Dear,
Last Thursday, world’s Financial Markets listened carefully the speech of Mr. Ben Bernanke, chairman of the Federal Reserve, as one of the most important events of the quarter.
http://www.youtube.com/watch?v=KRiRX1dR12U
Since 2008 Financial Crisis, the main response of the FED, under Mr. Bernanke’s mandate, has been injecting liquidity in the US economy, by keeping interest rates in historically low levels and buying debt in Quantity Easing cycles.
But this measures, which have proved to be successful on Keeping high levels valuation of the Capital Markets and maintaining economic activity on the US, have also increased the vulnerability of the US economy by rising US debt to unsustainable levels.
As a difference to the European Union, when the painful austerity measures have started to reduce the bubble of Financial and Economic overcapacity, US economy has continued “growing” by wasting solvency.
http://www.usdebtclock.org/
By listening Mr. Bernanke’s speech, one could get the idea that US FED has been able of keeping their monetary stimulus because is a sovereign decision, and those stimulus will dissapear at the end of this year because US economy is in the path to recovery.
Unfortunately, the reality is that US economy was already very vulnerable on September 2008 and the FED has been capable of injecting liquidity with the massive QE programs, because the capital markets have let them to do it.
Remember, inflating bubbles is a very good business till they explode.
China’s economy has played a significant role in this game. China’s banks are some of the majors US debt holders and while Chinese’s investors have been willing to buy and hold US debt, FED reserve has been able of issuing paper without raising their Yield.
The question is, what will happen if Chinese economy has their own liquidity problems, big enough to have to concentrate on them, and not using their funds on supporting US debt?
If Capital markets and Chinese banks cannot buy US debt, or even worse, become net sellers of US bonds, the FED will be unable of keeping low interest rates.
But that’s exactly what’s started to be visible this week.
http://www.nytimes.com/2013/06/21/business/global/china-manufacturing-contracts-to-lowest-level-in-9-months.html?pagewanted=all&_r=0
In my opinion, US economy will not be in better shape at the end of the year than what’s today.
But interest rates will be higher by then, not because the FED is willing to, but because in a global economy countries carrying high levels of debt become dependent on the interests and capacities of their debt holders.
At the beginning of this crisis we were said that the growth of Brasil, India, China and Russia will compensate the lack of growth on developed economies.
Five years later India’s debt is close to junk level, Brazil economy is slowing down and China is facing a liquidity crisis.
http://online.wsj.com/article/SB10001424127887324767004578488872271273296.htmlhttp://www.bloomberg.com/news/2013-05-29/brazil-s-economic-growth-disappoints-for-fifth-quarter.html
The truth is the exit strategy of this crisis is efficient Capital Management and the BRIC’s have been wasting capital because they still had some solvency to waste on 2008. US economy has also been wasting capital, but in this case with Capital Markets permission.
Now, we’re facing the burst of a huge debt bubble with hard consequences for the economy and the financial system, but that’s the lesson we have to learn before we’re ready to accept the change.
http://www.reuters.com/article/2013/06/21/markets-usa-bonds-idUSL2N0EX0ZV20130621
Looking forward to read your opinions.
K. Regards,
Ferran.
http://www.youtube.com/watch?v=KRiRX1dR12U
Since 2008 Financial Crisis, the main response of the FED, under Mr. Bernanke’s mandate, has been injecting liquidity in the US economy, by keeping interest rates in historically low levels and buying debt in Quantity Easing cycles.
But this measures, which have proved to be successful on Keeping high levels valuation of the Capital Markets and maintaining economic activity on the US, have also increased the vulnerability of the US economy by rising US debt to unsustainable levels.
As a difference to the European Union, when the painful austerity measures have started to reduce the bubble of Financial and Economic overcapacity, US economy has continued “growing” by wasting solvency.
http://www.usdebtclock.org/
By listening Mr. Bernanke’s speech, one could get the idea that US FED has been able of keeping their monetary stimulus because is a sovereign decision, and those stimulus will dissapear at the end of this year because US economy is in the path to recovery.
Unfortunately, the reality is that US economy was already very vulnerable on September 2008 and the FED has been capable of injecting liquidity with the massive QE programs, because the capital markets have let them to do it.
Remember, inflating bubbles is a very good business till they explode.
China’s economy has played a significant role in this game. China’s banks are some of the majors US debt holders and while Chinese’s investors have been willing to buy and hold US debt, FED reserve has been able of issuing paper without raising their Yield.
The question is, what will happen if Chinese economy has their own liquidity problems, big enough to have to concentrate on them, and not using their funds on supporting US debt?
If Capital markets and Chinese banks cannot buy US debt, or even worse, become net sellers of US bonds, the FED will be unable of keeping low interest rates.
But that’s exactly what’s started to be visible this week.
http://www.nytimes.com/2013/06/21/business/global/china-manufacturing-contracts-to-lowest-level-in-9-months.html?pagewanted=all&_r=0
In my opinion, US economy will not be in better shape at the end of the year than what’s today.
But interest rates will be higher by then, not because the FED is willing to, but because in a global economy countries carrying high levels of debt become dependent on the interests and capacities of their debt holders.
At the beginning of this crisis we were said that the growth of Brasil, India, China and Russia will compensate the lack of growth on developed economies.
Five years later India’s debt is close to junk level, Brazil economy is slowing down and China is facing a liquidity crisis.
http://online.wsj.com/article/SB10001424127887324767004578488872271273296.htmlhttp://www.bloomberg.com/news/2013-05-29/brazil-s-economic-growth-disappoints-for-fifth-quarter.html
The truth is the exit strategy of this crisis is efficient Capital Management and the BRIC’s have been wasting capital because they still had some solvency to waste on 2008. US economy has also been wasting capital, but in this case with Capital Markets permission.
Now, we’re facing the burst of a huge debt bubble with hard consequences for the economy and the financial system, but that’s the lesson we have to learn before we’re ready to accept the change.
http://www.reuters.com/article/2013/06/21/markets-usa-bonds-idUSL2N0EX0ZV20130621
Looking forward to read your opinions.
K. Regards,
Ferran.
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