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Kina står over for deflation – Hvad kan det betyde for Bitcoin og globale aktier?

China’s Economy Slipping into Deflation: Possible Impact on Bitcoin

China’s economy has recently slipped into deflation for the first time in over two years. This development could potentially have negative near-term effects on Bitcoin, according to analyst Marcel Pechman.

In the latest episode of Macro Markets, Pechman expressed his concerns about the deflationary conditions in China. He highlighted the potential adverse impacts on Bitcoin, commodities, and stocks that rely on global economic growth. Pechman warned that holding stocks dependent on global economic growth or using excessive financial leverage may not be favorable during this period. He also suggested that holding commodities might not be a good idea. Consequently, he predicted a short to mid-term negative impact on Bitcoin if China’s economic growth dissipates.

Last month, China experienced deflationary conditions for the first time in two years. The official consumer price index reported a 0.3% drop in Chinese consumer prices in July compared to the previous year. However, core inflation, excluding volatile food and energy prices, actually rose to 0.8% in July, the highest level since January. This increase reflects a concerning new phase in China’s struggling economy.

China’s economic recovery has been faltering due to various issues such as declining exports, record-high youth unemployment, and a stagnant housing market. Additionally, China is facing falling prices across different sectors, including steel, coal, vegetables, and appliances. This contrasts with the global trend where many countries are dealing with rising inflation after easing Covid-19 restrictions.

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The potential entrenchment of the expectation of falling prices poses a serious risk for China. It could dampen demand, worsen debt burdens, and trap the economy in a difficult cycle that cannot be easily countered using traditional stimulus measures employed by Chinese policymakers. Deflation is particularly risky for countries with high debt levels like China, as it increases the cost of servicing that debt and may discourage borrowing, spending, and investment.

Eswar Prasad, a Cornell University economist and former head of the International Monetary Fund’s China division, expressed grave concern about the situation. He warned that China’s government approach, downplaying the risks of deflation and stalling growth, could backfire and make it even harder to pull the economy out of its downward spiral.

Impacts of the Fed’s Balance Sheet

Pechman also discussed the effects of the United States Federal Reserve’s balance sheet. He pointed out that the Federal Reserve increased its assets by $5 trillion between December 2019 and April 2022. Coinciding with this expansion period was a 38% decline in the S&P 500 index. Additionally, the Federal Reserve’s balance sheet reached $8.9 trillion just as the stock market index reached its highest point of 4,800.

Pechman highlighted the significant deficit of the US Treasury Department as a critical issue. The government spends more than it receives from revenues and taxes, leading to the need to roll over some debt instead of letting it expire. Consequently, the Federal Reserve may no longer be able to continue reducing its balance sheet, which has played a significant role in lowering inflation.

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Pechman argued that once the Federal Reserve is compelled to expand its balance sheet again, inflation will be significantly impacted. He advised individuals who possess valuable assets such as Apple shares, land, gold, and Bitcoin to hold on tight and not be swayed by the temporary period of reduced inflation.

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