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6 Ways the Super-Strong USD Could Hurt the World Economy

The US dollar has been on a major surge against major global currencies in the past year, recently hitting levels not seen in 20 years and, as the world’s…

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The U.S. dollar has been on a major surge against major global currencies in the past year, recently hitting levels not seen in 20 years. It has gained 15% against the British pound, 16% against the euro and 23% against the Japanese yen and, as the world’s reserve currency, such changes in its value have implications for the entire global economy. Below are five of the main ones.

This version of the original article by Scott White (theconversation.com) has been edited ([ ]) and abridged (…) for the sake of clarity and brevity to provide the reader with a faster and easier read.

1. Even more inflation

Petrol and most commodities such as metals or timber are usually traded in U.S. dollars…so, when the dollar gets stronger, these items cost more in local currency…causing inflation around the world. The only exception is the U.S., where a stronger dollar makes it cheaper to import consumer products and therefore could help to tame inflation.

2. Low-income countries under threat

Most developing countries owe their debt in U.S. dollars, so many owe much more now than a year ago. As a result, many will struggle to find an ever-increasing amount of local currency to service their debts…They will either have to tax their economies more, issue inflationary local money or simply borrow more.

The results could be deep recession, hyperinflation, a sovereign debt crisis or all three together, depending on the path chosen. Developing countries that fall into sovereign debt crises can take years or even decades to recover, causing severe hardship to their people.

3. A bigger US trade deficit

Other countries will buy fewer U.S. products as a result of the strong dollar which could increase the U.S. trade deficit – the difference between the amount of exports and imports –  and some economists worry that an increase in the trade deficit will drive up U.S. borrowing reflecting the fact that many manufacturing jobs have moved overseas.

Source: Trading Economics

4. De-globalization to get worse

The most obvious economic policy to prevent a trade deficit from growing is the old game of imposing tariffs, quotas or other barriers on imports. Other countries tend to retaliate against such protectionism, adding their own taxes and other barriers to U.S. products.

In an era when “de-globalization” has already begun thanks to worsening Western relations with Russia and China, a stronger dollar adds to the political momentum for protectionism and threatens global trade.

5. Eurozone fears

Weaker EU member states such as Portugal, Ireland, Greece and Cyprus have become somewhat less vulnerable to investors driving up their borrowing costs to crisis levels than during the darkest days of the eurozone crisis This is because much of their national debt is now in the hands of the European Stability Mechanism (ESM), which was set up to help rescue them, as well as friendlier investment banks within the eurozone.

The stronger dollar, however, is creating pressure for the European Central Bank to raise its own interest rates to prop up the euro and subdue the cost of imports, including energy. This will put more pressure on eurozone countries with high levels of debt. Italy, which is the ninth-largest economy in the world and has government debts at a whopping 150% of GDP, would be particularly hard to bail out if the situation got out of control.

6. A Global recession

Bringing these five points together, the fear of a global recession as a result of an ultra-strong dollar is yet another reason.

  • Higher inflation erodes consumer incomes and reduces consumption.
  • Protectionism can reduce international trade and investment.
  • Sovereign debt crises mean serious trouble for many developing countries and possibly even the eurozone.

Will the dollar keep rising?

The dollar has been rising for both economic and geopolitical reasons.

  1. The Federal Reserve has been hiking interest rates…reversing its policy of creating money via quantitative easing (QE)…with the view of curbing inflation caused by COVID-19 supply issues, the war in Ukraine and also QE. The stronger U.S. dollar is a side effect of these higher interest rates. Because the dollar now offers a higher yield when deposited in a U.S. bank, it encourages foreign investors to sell their local currency and buy U.S. dollars…
  2. The other reason for the surging US dollar is because it is a classic safe haven when the world is worried about a recession – and the current geopolitical situation is arguably making it still more appealing…
  3. The euro has suffered from the EU’s proximity to the war in Ukraine, its exposure to Russian energy and the prospect of another eurozone crisis…
  4. The British pound has been hit by Brexit and is also facing the prospect of a second Scottish independence referendum and a potential trade war with the EU over the Northern Ireland protocol.
  5. Finally, the yen belongs to an economy that seems to be slowly losing ground. Japan is ageing and is still not comfortable with migration to boost its production capabilities. A weaker yen is also the price that Japan pays for continuing QE to keep the interest rates low on its government debt.

