The year 2016 has hardly begun and
the losses in different stock markets around the world care colossal:
nearly 8 trillion US dollars during the first three weeks of January
according to the calculations of the Bank of America Merrill Lynch. The
Government of the United States made addicts of investment banks of
policies of cheap credit. And now that the System of the Federal Reserve
ended their monetary stimuli the whole world is paying the
consequences. In the most recent Davos summit it was noted that there is
much uncertainty among big businesses: no one knows when the next
crisis will explode.
A financial tremor left the Davos club
sunk in pessimism. Over 2 000 businessmen and political leaders met in
Switzerland (from January 20 to 23rd) and do not really know how to
convince the people of the world that the economy is under control. A
few days after the XLVI edition of the World Economic Forum[1],
the investors panicked: over the first three weeks of January different
stock markets lost 7.8 trillion US dollars, according to the estimates
of the Bank of America Merrill Lynch[2].
For the US investment bank this month of
January will be remembered as the most dramatic moment for finances
since the Great Depression of 1929. International financial circuits are
increasingly vulnerable. PricewaterhouseCoopers (PwC) recently
published the results of a survey that collected the opinions of 1 409
CEOs of 83 countries on the economic panorama: 66% of those interviewed
consider that their corporate organizations face greater threats today
than three years ago, and only 27% think that global growth will improve[3].
The uncertainty is such that during the
Davos summit there was no consensus among business giants as to when the
next crisis will hit. With this, the western press did not hesitate to
point out that the deceleration of China is the principal cause of the
turbulence in the world economy. In fact, George Soros (who hit the
pound sterling in the 1990s) maintained in Davos that a violent landing
of the Chinese economy is “inevitable”[4]:
without doubt an exaggerated affirmation. In my judgement there is a
propaganda campaign against Beijing that attempts to hide the serious
economic and social contradictions that persist in the industrialized
countries (the United States, Germany, France, the United Kingdom,
Japan, etc.).
In spite of the triumphalism of the Head
of the Federal Reserve System (Fed), Janet Yellen, in recent weeks the
United States’ economy has begun to show signs of debility. The
manufacturing sector accumulated two months of contraction in December:
the lowest level in the last six years. At the same time, the fall of
commodity prices has resulted in an appreciation of the dollar and with
this, it becomes more complicated for the North American Government to
bury the danger of deflation. The horizon now is more somber since the
international valuation of petroleum has fallen below 30 US dollars per
barrel[5].
Still worse, the International Monetary Fund (IMF) reduced the new
account of its perspectives of growth of the global Gross Domestic
Product (GDP) for this year from 3.6 to 3.4%[6].
The truth is that the policies of cheap
credit impulsed by the central banks of the industrialized countries
after the bankruptcy of Lehman Brothers provoked enormous distortions in
the credit market and now the world is paying the bill[7].
According to the calculations of the investment fund Elliot Management
(directed by Paul Singer), the central banks of the great powers have
injected approximately 15 trillion US dollars since the crisis of 2008
through the purchase of sovereign debt bonds and mortgage assets[8]. Sadly this strategy did not establish the bases of a stable recovery, but on the contrary increased financial fragility.
The euro zone has not been able to get
out of low rates of economic growth. The crisis did not only strike
countries such as Spain and Greece, the core of Europe has encountered
severe difficulties: deflation now threatens Germany, after indicating
that the consumer prices rose only 0.3% on average in 2015, the lowest
since the recession of 2009, when the German GDP fell 5%; and the
President of France, François Hollande, recently announced a “state of
economic emergency” in the face of high unemployment and the debility of
investment[9].
This has left the President of the
European Central Bank (ECB) Mario Draghi very preoccupied, and he has
been obliged to consider the extension of measures of stimulation for
the month of March[10].
The same thing has happened in the Bank of England and the Bank of
Japan: in spite of having placed the interest rate at a minimum level
and launched aggressive programmes of injection of liquidity, they still
have not managed to bring their respective economies out of the
predicament nor increase in a substantive way their inflation, that is
still a long way from the official objective of 2%.
