Lin contributed “goodwill and branding”.

She added that it was Mr Tan who approached Mr Teo to start the business. If Mr Teo was required to put in money, he would not have worked with Mr Tan, said Ms Lin.

He could have worked with “big boys” such as Select Group, who purportedly offered to bear all the financial costs. She added that the company could not pay Mr Tan before the other creditors.

In response, Mr Tan affirmed their respective job scopes and responsibilities – that he was responsible for S$250,000 in “paid up capital contribution”, that Mr Teo was responsible for “food/cooking/strategy and branding” and Ms Lin was responsible for accounting, payments and HR matters.

Mr Tan said it was Mr Teo who asked him for advice, saying someone offered S$300,000 for the prawn noodle recipe.

Mr Tan then said that Mr Teo could consider rebranding the hawker stall and selling it at a better price. Mr Tan said Mr Teo had called him up only after failing to come to terms on a proposed venture with someone else.

Mr Tan argued that a total of S$162,500 from his “loans” of S$350,000 should be repayable to him.

He claimed that Mr Teo was evasive on the stand and had given false evidence, while Ms Lin was not a credible witness.

Mr Teo argued that the loans had been extended to the company alone. He supported this with witnesses and contemporaneous records.

JUDGE’S FINDINGS

Judge Gui found that Mr Tan had not proven his claim.

“His entire closing submissions rests on what he considered would have been a favourable deal for his entering into the venture,” said the judge.

“But the court does not rewrite the agreement to favour one party or another. The court looks at what was the objective understanding at the time the agreement was entered into.”

Judge Gui said Mr Tan, as a director and former CEO of a listed company, ought to have known the significance of not documenting a loan allegedly made to another individual.

Mr Tan’s claims that loans were made to Mr Teo were not backed by any documentary proof, the judge said.

Giving his view on the case, Judge Gui said Mr Tan had invested in the company by way of debt financing. If the restaurant succeeded, Mr Tan’s loans would be repaid by the profits, and he would stand to reap further profits as a 50 per cent shareholder.

“He stepped into the venture with buoyant spirits, confident that the restaurant, backed by a chef with the Michelin Bib Gourmand accolade, would attract the same following as the defendant’s hawker stall did,” said the judge.

“His predictions however did not come to fruition. The restaurant failed to escape the scourge of the COVID-19 pandemic which continued to linger and surge in the ensuing months.”

Judge Gui noted that Mr Tan’s investment of S$350,000 was substantially more than the S$250,000 he expected to commit at the outset.

He said Mr Tan changed tack to recover his losses, first claiming that Mr Teo and Ms Lin were required to contribute financially to the company because of their equity stake, then saying that the money was a loan.

“His claim however was not only unsubstantiated but also contradicted by the evidence,” concluded the judge.

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BMA eyes first Green Line debt payment

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PUBLISHED : 14 Feb 2024 at 04:00

The Bangkok Metropolitan Administrative (BMA) will notify the Interior Ministry regarding an extra budget for the first tranche of debt, worth over 23 billion baht, owed to the Green Line electric rail service operator.

Governor Chadchart Sittipunt said yesterday the ministry will be notified about the Bangkok Metropolitan Council’s (BMC) approval of a payment to the Bangkok Mass Transit System Plc (BTSC) for electrical and mechanical (E&M) installation work and operation services.

The BMA and its business arm, Krungthep Thanakhom (KT), owe the BTSC 30 billion baht for hiring the BTSC to provide its operation and maintenance services.

To compensate for the debt, the BMC last week approved the BMA’s use of the additional expenditure from the annual budget for the debt payment. Mr Chadchart said the BMC resolution will be announced in the Royal Gazette after receiving his signature.

The BMA, in consequence, will discuss the process, including the amount of payment in each instalment and duration, in a way that is most efficient and beneficial to the public, as suggested by the BMC. Discussions with KT regarding the payment duration are expected to be wrapped up in a couple of weeks, said Mr Chadchart.

Meanwhile, talks chaired by the deputy governor, Wisanu Subsompon, were held last week on transferring railway projects from the BMA to the Transport Ministry.

Three railway projects that the BMA had earlier supervised — the Silver Line (Bang Na-Suvarnabhumi airport), the first section of the Grey Line (Watcharaphon-Thong Lor), and the Light Blue Line (Din Daeng-Sathon) — are expected to be transferred back to the ministry as some sections of those projects were constructed on the ministry’s railway areas.

The ministry’s management is expected to help with the 20-baht fare rate policy and seek investment initiatives to lead to further infrastructure projects.

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Trump’s China trade war threat already roiling markets – Asia Times

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Among the wackiest things to come from Donald Trump’s mouth recently is the former US president trying to take credit for China’s US$7 trillion stock reckoning.

“I mean, look, the stock market almost crashed when it was announced that I won the Iowa primary in a record,” Trump told Fox News on February 11. “And then when I won New Hampshire, the stock market went down like crazy.”

