Archives for July 2026

SILENT TREATMENT: Market Adjusts to Warsh’s Lack of Guidance

July 27, 2026 By Richard Young

Federal Reserve Chair Kevin Warsh delivers remarks at his swearing-in ceremony in the East Room of the White House, Friday, May 22, 2026. (Official White House Photo by Daniel Torok)

The news media and some market participants aren’t happy with Federal Reserve Chairman Kevin Warsh’s refusal to give up much in the way of forward guidance on what his Federal Open Market Committee (FOMC) will do at its next meeting.

Warsh’s logic for the discontinuance of guidance makes sense. In a market economy, as the United States purports itself to be, the market should be a valuable source of information on what’s happening with interest rates, not simply an echo chamber of telegraphed future Fed policy.

Into the vacuum of information from the Fed have stepped proponents of every course of action. Bloomberg reports that both Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack have made calls for higher rates given the uncertainty regarding the war with Iran, and cite strong employment numbers to justify their positions.

Meanwhile, President Trump recently told reporters that “Rates should be lowered… We have other countries that are paying less interest rates. We should have the lowest rate in the world. Kevin is fantastic, but he’s got a board, and ⁠the board members are very political.”

Warsh himself discussed his new communications strategy during recent testimony before Congress, saying, “We want to get policy right, and I think being somewhat more circumspect in our communications, at least for me, is a better way of calling balls and strikes.”

On inflation, Warsh sounded committed to ending it, as he has in all his public statements. He told Congress, “Inflation’s a choice. We monetary policymakers need to choose lower prices, and that’s the commitment my colleagues have made.” Whether or not Warsh believes that a rate hike, hold, or cut will do the trick is his secret to keep.

For its part, the market has factored in a quarter-point rate hike by the September meeting of the FOMC. That outcome may not make President Trump or mortgage borrowers happy, but the many Americans stressed out by rising prices may feel it to be necessary. Until the meeting, though, Warsh will likely be giving markets the silent treatment.

How Bad Is the Chinese Economy?

July 17, 2026 By Richard Young

By Dilok @ Adobe Stock

In The Wall Street Journal, Joseph Sternberg makes the case that the Chinese economy “is in worse shape than you think.” Sternberg notes that China’s economic growth missed the Communist Party’s target. He writes:

You know something is awry in China’s economy when not even the Communist Party can claim things are going according to plan. Witness this week’s economic-growth data for the most recent quarter, which on closer inspection are shockingly bad.

Beijing’s statisticians on Wednesday said the gross domestic product grew 4.3% year-on-year in inflation-adjusted terms in the April through June quarter. China’s economic data are notoriously prone to fiddling for political purposes. And only this March, the Communist Party set a GDP growth target range of 4.5% to 5% for the year, its most pessimistic since the 1990s.

Certainly, the markets are displaying some level of apprehension about Chinese equities. The country’s blue chip CSI 300 Index is down over 10% since its recent peak on June 22.

And the broader Shanghai A Shares Index is down 11% since peaking on May 13th.

Michael Pettis, a Senior Fellow at the Carnegie Endowment, has reported on X.com that Li Daokui, whom Pettis describes as “one of China’s most prominent economists,” is calling for an urgent response to the country’s economic troubles. Pettis writes:

Tsinghua’s Li Daokui, one of China’s most prominent economists, calls for an increasingly urgent response to problems in the Chinese economy, focusing mainly on policies to unleash constraints on the ability of local governments to continue to power growth: “Specifically, after completing major infrastructure projects, local governments have become preoccupied with repaying their debts. Because interest rates remain high, the more debt they repay, the greater the total debt burden becomes. This process absorbs enormous amounts of economic and financial energy without converting that energy into actual output or productivity.”

His proposed response is to reduce what he calls “blockage” at the local-government level by exploiting the relatively clean balance sheet of the central government. He mostly asks, in other words, for a shift in the locus of debt creation from local-government balance sheets to the central government.

