CHART OF THE DAY: An Underappreciated Financial Market Risk

09/07/18 08:12AM EDT

Editor's Note: Below is a brief excerpt from today's Early Look written by Senior Macro analyst Darius Dale. Click here to learn more about the Early Look.

So let me get this straight:

  1. U.S. fiscal authorities authorize a massive increase in public borrowing that perpetuates or, at the bare minimum, helps maintain strong U.S. economic growth amid broad-based deceleration throughout the global economy;
  2. U.S. monetary authorities continue tightening as a result of said strong domestic economic growth and as the drivers of core inflation continue to inch higher, exacerbating the relative risk-adjusted returns of short-term U.S. dollar-dominated assets vis-à-vis the rest of world;
  3. Capital is then continually drained from weakening EM and European economies in order for the private sector to finance burgeoning U.S. deficits in a regime of dramatically reduced demand for U.S. Treasury paper by foreign (read: EM) central banks.

Sounds a lot like the mid-1980’s to me.

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