What I recently told Bloomberg Radio

I joined Bloomberg Radio last week to delve into the intricacies of the global economy and market movements. The conversation was enlightening, and I'd like to share some key takeaways.

U.S. interest rates have surged to levels we haven't seen in nearly 16 years. It's not just a fleeting statistic; it's a barometer of the global economic sentiment. Often, history unfolds right before our eyes in subtle increments, and we might be in the midst of such a transformative phase.

While the U.S. economy is robust and unemployment is at a historic low, there's a shadow looming: the deteriorating fiscal position. The deficit is widening, and the projections for the next half-decade are, frankly, alarming. This fiscal imbalance, juxtaposed with a thriving economy, paints a complex picture. Countries like France have taken tangible steps to address similar fiscal challenges, even at the cost of civil unrest. In contrast, the U.S. seems to be steering in the opposite direction.

A significant point of discussion was the role of the Federal Reserve. They've ceased their purchase of U.S. treasuries. As the debt matures, the principal is returned to the Fed, effectively reducing the money supply. This move is pivotal for maintaining both central bank and currency credibility.

Don’t view China from a Western prism

Lastly, we touched upon China, a nation that often serves as a bellwether for global economic health. My vantage point from Australia offers a unique perspective. China seems to be strategically broadening wealth across its economy. Indicators like iron ore and copper prices suggest stability, offering a glimmer of optimism amidst prevailing uncertainties.

China's economic strategies and decisions often diverge from Western norms, driven by a distinct cultural, historical, and political context. It's crucial to understand and respect these nuances.

Chinese President Xi Jinping's “common prosperity” strategy, unveiled in earnest during a meeting of the Central Committee for Financial and Economic Affairs in August 2021, marks a pivotal shift in China's socio-economic direction.

As Xi himself stated, the goal is to “allow more people to achieve wealth." At its core, the initiative aims to address the widening wealth gap and ensure a more equitable distribution of resources and opportunities among its vast population.

While China has witnessed unprecedented economic growth over the past few decades, this prosperity hasn't been evenly shared, leading to stark disparities.

Xi's vision of “common prosperity” seeks to rectify this, emphasising, as he put it in a 2020 speech, the need to “advance reform and development with people at the centre.” This strategy underscores the Chinese leadership's commitment to social harmony and stability, emphasising collective well-being over unchecked individual wealth accumulation.

A great book that goes into this in a lot more detail is that written by Australian Ambassador to the United States and former Prime Minister, Kevin Rudd. I recommend buying it (The Avoidable War: The Dangers of a Catastrophic Conflict between the US and Xi Jinping's China) if you want to understand China’s economic strategy in more detail.

Peter Esho is an economist and Founder of Esho Group. He has 20 years of experience in investments and markets.