The G20 Is Over, Huawei Teardown Surprise, US Deficit Hits Silly Money
Sep 7, 2023
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The G20 meeting is losing relevance compared to organizations like BRICS. Huawei has successfully made their own 5G model. The US treasury is running a deficit as big as any in war time. The rise of Huawei impacts competitors like Samsung and Apple. The US budget deficit is projected to double to two trillion dollars. The possibility of a US government shutdown looms with no clear economic plan.
The G20 is losing significance as China's absence and the inclusion of geopolitical issues dilute its original purpose.
Despite US chip bans, Huawei has successfully developed its own 5G chip, challenging Western sanctions and disrupting the global chip industry.
The US faces an unprecedented budget deficit of $2 trillion, raising questions about the sustainability of fiscal policies and potential impact on interest rates and the value of the US dollar.
Deep dives
G20's Declining Relevance: Chinese Leader Absent, G20 Weighed Against BRICS
The G20 meeting is losing significance as China's President Xi Jinping chose not to attend, a first since 2008. Some speculate it's due to recent tensions with India, while others suggest it is an expression of the G20's diminished importance compared to the BRICS summit. The G20 was established in response to previous financial crises, but has since expanded its agenda to include geopolitical issues, losing focus on its original purpose. Wrangling over a leader statement on the Ukraine war, highlighting divisions among G20 countries that haven't joined Western sanctions against Russia, further contributes to the G20's waning relevance.
China's Chip Production: Huawei's Kirin 9000 Challenges Sanctions
China's Huawei has developed its own 5G smartphone model, the Kirin 9000, despite US chip bans. The ban was aimed at limiting China's chip production capabilities, but Huawei managed to develop a 7-nanometer chip domestically within three years. This highlights the limited effectiveness of chip bans and sanctions. The accelerated development of China's chip production could allow them to catch up with and potentially surpass Western and Taiwanese chip manufacturers. This not only challenges the sanctions imposed by Western countries but also disrupts the global chip industry.
US Deficit and Economic Concerns: Unprecedented Budget Deficit and Housing Market Decline
The US is experiencing an unprecedented budget deficit of $2 trillion, reaching 8% of GDP, despite decent economic growth and low unemployment rates. This level of deficit is highly unusual outside of economic crises or wars. The budget deficit, as a percentage of GDP, is expected to increase if the economy enters a recession. The decline in investment purchases of housing by 45% indicates potential trouble in the real estate market. The high deficit and uncertain economic outlook raises questions about the sustainability of US fiscal policies and the potential impact on interest rates and the value of the US dollar.
Economic Risks and Investment Mismatches in the US: Inflationary Concerns and Potential Currency Decline
The US faces risks due to overspending and ballooning deficits. While the modern monetary theory suggests that governments can continue to spend since they can issue their own currency, excessive spending can lead to inflation, especially during a period of high unemployment and economic growth. The accumulation of deficits as savings elsewhere in the economy could cause inflationary pressures. However, in a deflationary scenario, the additional government spending may initially be offset. The risk lies in a loss of confidence from the bond market, potentially leading to higher interest rates and currency devaluation. Continued political gridlock and the possibility of a government shutdown add to concerns about the US fiscal path and economic outlook.
Lack of Long-Term Macroeconomic Plan: Overspending and Dichotomy in US Economic Policy
The US lacks a credible long-term macroeconomic plan, as economists no longer provide consistent narratives for economic policy. The absence of a coherent vision and the focus on short-term fixations reflects a lack of direction. The economic debate has shifted from liberalization to Keynesian economics and now seems relatively stagnant. The result is limited discussion and analysis of the US economy's long-term course, leaving concerns about sustainability and the future direction of economic policy unanswered.
It’s often been accused of being a talking shop. But now, the G20 is looking increasingly like yesterday’s talking shop. With the Brics having stolen their thunder two weeks back, is this week’s G20 meeting about as relevant as an Eagles reunion tour?
The Chinese are being modest again. It took a teardown of the new Huawei phone to reveal the most alarming tech news of the year. The company has busted the chip sanctions, and successfully made their own 5G model. Say hello to the Kirin 9000.
Don’t you know there’s a war on? A shock report says that the US treasury is running a deficit as big as any in war time. Eight per cent of GDP. Two trillion dollars. But don’t worry - unemployment is the lowest since the 1960s. When none of the metrics make sense any more, is America entering its Brezhnev era?
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