On the weak recovery of printing prosperity and di

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At the beginning of this year, global investors were still immersed in the expectations of a strong recovery of the western economy, especially the U.S. economy. Investors' optimistic expectations drove the prices of various assets to continue to rise. However, the revised GDP growth rate in the first quarter released by the United States fell to 1.9% from 3.1% in the fourth quarter of last year, much lower than investors' expectations. In April, sales of durable consumer goods, manufacturing industry and stock houses continued to decline. The ISM manufacturing index fell sharply to 53.5 in May from 60.4 in April. In June, the unemployment rate rose to 9.2%, a new high since 2011. It is gratifying that the ISM manufacturing index of the United States rose slightly in June, rising to 55.3 from 53.5 in May, while house prices are still falling

the above situation forced the Federal Reserve to admit that the economic growth rate was disappointing, and claimed that it did not know the real reason for the long-term economic downturn. For the second time, this requirement on the working speed of the system has become a more important issue. The US economic growth forecast for this year and next year has been lowered, as shown in the figure below

the prosperity and distortion brought about by the money printing machine

under the huge debt pressure, European and American countries have embarked on the road of fiscal tightening, although the super loose monetary policy is still maintained. In the past few years, the European and American central banks have worked overtime to start the money printing machine in the process of implementing super loose monetary policy, driving a large number of investors to invest in risky assets, resulting in the prosperity of the financial market in shock. 4. Is the operation simple

the prosperity brought about by the money printing machine stems from the low cost of capital and abundant liquidity. Therefore, despite the weak economic recovery, the financial market maintained prosperity in the shock supported by cheap funds, and the prices of different types of financial assets rose sharply after the financial crisis. Take the United States as an example. Since the financial crisis, the Dow Jones index has risen by about 90% from its lowest point on March 6, 2009. But even so, at present, the water insists on the prudent promise of sustainable development, the U.S. stock market is still cheap by historical standards, and the bull market in the U.S. stock market has not come to an end. It can be seen that, on the one hand, the stock market is controlled by the economic fundamentals, which is still a barometer of the economy to a certain extent, but on the other hand, it is a barometer of market liquidity. Economy affects the market, while liquidity determines the market

since the global financial crisis, the financial market has been distorted to some extent due to the strong intervention of the visible hand

the first is the distortion of the benchmark interest rate. The European and American central banks have traditionally set 2% as the inflation target. It is obvious that the current benchmark interest rate of the European and American central banks is not enough to deal with inflation. The ultra-low benchmark interest rate is to prevent deflation, but now that inflation has started, the ultra-low benchmark interest rate has not returned to normal. Therefore, recently, the bank for International Settlements had to issue a report calling on countries to accelerate the pace of interest rate hikes to curb inflation

the second is the distortion of the supply-demand relationship of national debt. According to the analysis of Morgan Stanley economists, in the eight months since the implementation of the second round of quantitative easing policy of the Federal Reserve, the Federal Reserve has purchased about 85% of the net debt issuance of the US Treasury. The huge purchases by the Federal Reserve led to the continuous decline of the yield of long-term treasury bonds in the case of rising inflation expectations. In June, it even fell below 3%, and the yield curve was distorted. Federal Reserve Chairman Bernanke believes that quantitative easing is equivalent to cutting interest rates by 40 to 120 basis points

finally, the distortion of monetary value. In order to expand exports and create jobs in the export industry, the United States intends to devalue the dollar. Since the peak of the financial crisis in 2008, the United States has artificially distorted the value of the US dollar by reducing the US exchange rate index by more than 20% through traditional monetary policy and non-traditional quantitative easing policy

benchmark interest rate and long-term interest rate are the basis for pricing risk-based assets. The distortion of benchmark interest rate and long-term interest rate naturally leads to the distortion of the price of risk-based assets. The US dollar is the pricing currency for commodities and many financial transactions. The depreciation of the US dollar has naturally pushed up the prices of commodities. Therefore, it can be said that the current prosperity of the financial market is based on the market distortion brought about by the visible hand. If the stagnation of the U.S. economic recovery leads to the introduction of qe3 by the Federal Reserve, the price of global risky assets will continue to rise and increase the inflationary pressure on emerging market countries. On the whole, the feast of the financial market should continue in the distortion of the market

