"Ecuador is a territory of peace. The establishment of foreign military bases or foreign installations for military purposes will not be allowed. It is prohibited to cede national military bases to foreign armed or security forces".
Article 5, Constitution of the Republic of Ecuador, 2008
The monetary policy responses to the economic and health crisis due to covid-19 were to lower interest rates, the historical amounts of liquidity injected by central banks, and loans to the financial sector.
The implemented monetary policy, known as "quantitative easing", had the objective of halting the fall of the stock market, stimulating consumption, investment and employment which, in turn, would favor economic recovery.
The upcoming normalization of monetary policy will be a challenge for central banks. The experience gained with the 2008 crisis shows that normalization is a medium and long-term policy and there is uncertainty about what, how and when it will be.
In May 2021, President Joseph Biden released his proposed 2022 U.S. budget, outlining spending levels for the next ten years. The program has been modified during congressional negotiations, as the real cost of some policies could be excessive.
The constant deficit of the US government has not favored the economic growth of the country. The increase in public debt at an average annual rate of 7% between 2010 and 2021 translated into an annual GDP growth rate of 1.9% in the same period. According to estimates in the congressional resolution, its growing debt issuance will continue.
If approved, the question is not just whether these expenditures and investments have an impact on national income and are capable of stimulating private investment in the midst of the post-pandemic recovery.
The reasoning of modern monetary theory holds that countries with reserve currencies can maintain unlimited levels of fiscal deficits and public debt because they have financing available. The evidence, however, shows that massive deficits do not mean economic dynamism in the US.
After 2008, federal deficits have doubled from about 60% of GDP to about 120%. Emerging nations shift their resources to China through the US deficit instead of growing, since the world is one and the borders are all open, and trade is unrestricted.
US debt in nominal amounts is more than that of the rest of the world combined. So monetary inflation exists and hits first the most deficit countries, then the least, and finally the rest of the world as imported inflation.
The US Global Build Back Better World (B3W) initiative has been exposed by President Biden to Latin America as an alternative to Chinese financing in infrastructure. It intends to tackle the Asian Giant's One Belt, One Road project under two main political lines.
The focus of the B3W project is on infrastructure development, although the G7 has turned to China for investment to renovate its own infrastructure. China is still viewed by the US as the greatest threat to national security of the 21st century, following the Republican administration.
The B3W represents for the United States a means of strategic competition with China, which shows that, at least in the short term, tensions and the refusal to cooperate with the Asian Giant will be a constant.
The Chinese conglomerate Envergando, and two large Chinese real estate companies (Fantasia and Sinic Hildings) stopped paying interest on their debt. This situation was interpreted as the possible start of a chain of international default and the trigger for a new financial crisis, which was false.
The decision of the last FOMC meeting of the FED was not to raise the Federal Funds rate and to maintain it in the range of 0 to 0.25%, which in real terms is -5.05%, and a forthcoming reduction in the pace of financial asset purchases to raise the long-term interest rate.
The U.S. government's financial situation raises more alarms than the bankruptcy of any real estate conglomerate. In the second quarter of 2020, the public debt/GDP ratio reached a record high, hence the Executive seeks to increase the public debt limit in the U.S. Congress.
Despite the change of government in the U.S., the policy and actions taken with respect to Chinese technological containment remain intact, and international pressure continues to prevent Chinese companies from installing their digital transition technology.
The technology war and U.S. fears have had a marginal impact on the Asian giant's relations with Latin America. Some countries have bowed to Washington's pressure against the use of 5G, but most continue to negotiate its implementation.
The challenges that Latin America must overcome to put this technology into operation relate to the lack of infrastructure and the size of the investment.
During the pandemic, the United States and its institutions have taken measures that have had an impact on providing liquidity to the international system. In Latin America these have come through the IMF but also through agreements with the US central bank (FED).
In the context of the bankruptcy of companies, hotels, restaurant chains and the loss of investment grade, the US has seen a doubling of dividends per share versus earnings per share in banking. In these conditions, stock markets have, on the contrary, shown a strong recovery, even reaching new highs (Nasdaq).
The increase in liquidity by the FED and the central bank has allowed the stock exchanges to recover without a recovery in production, and high levels of unemployment, low levels of consumption and destruction of production, in a contradiction that leads to an increase in the already existing inequality.
The US launched a tariff war, from 2018, against the most dynamic export economy: China. The aim was not only to reduce the trade deficit with this economy, but also to weaken its economic growth dynamics and reduce its growing share in the export market. However, the result has not favoured the US and has been adverse to the multilateral international order.
After 23 months of war, 7 rounds of mutual tariff aggression, more than 15 thousand products taxed, 600 billion dollars in tariffs and two periods of truce the two economies entered into a first agreement.
With this Agreement and the new NAFTA the United States advances in the construction of a new international commercial order on the law of the strongest.
The President of the United States has sabotaged the appointment of judges to the WTO Court of Appeals itself. With that, the body ceased to exist for the practical purposes of the case.
Closing the WTO courts makes sense for the country against which there are more complaints from more countries, and which also does not believe in free trade. The trade war no longer has any brakes. Neither China, nor anyone else, has a place to complain
This is a state decision that accompanies the trade war and favours its companies, but also allows it to fight its weakened commercial hegemony.