In reality, China’s spectacular stock rout has been playing out since 2021, well after Joe Biden moved into the White House. But there is one investor crowd taking notice of the growing odds Asia might soon be grappling with a Trump 2.0 presidency: currency traders.

Trump’s threats to impose tariffs exceeding 60% on Chinese goods has the cost of hedging the yuan soaring to the highest levels since 2017.

In China, “the most frequently asked questions among local investors include implications for China should Donald Trump become the next US president,” says Goldman Sachs economist Maggie Wei after a series of recent meetings with mainland mutual funds, private equity funds and asset managers.

Even today, well before Trump might have a chance to shake up global trade anew, “the outlook for trade flows going forward is likely one of moderation,” says Rubeela Farooqi, economist at High Frequency Economics. The downshift is thanks to “expectations of slower demand and growth going forward, both domestically and abroad.”

The specter of a supersized trade war is the last thing the global economy needs as 2024 unfolds. Any added headwinds from the West would compound the domestic troubles that have knocked Chinese stocks sharply lower, namely a deepening property crisis, weak retail sales, sputtering manufacturing activity and deflationary forces.

The threat of significantly higher taxes on Chinese-made goods destined for the US could slam business and household confidence. Executives might be even less inclined to add new jobs at a moment when youth unemployment is at record highs.

Trade war worries also might make China Inc less willing to fatten paychecks. This could imperil President Xi Jinping’s hopes of recalibrating economic engines toward a consumer demand-led growth model.

It also could lead to a big spike in exchange rate volatility and put downward pressure on the yuan. That’s precisely what Xi and Premier Li Qiang don’t want in 2024. For one, it could increase default risks of property developers with offshore debt. For another, it could set back Xi’s success to date in deleveraging the financial system.

Chinese President Xi Jinping and Premier Li Qiang in a file photo. Image: NTV / Screengrab

Then there’s the upcoming US election. The one thing on which President Joe Biden’s Democrats and Republicans loyal to Donald Trump agree on is being tough on China. And a weaker yuan falling ahead of the November 5 contest could provoke Washington in unpredictable ways.

In the meantime, the mere threat of a bigger trade war could spook investors currently piling into US stocks. If Trump were to add another 60% tariff on top of those that he imposed during his 2017-2021 presidency, American consumers would bear the brunt through costlier goods.

Trump’s initial trade war neither catalyzed a US manufacturing boom nor narrowed the US trade deficit with China. Meanwhile, the US government had to throw billions of dollars of federal aid to US farmers as China scrapped purchases of American agricultural goods in retaliation.

A big spike in US tariffs would necessarily be inflationary, complicating the US Federal Reserve’s hopes of cutting interest rates. Prolonging the period of high US bond yields would undermine corporate America while also reducing household disposable spending.

The inflationary impact of a Trump 2.0 presidency could shake up the economic trajectory of nations everywhere, not least in export-oriented Asia. An analysis by Bloomberg Economics reckons that a 60% tax on all Chinese imports would effectively shrink a vital $575 billion trade relationship to a trickle. 

All this leaves Xi’s Communist Party with decidedly mixed feelings about whether China would fare better under another four years of Biden or a second Trump term.

On the surface, at least, Biden is endeavoring to restore ties with Xi’s party, a pivot on full display last November when Xi visited San Francisco for the Asia-Pacific Economic Cooperation (APEC) Summit, a grouping dedicated to trade promotion.

Biden, though, has so far refused to lift the Trump-era tariffs that so enraged Xi’s economic team. The Biden administration also has gone at China’s soft targets with surgical precision, including limiting its access to cutting-edge technology like high-end semiconductors and the gamut of chipmaking equipment.

The last two years also saw the US devise a screening program to curb investments in China’s efforts to raise its game in quantum computing and artificial intelligence. Though Biden has taken the rhetorical tone down a notch, his policies have arguably exacted greater damage than Trump’s.

This includes investing hundreds of billions of dollars in domestic tech capacity that the Trump administration neglected. The US building new economic muscle at home worries Xi more than 1980s-style policies around which China can generally easily navigate. Here, think of Trump’s failed effort to kill giant Chinese telecom gear maker Huawei.

Looked at through this prism, there’s an argument that China might prefer Trump redux. As Zhu Junwei of Grandview Institution notes, there’s a reason the Beijing think tank’s research suggests 60% of Chinese prefer Trump because of how his unruly presidency might further dent America’s global standing.

Either way, Xi’s party is bracing for an US election cycle sure to see Democrats and Republicans trying to one-up each other at China’s expense.

Increased data security measures are sure to emerge as the year unfolds. The icy reception Shou Zi Chew, CEO of ByteDance-owned TikTok, received on Capitol Hill recently dramatized the race to curb services and transactions across industries.