European and American economic trends and Enlightenment

considering the gaps in medical insurance and social security, it is inevitable that the U.S. government debt is out of control

from the current economic and financial situation in Europe and the United States, there are several trends worth our attention:

first, the risk of stagflation is rising. The super loose monetary policy in Europe and the United States has successfully resisted deflation, but at the same time it has triggered potential inflation risks. At present, the inflation expectation shown in the ten-year tips of the United States is 2.5%, the CPI in May has reached 3.6%, and the core inflation excluding food and energy has also reached 1.5%, while the economic growth rate in the first quarter was only 1.9%, and the risk of stagflation has begun to appear. Monetary policy is in a dilemma between promoting growth and curbing inflation

except for the United States, the inflation rate in Britain reached 4.2% in June, and that in the euro zone was 2.7% in June. In the case of sluggish economic growth, inflation expectations and the consumer price index both rose. But neither the Federal Reserve nor the Bank of England has any intention of raising interest rates. In the case of rising inflation risk, these central banks' reluctance to decisively raise interest rates reflects that maintaining low interest rates is also part of the global monetary war to some extent under the current global economic pattern. Low interest rate means weak currency, and weak currency means strong export. Under this logic, the stagflation pattern of low economic growth and high inflation rate in major Western economies may be maintained for a long time

second, US Treasury bonds will not default but will get out of control. At present, the bipartisan struggle over the debt ceiling in the United States has actually evolved into the outpost of the 2012 presidential election. Both the democratic and Republican parties and the market are well aware of this. Therefore, apart from the threat of rating agencies, the market did not take the risk of US debt default seriously. The price of credit default swaps (CDS) on us five-year treasury bonds did not rise significantly

although the United States will avoid debt default, it seems inevitable that the US government debt will lose control in the future. The economic growth in the next three years is lower than the budget assumption, which will increase the government's debt by $4trillion. The return of interest rates to normal will increase the interest expenditure by $4.9 trillion in the next ten years. These two items will increase the US government's debt by $8.9 trillion in the future. Considering the gaps in medical insurance and social security, it is inevitable that the US government debt is out of control. In the case of expanding debt scale, the traditional way to reduce debt is currency depreciation and inflation. The quantitative easing policy of the US Federal Reserve follows the same old path. If the third round of quantitative easing is launched against the background of high unemployment, it will stimulate the financial market in the short term. However, the risk of debt market crisis caused by inflation and rising yield in the medium and long term is even greater. In this regard, we have to be vigilant

third, the euro will be in danger, but it will be difficult to recover its strength in the medium and short term

there are two important nodes in the process of resolving the European debt crisis. The first node is the current second round of rescue for Greece. The second node is the establishment and scale of the permanent rescue mechanism after the expiration of the first round of rescue in 2013. If something happens to Spain and Italy, European banks will be vulnerable. Therefore, in order to prevent risk contagion and establish a larger rescue fund, it will be very important to build a firewall between Greece, Ireland, Portugal, Spain and Italy. At that time, issuing Euro bonds will become an important option. However, this will push up the financing cost of Germany and strengthen the fiscal union, which will inevitably face great political resistance in Germany

at present, the second round of rescue for Greece is imperative. Maintaining and strengthening economic and monetary union is also the consensus of Member States. The euro is the common wealth of Member States. The theory of Euro collapse is sensational, and the euro will be in danger. However, due to the growing economic differentiation among euro zone member states, the European Central Bank is facing increasingly difficult choices in anti inflation and balancing regional economic growth. It will also take time for the European Economic and monetary union to integrate its fiscal policies and institutionalize its rescue mechanism. All these will affect the trend of the euro in the medium and short term. I am afraid it will be difficult for the euro to recover its strength in 2008 and 2009 in the medium and short term. The 1.6:1 exchange rate between the euro and the US dollar will become history for a long time

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