With all this, the overwhelming
domination of the dollar in the global capital market attributes to the
United States a decisive role in the determination of the monetary
policy of the other countries. There is no doubt that the FED was
mistaken in raising the federal funds rate in last December. Simply
there were no sufficient elements that allowed the conclusion that the
recovery of the US economy was solid and sustained. Now that the
situation has become worse it is almost that in its proximate meetings
the Federal Open Market Committee (FOMC) of the FED will not only
increase the cost of credit, but may well reduce the reference interest
rate.
Nevertheless, the big problem is that no one seriously knows how the financial markets[11]
will react to even a very light movement of the FED. Will the
successive falls of Wall Street occasion a world recession? Will the
hegemony of the dollar be fatally wounded by the massive sales of US
Treasury bonds? To what point will China and the emerging countries
resist? The coming crisis is an enigma for all….
Ariel Noyola Rodriguez is an economist that graduated from the National Autonomous University of Mexico.Translation: Jordan Bishop.
Source: Russia Today.
Notes:
[1] «Davos 2016: Global economy seen to be hanging in the balance», Chris Giles, The Financial Times, January 19, 2016.
[2] «Nearly $8 trillion wiped off world stocks in January, U.S. recession chances rising: BAML», Jamie Mcgeever, Reuters, January 22, 2016.
[3] «En Davos, el pesimismo es el sentimiento de moda», Dana Cimilluca, The Wall Street Journal, 20 de enero de 2016.
[4] «Soros: China Hard Landing Is Practically Unavoidable», Bloomberg, January 21, 2016.
[5] «Goldman Sachs makes oil prices drop», by Mikhail Leontyev, Translation Deimantas Steponavicius, 1tv (Russia), Voltaire Network, 19 January 2016.
[6] «IMF Cuts Global Growth Forecast to 3.4% in Year of ‘Great Challenges’», Bloomberg, January 19, 2016.
[7] «El crédito barato ya no alcanza para estimular la economía mundial», Lingling Wei & Jon Hilsenrath, The Wall Street Journal, 20 de enero de 2016.
[8] «Fears of global liquidity crunch haunt Davos elites», Ambrose Evans-Pritchard, The Telegraph, January 20, 2016.
[9] «François Hollande en état d’urgence», Gérard Courtois, Le Monde, 19 janvier 2016.
[10] «Draghi hints at more stimulus in March», Claire Jones & Elaine Moore, The Financial Times, January 21, 2016.
[1] «Davos 2016: Global economy seen to be hanging in the balance», Chris Giles, The Financial Times, January 19, 2016.
[2] «Nearly $8 trillion wiped off world stocks in January, U.S. recession chances rising: BAML», Jamie Mcgeever, Reuters, January 22, 2016.
[3] «En Davos, el pesimismo es el sentimiento de moda», Dana Cimilluca, The Wall Street Journal, 20 de enero de 2016.
[4] «Soros: China Hard Landing Is Practically Unavoidable», Bloomberg, January 21, 2016.
[5] «Goldman Sachs makes oil prices drop», by Mikhail Leontyev, Translation Deimantas Steponavicius, 1tv (Russia), Voltaire Network, 19 January 2016.
[6] «IMF Cuts Global Growth Forecast to 3.4% in Year of ‘Great Challenges’», Bloomberg, January 19, 2016.
[7] «El crédito barato ya no alcanza para estimular la economía mundial», Lingling Wei & Jon Hilsenrath, The Wall Street Journal, 20 de enero de 2016.
[8] «Fears of global liquidity crunch haunt Davos elites», Ambrose Evans-Pritchard, The Telegraph, January 20, 2016.
[9] «François Hollande en état d’urgence», Gérard Courtois, Le Monde, 19 janvier 2016.
[10] «Draghi hints at more stimulus in March», Claire Jones & Elaine Moore, The Financial Times, January 21, 2016.
[11] «The world has glimpsed financial crisis. But is the worst to come?», Jamie Doward, Larry Elliott, Rod Ardehali & Terry Macalister, The Guardian, January 24, 2016.
The original source of this article is Global Research
Copyright © Ariel Noyola Rodríguez, Global Research, 2016
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