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China is effectively devaluing its currency. It is doing so to make its exports more competitive to compensate for a moderation in its GDP growth. The phenomenon that has been China is entering a new phase, and people are worried about the impact of its moderation. If China merely returns to a GDP of about 4%, it will still be one of the busiest nations, and could stabilize itself and the world economy. If China’s GDP drops closer to zero, it may be a sign that slowdowns in the global economy are systemic, regardless of the size and strength of the economy. If China’s GDP drops below zero, entering recession, there will be worries that China’s phenomenal economy was a phenomenon, not a role model for the rest. Much of the world is either in recession, about to be in recession, or arguably in deflation. Deflation is more worrisome than inflation because it is harder to correct for when interest rates are low. That’s why, even though the devaluation has only been a few percentage points, worries are great.

(Click on the photo for the link.)

“China’s Currency Devaluation Could Spark Tidal Wave Of Deflation” – The Guardian

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