It is difficult to predict the future direction of the US dollar when there are so many moving parts in the world economy, but we suspect that persistent inflation will force U.S. interest rates to keep rising, and that together with geopolitical shocks from war and sovereign debt defaults, it will probably keep the dollar high. A strong US dollar is a response to troubled times.

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Economics

BRV China Holds Singapore Explorer Day at SMU

BRV China Holds Singapore Explorer Day at SMU
PR Newswire
SINGAPORE, Sept. 29, 2022

Brings Together Leading Entrepreneurial Minds Across China, Southeast Asia, North America
SINGAPORE, Sept. 29, 2022 /PRNewswire/ — BlueRun Ventures China (BRV Chin…

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BRV China Holds Singapore Explorer Day at SMU

PR Newswire

Brings Together Leading Entrepreneurial Minds Across China, Southeast Asia, North America

SINGAPORE, Sept. 29, 2022 /PRNewswire/ -- BlueRun Ventures China (BRV China), a leading early-stage technology-focused venture firm, yesterday hosted Explorer Day in Singapore in collaboration with the Institute of Innovation & Entrepreneurship of Singapore Management University and SGInnovate, a government-owned innovation platform in Singapore to support deep technology entrepreneurship. The event brought together more than 80 founders and pioneers – local entrepreneurs, government associations, academics and venture capitalists – who discussed the company's global investment strategy and emerging trends in the fields of artificial intelligence (AI), enterprise services, Web3, robotics and the global expansion plans of start-ups.

BRV China sees significant opportunity for technology investment globally and shared the following insights during the event:

  • Despite market volatility, BRV China remains confident in the fundamental value of many portfolio companies as high-quality start-ups capable of developing disruptive innovations have continued to demonstrate an ability to secure third-party capital.
  • BRV China remains bullish on the long-term prospects of key frontier areas such as AI, robotics, new energy solutions and biotechnology (powered by innovative algorithms).
  • Unlike internet services like mobile apps and e-commerce services that are specifically designed for a geographical region, deep technologies possess substantial business development potential with increasing demand in the global market that will lead to an expected rise in demand for deep technology talent.
  • BRV China believes there's significant long-term potential in the global market with investment flows into the region expected to bounce back following global economic recovery in the coming years.
  • With great changes unseen in a generation will come greater opportunities. Venture capitalists, entrepreneurs and startups were called on to re-evaluate the economic cycle and establish long-term plans so they are ready to "surf the wave" upon eventual recovery in the near-term.

Having first-mover advantages in deep technology and a strong track record across market cycles, BRV China shared its experiences on the opportunities and challenges faced by early-stage startups in areas such as accessing financing solutions and commercialization of technologies ultimately helping promising companies be fully prepared for the many hurdles they face on their growth journey.

"We continue to witness a rapid transition towards a digitalized economy that was accelerated by the pandemic leading to a gamut of opportunities for start-ups that continues to contribute to the growth of the technology sector," said Jui Tan, Managing Partner of BRV China. "To help Chinese start-ups survive a crisis of such unprecedented magnitude, BRV China has been providing continuous support helping many companies adapt and reconfigure their business models while speeding up their R&D and commercialization processes."

The event also featured guest speakers from startups such as Gaussian Robotics and HPC-AI, two fast growing portfolio companies, who shared their journey to success.

"China has leading competitive advantages in deep technologies such as robotics, new energy, AI infrastructure and applications, consumer technology and semiconductors which are in hot demand across the world," said Terry Zhu, Managing Partner at BRV China. "To go global, it is necessary for startups and entrepreneurs to leverage the country's competitive edge and weigh between political influence from different markets while formulating their plan of development. BRV China will help China start-ups to achieve their goal, seizing development opportunities as they arise due to the digital transformation of supply chains, growth in market size and globally distributed Chinese talents."

"Singapore has a flourishing ecosystem as it has a fertile ground for start-ups which are supported by a forward-looking government, a strong research base and a skilled talent pool. BRV China will leverage its experience and help connect researchers, entrepreneurs and investors in order to build a robust ecosystem for innovation," said Jui Tan.

