exports yesterday, which has helped to lift the limp World markets. However, these huge exports are the result of a mercantilist policy that is keeping the world unbalanced. As the EU and USA have sunk in record quick time, the Asian Countries need to rise.
This is generally done through exchange rates, ours will fall (along with our living standards) and theirs will rise (to their populations joy). This after all is the fair reward for all their hard work.
However, the Chinese Government is determined to grow its economy at a superfast pace, over 10% a year. it fears its impending slow down as the country ages rapidly as a result of its one child policy (see picture). Other Asian economies take their lead from China.
How can the US and UK get any growth going when they can't find Asian export markets due to the artificial currency differentials? Well, they can't. The US in up in arms about this, the UK not so much as the Pound has fallen.
The answer though will come if the situation is left. The US and UK will keep their economies from a double dip by unleashing more Quantitative Easing; it is the only tool they have left. Cut the deficit and print money. Of course who suffers - holders of US Treasuries - the biggest of which is the Chinese Government.
Whilst this macro story is interesting (and I will do a post soon on the insanity of the current German government too) the story for us is thus. Deflation will not be allowed to run, there is nothing to stop it - no interest rate rises etc. We are out of monetary tools. So instead QE and inflation will be used to prop up the economies of the US and UK if we start to falter. Remember what happened last time this was done - asset prices rocketed.
Ignore the naysayers who say the markets are going to go to new lows for ages - it just won't be allowed to happen.