This week, the United States Federal Reserve announced its first federal rate hike in nearly a decade. Although the increase was just 0.25%, it represents an important moment in the U.S. economy—and for the electronics industry.
In this blog, I'd like to review forecasts made in March 2015 and discuss what lies ahead for global semiconductor industry and global economy in light of these events. I predicted that:
Macroeconomic cycles of seven years, which have not been violated since 1980, will not be violated in 2015.
Starting July 2015, stock markets across the world will begin to fall and by October 2015 we will have an event like the Black Monday of 1987.
No matter how much the Fed delays hiking its benchmark interest rates, the macroeconomic cycles of nature cannot be controlled by the central banks.
The coming economic crash of 2015 will most likely be a complete collapse of crony capitalism.
Before we discuss above forecasts, let me make a few points very clear. First, I am not a trained macroeconomist by education. I am an engineer with a Master of Science (MS) degree in Electrical Engineering with a specialization in semiconductor processing and device physics. Second, macroeconomics has become my passion. I was very much impressed with accurate economic forecasts (greater than 95%) and sterling record of publications of world famous economist, Professor Ravi Batra of Southern Methodist University in Dallas.
Since 2007, I've independently studied this field to understand the ins and outs of macroeconomics with an eye toward making the field of microelectronics sustainable and profitable. Both of my books have focused on this.
Now, let's look at where the global economy stands from the point of view of my forecasts.
1. The Chinese stock market crash began with the popping of the stock market bubble on 12th June 2015. A-shares on the Shanghai Stock Exchange lost one-third of their value within a month of the event. The impacts of the crash of the stock market of this world economy were felt across the global economy. The crash of China was the biggest economic crash of 2015. The seven-year macroeconomic cycle, begun in 1980, has held.
2. Major aftershocks from the China's stock market crash were felt across the global economy. Money magazine estimated that the potential negative impact on the United States stock market may come about when Chinese investors begin to seek out relatively stable U.S. investments in treasuries, stocks, and cash. These shifts strengthened an already-strong U.S. dollar, raising the prices on U.S. goods and diminishing export profits. Global companies that relied on the Chinese market suffered from the crash. Stocks that they own were devalued US$4 trillion. On 24 August, Shanghai main share index lost 8.49% of its value. As a result, billions of pounds were lost on international stock markets with some international commentators labeling the day "Black Monday." As predicted, we have a new Black Monday. Here some of my thoughts from a recent panel in the video below.
3. My predictions of an economic depression in the U.S. in 2015 were based on an economic trajectory. This economic collapse hinged on the lack of free market reforms based on mass capitalism in obht the U.S. and global economies. In Mass Capitalism: A Blueprint for Economic Revival, I wrote:"As the Fed starts cutting back on its QE, the US government will not be able to lure Americans into borrowing more to keep sustaining the domestic economy like before. "
In that volume, I also predicted that the U.S. Federal Reserve would end its eighty-five-billion-dollars-per-month bond-buying program, which it did in October 2014. That move did not raise raised the bench mark interest rates from 0%. The rate hike did not come in June 2015, as anticipated, but rather was moved to September, then further delayed until now. Given the inconsistency of the Fed in its decision to hike interest rates, the timeline for my forecasts about an economic collapse also have been delayed.
U.S. trade deficits have been slowly eroding American industry.For the U.S. to eliminate its trade deficits and for manufacturing to make a comeback to the United States, the U.S. goverment should start offering incentives to China.
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