© AP Photo / Mark Lennihan
Even permanent optimistic American financial press is gradually coming to the conclusion that the U.S. budget deficit is going to be difficult, which is difficult to handle Federal reserve system. The financial system of our overseas partners can be compared with the unstable reactor, and their Central Bank is trying to make it so that the explosion did not happen, and to keep this reactor under control is becoming increasingly difficult. The flagship of the American business press, The Wall Street Journal reports: “the fed Control over rates to test the growing state budget deficit of the United States. It is expected that the issuance of debt obligations of the U.S. Treasury Department will contribute to the instability of the money market”.In this case it is necessary to make a careful translation from the language of specialized journalists on spoken Russian. The American habit of living beyond their means was so large scale that even the printing press to close the financial holes is not enough to protect the financial system from toxic effects. By and large, a significant part of the welfare of fading global hegemon after 2008 is based on the constant increase of the public debt and budget deficit, combined with the preservation of very low interest rates for the economy as a whole. In this sense, the US economy can be compared to Biking, of which one pedal is low interest rates, another increase in the budget deficit, which is financed by public debt growth. If suddenly rising interest rates on loans, or if the budget deficit can not grow, the economy first slows down and then begins to fall.Now the market is afraid that the budget deficit reached the level that will ruin this scheme. Practice 2018 has demonstrated that the U.S. financial markets (and economy in General) with increasing dollar rates (i.e. borrowing costs in the economy) starts to fall apart before our eyes.
The Wall Street Journal clearly indicates that problems are to blame it is the lack of money in the American Treasury, and stresses that the solutions are temporary: “the Budget deficit, which is projected to grow for many years results in the deterioration of the basic elements of the U.S. financial system, making it difficult to Fedreserve control of interest rates, which (in turn. — Approx. ed.) affect how much consumers and businesses pay for loans. In September, the fed was forced to intervene in money markets to suppress a brief, but alarming jump in short-term interest rates. The Central Bank says he is ready to cope with any financial problems that may arise before the end of the year on the so-called market agreements to repurchase or repo market in the amount of 2.2 trillion dollars. But the long-term solution has not yet been developed”.Although the so-called repo market is not very known to the General public, in fact he is indispensable to the functioning of a modern financial system. Banks depend on short-term lending, which are used as collateral government bonds. In turn, as rightly noted by American journalists, the smooth operation of this hidden from the General public segment of the financial market “provides a secure provide credit to the economy”. The irony is that us senators and congressmen, when the proposed package “a hell of sanctions” against Russia are likely expected to break the “repo market” in our country — at least, the Minister of Finance Steven Mnuchin described in his letter to Congress these are the consequences of the introduction of the “hell of sanctions.” Against the us sanctions, no one entered, but the situation in this key segment of the financial market looks very bad — no wonder the Fed has to plug holes in 86 billion dollars every day. If you describe the situation in the most simplified and rough terms, the market is experiencing a catastrophic shortage of people willing to lend money secured by U.S. government bonds (which, at least in theory) are a risk-free asset and should raskatyvaete potential lenders like hotcakes.The need for cheap loans until can close the fed, which actually acts as a “lender of last resort”, but it is only a temporary solution. The Wall Street Journal quoted the opinion of Mark Makvina — Manager of the bond portfolio at the management company, Sage Advisory: “the fed can’t protect deficits (of the budget. — Approx. ed.) a trillion dollars from year to year. This is more than possible.”
Desperate and obviously unplanned actions by the us authorities begin to resemble the emergency measures that were taken in the 2008 crisis, only this time the word “crisis”, none of the officials do not speak aloud, lest it become a self-fulfilling prophecy. It cannot be excluded that unexpected stress that began in the financial market in September and does not end, despite all the efforts of the us monetary authorities, is a sign of systemic problems in the economy and one of the symptoms of a looming recession.CNN reports that at least one major international Bank expects exactly recession of the American economy in the next year:”the fed believes that she has everything under control,” he wrote in a note to clients Philip Marey, a senior strategist at Rabobank in the American market. But the same prediction model, which led to the fact that Rabobank had correctly identified the end of the recent cycle of rising interest rates, the fed now signaling that the Central Bank will need to “lower the rates to zero before the end of 2020,” said Marey. “Three rate cuts (this year. — Approx. ed.) will be insufficient to prevent the decline in the economy in a recession,” he wrote.The Agency Bloomberg, referring in particular to the testimony of fed Chairman Jerome Powell to Congress notes that in the case of deceleration of the American economy all these measures are insufficient: “it is Impossible to avoid (recognition) of the fact that if the economic conditions of the United States will not change significantly, then the fed can’t lower interest rates enough to significantly soften (not to mention, to expand) a serious economic downturn. <…> In theory, this gap (between the fed and the needs of the economy. — Approx. ed.) can be met through fiscal stimulus, that is, the government either cuts taxes or increases spending. In practice it will be almost impossible.”In 2016, Donald trump said that the us economy is big and ugly financial bubble. Now he can’t afford to let the bubble burst before the election of 2020, and probably all kinds of short-term decisions, the fed will be enough to achieve this goal. But after the election, at any time it may be a situation in which the President and the Ministry of Finance will need miracles to make the bubble continue to exist.Perhaps it is the awareness of these risks and forces trump to hurry in the economic war with China and the issue of coercion of the European Union to Finance the American military-industrial complex and NATO — he knows he doesn’t have so much time to save American hegemony.Ivan Danilov