If you believe that there remain a lot of productive investment opportunities that local governments are unable to access because of their bloated balance sheets, and that only local governments can take on these projects, this would certainly make sense.

But I think it has been many years since this has been true, in which case it seems to me that his proposed policy response is to accelerate debt creation even further, partly, he says, to fund local-government repurchases of empty apartments and partly to improve benefits to migrant workers.

My worry is that not enough people see China’s extremely high and rapidly-rising debt burden as the main medium-term problem facing China, perhaps because the only way to address the debt burden requires much slower growth, and as of now this is still politically unacceptable, especially if real Chinese unemployment is closer to the 10.2% Li believes it to be than the 5.0% official rate published earlier today.

It’s good that Chinese economists are becoming increasingly vocal about the deep difficulties the very-unbalanced Chinese economy faces.

But I worry that they are still not willing to acknowledge just how difficult it will be to address these imbalances, nor to recognize that the longer Beijing postpones the adjustment, the more disruptive it is likely to be. On these last two points the historical precedents are pretty clear.

The implications for the rest of the world in response to a sustained bout of slow growth or recession in China are unknown. China hasn’t faced a year of declining GDP since 1976, according to IMF figures. Officially, growth slowed to 2.34% in 2020.

China Loses Two Decades of Real Estate Gains

July 8, 2026 By Richard Young

By Adam @ Adobe Stock

You may remember my warnings in 2012 against direct investment in China. I thought then that the country’s numbers looked funny, and that it didn’t play by the rules. One issue I singled out in particular was China’s investments in “Ghost Cities,” which seemed like a real scam. Since then, Evergrande, one of China’s largest developers, has been dissolved, and prices for Chinese residential properties have fallen back below 2005 levels (in real terms).

I wrote back in 2012:

I have long advised against direct investment in China. Among the many reasons I am bearish on China is the country’s vastly distorted economy. China is a command style economy run by an unelected political party—the Communist Party of China (CPC). The CPC’s policies have resulted in a grand misallocation of capital. A mercantilist cur rency policy, perverse incentives for provincial gov ernment officials, and crude monetary policy tools have helped inflate a fixed asset and real estate bub ble that puts the U.S. real estate bubble to shame.

A Quality Problem

It should be obvious to most that things are not as they seem in China. China has reported GDP growth of 9% or more in every quarter over the last two years, but the Shanghai Composite Stock Index has plunged more than 30% during that time. If China’s economy were truly booming, Chinese shares would most likely be trending up. China suffers not from a quantity of economic growth problem, but a quality growth problem. China’s GDP statistics are being propped up by unproduc tive fixed asset investment. The real estate sector is the most obvious example. To prop up GDP growth rates the Chinese are building entire cities, but they are virtually empty. For more on these ghost cities, be sure to check out the China’s Empty Cities video at www.youngresearch.com.

It is perplexing that the world has allowed a command style economy run by an unelected politi cal party to become such an important player in the global economy. China is now the world’s second largest economy and America’s second-largest trad ing partner. If China heads into the tank, the world economy will suffer.

China doesn’t play by the same rules or have the same motives as the world’s other large economies. China has consistently manipulated its currency to gain export market share and it has subsidized favored industries through its financial system to the detriment of non-Chinese companies. Take the rare earths industry as an example. China now has an effective monopoly on rare earths production. Not because of the country’s low labor costs or a lack of reserves in other countries, but because Chinese rare earths companies were provided with subsidized loans. Rare earths companies ramped up produc tion in the ’80s and ’90s and drove prices down to unprofitable levels. The Chinese government was more interested in maintaining stability through high employment then, as they are today. Low prices pushed rare earths producers in the U.S., Australia, and elsewhere out of business. With the support of subsidized loans, China’s rare earths companies were the only companies able to remain in business at such low prices. Now the U.S. relies on China (at least temporarily) for a supply of metals vital to the defense industry and other high-technology industries. Sound like a smart strategy to you?