Run for your lives – Fed economists warn of biggest economic crash in 50 years By Investing.com

Investing.com – The low part of the 2010s and countless monetary stimulus programs led to the formation of all kinds of bubbles – well known. However, no one wants to know that these bubbles will burst.

Why are they? After all, central banks spread a soft landing and suggest that they can cope with any situation, no matter how difficult. There is no mention of a banking or even a financial crisis; however, the economy is reported to be stable and there is no reason to worry.

Of course, there are also voices claiming the opposite and warning of impending collapse. But you don’t like listening to these doomsayers, especially if you’re betting on the next long season. For one’s own safety, it is better to follow the official, politically correct narratives.

But if two Fed economists like Ander Perez-Orive and Yannick Timmer wrote a paper in which they talked about the biggest wave of bankruptcies since the tightening cycles of the 1970s, then at the latest it should be listen carefully to what is being said.

The study prepared by two economists said that the current monetary policy is expected to lead to a “significant slowdown in investment and employment”. The data analyzed show that “when the share of troubled companies in an economy is higher, tightening shocks have a greater impact on investment and employment”.

At 37 percent, the number of US companies on the verge of insolvency is the highest in 50 years.

So this Fed analysis concludes that current monetary policy measures are enough to cause the biggest recession since the 1970s.

This bad situation is aggravated by the fact that the economy needs to prepare for new bottlenecks in the supply of international trade in goods. This, of course, is accompanied by rising prices that will exacerbate inflation and force central banks to raise interest rates.

The reason is that the US government and its allies are convinced that they can effectively slow down China’s development by imposing export restrictions on the latest chip technology. However, the fact that China is in the driver’s seat, since these chips cannot exist without the raw materials from China, does not seem to have been thought through.

China’s reaction was premature and hit not only the Achilles heel of the USA, but the entire Western world.

From August 1, China will restrict the export of rare earths such as gallium and germanium. Licenses are required to export these raw materials, which are issued by the Ministry of Commerce. Those without a license are not allowed to take these basic materials (NYSE:), which are urgently needed in the world, outside the country.

China uses the USA’s argument as a model for its justification and claims that it is a matter of national security. This is true because rare earths are not only needed for electric vehicles and solar modules, but also for high-tech weapon systems.

The latter is mainly interesting from the point of view of the impending conflict in Taiwan. Because of this new regulation, China determines who in the world can produce modern weapons systems.

The Raytheon (NYSE: ) CEO recently explained how dependent the US defense industry is on China. His company alone has thousands of irreplaceable suppliers in China. If anything, this conversion process will take years, as new sources of rare earths must be found, which seems easier than ever.

China accounts for 61 percent of rare earths sold worldwide and has the largest known deposits. It is followed by Vietnam, Brazil and Russia. In other words, three of the five BRICS countries consider themselves geopolitical alternatives to the G7.

China’s export control of raw materials will inevitably bring the dragon country that also has the value chain for climate neutrality change in its hands.

The production of solar panels, wind turbines and electric vehicles relies on rare earths. The artificial shortage of these goods in the global market is likely to increase not only prices and thus inflation, but also the demand for such products made in China.

The dream of independence from China, which has emerged with the pandemic and the potential for geopolitical conflict, is likely to finally end.

(Translated from German with DeepL)