China’s electric vehicles (EVs) market could face its own onslaught of data security speed bumps from either a Biden or Trump administration.

In a speech in late January, Biden’s National Security Adviser Jake Sullivan said there are “competitive structural dynamics” in the US-China relationship. But, he claimed, this competition “doesn’t have to lead to conflict, confrontation or a new Cold War.”

It already seems too late for that. But as November 5 approaches, currency traders are becoming increasingly antsy, as seen in recent spiking volatility. The gap between nine-month implied volatility on the offshore yuan and measures of six-month volatility is the highest in nearly seven years.

China’s yuan faces new volatility as US election season heats up. Image: Twitter Screengrab

As that electoral contest approaches, strategists at Deutsche Bank expect the US dollar will stay mainly within 2023 ranges even if the US Federal Reserve begins cutting interest rates, as many investors expect. “The market is likely to start adding to a dollar safe-haven premium through the year as election risks build,” Deutsche Bank argues in a note.

There’s an argument, too, that the dollar might be doomed if Trump gets another shot at naming a Treasury secretary. In 1971, then-US president Richard Nixon’s Treasury chief famously said that “the dollar is our currency, but it’s your problem.” This seems even truer now than in 1971 and the sentiment could be supersized during a Trump 2.0 presidency, if his first term was any guide.

While running for president in May 2016, Trump even hinted at defaulting on US debt. Trump told CNBC “I love debt. I love playing with it.” When asked what he might do if the budget deficit grew too fast, he said: “I would borrow, knowing that if the economy crashed, you could make a deal. And if the economy was good, it was good. So, therefore, you can’t lose.”

In April 2020, the Washington Post detailed how Trump officials, looking to punish China, mulled canceling debt held by Beijing. However, Treasury officials succeeded in talking Trump out of a stunt that likely would have made the 2008 Lehman Brothers crisis seem like a hiccup.

But who knows what tricks Trump may have up his sleeve in a second term? The risk is hardly a non-negligible worry for Japan, China and other top Asian central banks sitting on more than $3 trillion of US Treasury securities.

The US entered 2024 with its national debt topping $34 trillion and Moody’s Investors Service warning it might yank away America’s only remaining top rating.

That came three months after Fitch Ratings downgraded the US to AA+ as Republicans and Democrats wrestled over funding the government and 12 years after a Standard & Poor’s downgrade amid partisan bickering over the debt ceiling.

More recently, Moody’s warned that “the greatest near-term danger to the dollar’s position stems from the risk of confidence-sapping policy mistakes by the US authorities themselves, like a US default on its debt for example. Weakening institutions and a political pivot to protectionism threaten the dollar’s global role.”

Moody’s adds that “although we expect that politicians will eventually agree to raise or suspend the debt limit and avoid a default on government debt, greater polarization in the domestic political environment over the last decade has weakened both the predictability and effectiveness of US policymaking. Sanctions further inhibiting the free flow of the dollar in global trade and finance could encourage greater diversification.”

Team Biden has raised concerns of its own over a “weaponized” dollar as Washington squares off with Russia over Ukraine. Those allegations emerged after the Biden administration, as part of sanctions, moved to freeze hundreds of billions of dollars of Moscow’s foreign reserves.

Yet at least one thing is clear: Asia’s markets will find themselves in harm’s way as Trump and Biden try to prove on the campaign trail who is tougher on China. But as the rival candidates flex and joust, there is much more at stake than the US presidency.

Follow William Pesek on X, formerly Twitter, at @WilliamPesek

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Cabinet approves B560bn in new borrowing

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Sum to be allocated in fiscal 2024 is equal to original cost of digital wallet stimulus

PUBLISHED : 13 Feb 2024 at 14:38

Cabinet approves B560bn in new borrowing

The cabinet on Tuesday approved an additional 560 billion baht in new borrowing for the 2024 fiscal year, on top of 194 billion baht previously approved.

Total new borrowing in the fiscal year would be 754 billion baht, government spokesperson Chai Wacharonke told a briefing.

The sum of 560 billion baht happens to be the original figure given for the cost of the Pheu Thai government’s digital wallet stimulus programme, which has faced numerous delays.

Prime Minister Srettha Thavisin and other officials have insisted the digital cash handout of 10,000 baht each to 50 million people will go ahead despite widespread criticism about the cost and scepticism about its effectiveness in stimulating the economy.

Mr Chai said the newly approved borrowing was part of a wider revised debt management plan, which includes the restructuring of existing debt of 2 trillion baht and repayments of about 400 billion.

The government has said the new borrowing would be mainly for financing a budget deficit.

The 2024 fiscal budget projects higher spending of 3.48 trillion baht for the fiscal year ending Sept 30, and a deficit of 693 billion baht.

The budget was delayed from the original Oct 1, 2023 start date due to the long delay in forming a government after the May 14 elections last year. Officials have said the budget should be ready by May.

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