About BRV China

BlueRun Ventures China (BRV China) is a leading early-stage venture firm in China with offices in Beijing and Shanghai. Having its heritage in Silicon Valley since 1998 and entered China in 2005, BRV China has managed over $2 billion through multiple USD and RMB funds, with over $1 billion cash distributions. BRV China focuses on investing in entrepreneurs who create a sustainable impact through technological innovations across enterprise services, transportation and smart machine, digital healthcare, and consumer technology sectors in China. The firm has invested in more than 150 portfolio companies, including Li Auto (NASDAQ: LI), QingCloud (688316.SH), WaterDrop (NYSE: WDH), Energy Monster (NASDAQ: EM), Mogujie/Meilishuo (NYSE: MOGU), Qudian (NYSE: QD), Ganji/58.com, PPTV, Guazi, Meishubao, Nanyan, Shanzhen, Gaussian Robotics, Yi Auto, Pinecone, etc. The firm has been recognized as the "No.1 Early-Stage Investment Firm" in China by Zero2IPO and ChinaVenture, and "Consistent Performing Venture Capital Fund Manager" by Preqin. For further information, please visit https://www.brv.com.cn/en/.

View original content to download multimedia:https://www.prnewswire.com/news-releases/brv-china-holds-singapore-explorer-day-at-smu-301636758.html

SOURCE BRV China

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Butter, garage doors and SUVs: Why shortages remain common 2½ years into the pandemic

The bullwhip effect describes small changes in demand that become amplified as they move down the supply chain, resulting in shortages. The pandemic put…

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Consumers have been seeing empty shelves throughout the pandemic. Diana Haronis/Moment

Shortages of basic goods still plague the U.S. economy – 2½ years after the pandemic’s onset turned global supply chains upside down.

Want a new car? You may have to wait as long as six months, depending on the model you order. Looking for a spicy condiment? Supplies of Sriracha hot sauce have been running dangerously low. And if you feed your cat or dog dry pet food, expect empty shelves or elevated prices.

These aren’t isolated products. Baby formula, wine and spirits, lawn chairs, garage doors, butter, cream cheese, breakfast cereal and many more items have also been facing shortages in the U.S. during 2022 – and popcorn and tomatoes are expected to be in short supply soon.

In fact, global supply chains have been under the most strain in at least a quarter-century, and have been pretty much ever since the COVID-19 pandemic began.

I have been immersed in supply chain management for over 35 years, both as a manager and consultant in the private sector and as an adjunct professor at Colorado State University - Global Campus.

While each product experiencing a shortage has its own story as to what went wrong, at the root of most is a concept people in my field call the “bullwhip effect.”

What is the ‘bullwhip effect’?

The term bullwhip effect was coined in 1961 by MIT computer scientist Jay Forrester in his seminal book “Industrial Dynamics.” It describes what happens when fluctuations in demand reverberate and amplify throughout the supply chain, leading to worsening problems and shortages.

Imagine the physics of cracking a whip. It starts with a small flick of the wrist, but the whip’s wave patterns grow exponentially in a chain reaction, leading to the tip, a snap – and a sharp pain for anyone on the receiving end.

The same thing can happen in supply chains when orders for a product from a retailer, say, go up or down by some amount and that gets amplified by wholesalers, distributors and raw material suppliers.

The onset of the COVID-19 pandemic, which led to lengthy lockdowns, massive unemployment and a whole host of other effects that messed up global supply chains, essentially supercharged the bullwhip’s snap.

How the bullwhip effect works.

Cars and chips

The supply of autos is one such example.

New as well as used vehicles have been in short supply throughout the pandemic, at times forcing consumers to wait as long as a year for the most popular models.

In early 2020, when the pandemic put most Americans in lockdown, carmakers began to anticipate a fall in demand, so they significantly scaled back production. This sent a signal to suppliers, especially of computer chips, that they would need to find different buyers for their products.

Computer chips aren’t one size fits all; they are designed differently depending on their end use. So chipmakers began making fewer chips intended for use in cars and trucks and more for computers and smart refrigerators.

