Interest Rates and the World Economy

There is no effective way to measure the source of funds as well as the amount of funds each bank and lending institutions have. This would mean facing difficulty in making estimates as to the credit facilities and funds that they have available for lending to business enterprises and individuals. This could have help set the overnight benchmark interest rates. As the Federal Reserve gradually lowers interest rates, it also slowly depletes its funds. The only thing that has been holding the interest rates is the Federal Reserve intervention. The interest could have skyrocketed without the timely intervention of the Federal Reserve.

CHINA

China is demonstrated good export trading and economic development. The economy is definitely showing increase signs of growth and consumption. China has a massive surplus and foreign currency reserves estimated to be worth more than US$2 trillion dollars. China's surplus is one of the biggest worldwide! Their FDI is also impressive.

China supports the consumption of the United States as well as Europe. China has been exporting fish and other products to many neighboring countries as well as US and Europe. As long as China continue to export and support the US and Europe required commodities, they will have a good possibility to improve economic situation as well as build international relations effectively.

China has been supporting the consumption of the two big economic giants US and Europe, which makes it possible for these governments to issue more bonds. The action carries the hope that China and other rich sovereign countries would buy their bonds so they could efficiently support and finance national deficits. Issuing bonds while at the same time creating extra money supply might not be the best approach but it is still better than issuing more money supply without the support of a corresponding debt or higher tangible asset value.

The hot property market of China has become highly speculative. Although the rental yield of China's properties are very low, these properties carry sky-high prices without any rental value. Many properties for rent are still unoccupied. This is surely a good example of bubble or what they would call, a musical chair, where one hopes to pass the problem to the next person for a profit. Assets that do not generate a yield turn into liabilities. If this situation will finally explode, the whole of Asia is set to suffer.

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