The situation on global financial markets may be changing, with very significant consequences for all the different societies, once again giving evidence of the extraordinary interdependence of economies and nations of the world. And further proof that the current crisis is far from over.
The president of the Federal Reserve Bank, Ben Bernanke, who had just learned that he stands almost no chance of seeing his mandate renewed by President Obama, confirmed this week that« QE3 will be tapered some time this year ». This enigmatic announcement represents in actual fact a far-reaching step in the Fed policy, that was penalized by the market forces.
At present, the U.S. economy is being kept at arm’s length by 100 billion per month of budget deficit and 85 billion of the Fed’s purchases of bonds from commercial banks. In total, all this has led to a public debt of $16 trillion (more than 100% of GDP, amounting nearly to 33 GDP percentage points since 2008) and the FED’s balance sheet of $4 trillion (a fourfold since the beginning of the crisis). This almost free money has allowed U.S. banks to restore their proﬁt margins, the military sector to continue to operate, the U.S. administrations to survive and stock markets to rise to unknown levels and decorrelated from the real economy. It has also helped emerging countries, such as Brazil and Indonesia, to attract capital in the hunt for yields, finance their balance of payments deficits and their investments.
In taking this decision to start a fall-back procedure, the President of the Fed could mean that he thinks the U.S. real economy can live without this doping, because it would be much better. Indeed, there are some positive signs, especially on real estate markets. There is no guarantee that this is the foundation for a sustainable recovery. At the moment, no real engine of growth, no innovation, have come to kick in. The huge discoveries of unconventional gas have made limited or no impact on the competitiveness of the country.
The first consequences of these announcements are alarming, because they show that the global economy cannot live without such tricks: within a few days, U.S. markets, in particular bond markets, began to suffer, without one being able at the moment to distinguish a healthy correction of foreboding a bond crash, a feared consequence. What is more serious is the fact that the major countries of the South who benefited from capital and were attracted to higher yields from those, very low, of U.S. Treasury bonds immediately began to experience difficulty in finding funds to support their deficits. Interest rates rose sharply, which compromises their development policy. Brazil, for example, will have to finance its debt at a higher cost. One may also fear that the rates increase for countries on the periphery of Europe, then those at the heart. With the same political consequences.
The turmoil produced by this announcement of Ben Bernanke are such, that one thus can expect that this is just a flash in the pan and that, well before the year is over, the Fed, and other central banks, conscious that drug addicts will always be screaming for their drugs, then revert to their old ways. Thus Admitting that the crisis is not over and it can only get worse in the future, with the increase of global debts.
Unless we finally decide to get serious.