So when demand for vehicles suddenly returned in early 2021, carmakers were unable to secure enough chips to ramp up production. Production last year was down about 13% from 2019 levels. Since then, chipmakers have began to produce more car-specific chips, and Congress even passed a law to beef up U.S. manufacturing of semiconductors. Some carmakers, such as Ford and General Motors, have decided to sell incomplete cars, without chips and the special features they power like touchscreens, to relieve delays.

But shortages remain. You could chalk this up to poor planning, but it’s also the bullwhip effect in action.

The bullwhip is everywhere

And this is a problem for a heck of a lot of goods and parts, especially if they, like semiconductors, come from Asia.

In fact, pretty much everything Americans get from Asia – about 40% of all U.S. imports – could be affected by the bullwhip effect.

Most of this stuff travels to the U.S. by container ships, the cheapest means of transportation. That means goods must typically spend a week or longer traversing the Pacific Ocean.

The bullwhip effect comes in when a disruption in the information flow from customer to supplier happens.

For example, let’s say a customer sees that an order of lawn chairs has not been delivered by the expected date, perhaps because of a minor transportation delay. So the customer complains to the retailer, which in turn orders more from the manufacturer. Manufacturers see orders increase and pass the orders on to the suppliers with a little added, just in case.

What started out as a delay in transportation now has become a major increase in orders all down the supply chain. Now the retailer gets delivery of all the products it overordered and reduces the next order to the factory, which reduces its order to suppliers, and so on.

Now try to visualize the bullwhip of orders going up and down at the suppliers’ end.

The pandemic caused all kinds of transportation disruptions – whether due to a lack of workers, problems at a port or something else – most of which triggered the bullwhip effect.

The end isn’t nigh

When will these problems end? The answer will likely disappoint you.

As the world continues to become more interconnected, a minor problem can become larger if information is not available. Even with the right information at the right time, life happens. A storm might cause a ship carrying new cars from Europe to be lost at sea. Having only a few sources of baby formula causes a shortage when a safety issue shuts down the largest producer. Russia invades Ukraine, and 10% of the world’s grain is held hostage.

The early effects of the pandemic in 2020 led to a sharp drop in demand, which rippled through supply chains and decreased production. A strong U.S. economy and consumers flush with coronavirus cash led to a surge in demand in 2021, and the system had a hard time catching up. Now the impact of soaring inflation and a looming recession will reverse that effect, leading to a glut of stuff and a drop in orders. And the cycle will repeat.

As best as I can tell, these disruptions will take many years to recover from. And as recent inflation reduces demand for goods, and consumers begin cutting back, the bullwhip will again work its way through the supply chain – and you’ll see more shortages as it does.

Michael Okrent does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Government

Searches For “Real Estate Market Crash” Highest In Internet History

Searches For "Real Estate Market Crash" Highest In Internet History

Another milestone for the extremely confused elderly citizen in the White…

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Searches For "Real Estate Market Crash" Highest In Internet History

Another milestone for the extremely confused elderly citizen in the White House basement.

Analysis of Google Trends data reveals that searches for ‘real estate market crash’ exploded 284% in the United States as of September 2022 – the highest level in Google Trends history.

The analysis by the Malibu real estate experts at RubyHome reveals that search interest for ‘real estate market crash’ exploded within the past month, an unprecedented increase in Americans looking for information and prognostication about the real estate market, according to Google search data.

This comes at a time when the US housing market sees mortgage rates rising at the fastest pace in history, surging above 7% after touching 6% just two weeks ago!

Pointing out the obvious, RubyHome CEO Tony Mariotti said that “we know home sales are down. Tuesday’s report from Case-Shiller confirmed the broad price reductions, which also showed U.S. home prices continued their deceleration in July at their fastest rate in the history of the index. We're keeping an eye on this because market activity is seasonally low - we'll know a heck of a lot more about how soft the market is come next spring.”

“Mortgage rates continue to rise beyond the Federal Reserve’s reported 6.29% on September 22. However, we’ve seen this accelerate; mortgage approvals on 30-year fixed loans this week reached 7% for some of our buyers. Going forward, if this trend holds, buyers will afford smaller homes unless they are cash buyers.”

"Sellers who've been holding out for pandemic-inflated prices are going to have to eventually lower their prices. This is just a psychological shift taking place - one that takes a few months to play out."

Tyler Durden Thu, 09/29/2022 - 05:45

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