- China Trade And The Inevitability Of Systemic Reset
by Throughout 2014 and even into 2015, the word “decoupling” was resurrected to try to calm growing unease about the direction of global growth. It’s first broad usage was during the first part of the Great Recession, as economists were sure that emerging markets then would be able to weather the “slowdown” of 2008 believed at that time confined to the US and Europe. It was an absurd suggestion but perfectly consistent with orthodox economics and its idea of closed systems.
When the word was brought back in 2014, it was under seemingly far more happy circumstances. China was acting curiously and places like Brazil were wrote off as if they had their own problems, maybe even big problems, but the US, Europe, and even Japan were supposed to be finally back on track. Again, the idea of closed systems propelled this “logic.” As I wrote in September 2014 under the headline China Profoundly Disagrees with FOMC Assessments:
The very idea of systemic reset immediately conjures the worst kinds of associations. It is understandable because going through it is not pleasant and humans by nature seek to avoid unpleasantness even where the probability of doing so is small. In economic terms, really financial since this is all being driven by the eurodollar’s retreat, systemic reset is indeed ugly and violent but ultimately fruitful. The reason for that is really simple, because any system pushed to the point where reset appears as increasingly inevitable is a system that is badly imbalanced and malfunctioning. The reset is the answer, not the problem. Delaying the answer only elongates the pain of the problem.