But first things first.
Fed decided print and pour into the economy even by 45 billion dollars a month, thereby allegedly struggling not with a crisis, but with politicians. The declared renewed task of the Fed is to compensate for the damage from the so-called “financial cliff”, which even high school students now fear in America. The question is whether the paper regulator is enough ...
In accordance with its previous “quantitative easing” program, the Fed buys every month mortgage bonds for 40 billion. Now, in addition, the system will begin to buy Treasury bonds for 45 billion. $. Consequently, since January 85 billion dollars of freshly printed dollars will be flowing into the US economy every month.
The new program of the system is replacing the so-called “Operation Twist”. Under the old program, the Fed bought monthly short-term treasury bonds and sold long-term bonds for the same amount. The key difference between the new program: the Fed does not withdraw the same amount from the economy, and (attention) simply increases its balance sheet. And (again, attention) the extended version of the program does not have an end date. The Fed only promises to mitigate until it sees signs of a significant improvement in the labor market, i.e., a decline in unemployment in the United States.
According to the Fed's updated forecast, the unemployment rate will drop to 6-6,6% only in 2015 year. Inflation will not exceed 2,5%.
Thus, in the US, not only is the economy not expected to grow quickly, but in the fight against unemployment, the Fed is planning to unwind the inflation spiral. A very unusual decision, especially in conditions where oil can stop trading in dollars in some places (the Turks are already buying it from Iran for gold), and the Chinese promise to withdraw the yuan in key currencies. In such a risky scenario, with any jitter of the petrodollar by 2015, little will be left of the US economy. The whole trouble in Washington is that the American elite - whether it is Ben Bernanke, the Fed boss, or Obama, the country's president, or H. Clinton, the state secretary - perceives the world as static. And he, for the American misfortune, changes daily ...
Analysts are already talking about the "economic end of the world" in the United States. It is fueling the fire that the last meeting of Republican Leader John Bonaire and President Barack Obama, like the previous ones, ended in nothing. They met just about making a financial compromise.
Due to the uncertainty in the US, the global stock market is pretty shaky since the end of November. Investor Mood Analysts characterize as "moderately negative." Positions in risky assets are systematically reduced - precisely due to the increased likelihood of the fiscal cliff in the United States, more precisely, because at the moment there is no certainty about how the American president intends to prevent a "cliff". This provokes one after another wave of sales. At the same time in the United States and the real estate market falls. And the national currency is not strengthened.
Last Friday, the US dollar fell from an almost nine-month high against the yen, and the euro, on the contrary, rose to its highest level against the dollar since early May 2012. Dollar inflation was caused not only by fears of a “cliff”, but also by new measures taken Fed. Major financial indexes also dropped. Andres Garcia-Amaya, JP Morgan market strategist, says:
“Uncertainty (the result of Obama’s and Bonaire’s financial negotiations) basically holds markets hostage in the short term.”
Observer Mark Felzental traced the market reaction to the statements of Barack Obama and John Bonaire. If the first one is optimistic, then the second one, the Republican, frightens the people with gloomy forecasts. Even extremely gloomy. Just black. Thus, the markets react negatively not only to the fact that the Democrats and Republicans have not yet agreed, but also to the emotional tinge of negotiations or personal statements.
Barack Obama, campaigning in society for supporting the taxation of the rich, attends there are hot speeches at the factories and John Bonaire with a sour face continues to describe the situation as a dead end. In parallel, both politicians participate in various kinds of talk shows, where steam is released before the debate in the House of Representatives.
Markets, watching politicians, fall after Bonaire’s speeches, and recover from Obama’s statements. This pattern is repeated for several weeks.
Democrats are calling on Republicans not to accept the adoption of the law, and Republicans are pulling. There is no movement towards.
Obama bluntly declares. he is ready to sign the document, but the republican discussion participants stubbornly refuse to give up.
Bonaire responds by stating: Obama's plan to raise taxes on the rich is wrong; there is a dead end approach and even self-deception. He calls the president’s plan “the road to nowhere.”
Russian analyst Samir Shahbaz пишет:
“Until the next economic end of the world in the United States remains three weeks. If the Republicans and Democrats fail to agree during this period, the country will survive the so-called “financial cliff” (fiscal cliff). That, at least, is the situation in the American media. ”
But it’s hardly possible to talk about a catastrophe today. The same Shahbaz notes that “as long as the main currency in the world is the dollar, the world itself will not allow the bankrupt country, which has the coveted printing press.”
That is, as long as oil is being traded for petrodollars, these same dollars will have security in the form of energy resources, albeit artificial, that exists until the dollar is excluded from the world’s reserve currencies and is not replaced by, say, the yuan — which China is striving hard for, and at the last congress of the CCP, this was explicitly stated.
“Financial breakage” is not an economic collapse, but a problem with resolving the issue of the entry into force on January 1 of the list of significant changes. In the United States, almost all tax breaks will be terminated and government spending, including on the Pentagon line, will be seriously reduced.
Barack Obama is going to impose a wealthy Americans (those who earn more than 1 dollars a year) from 250.000 in January with an additional income tax - his maximum rate will be 39,6%. During the pre-election race, Mitt Romney very much objected to this, who stated that it was the rich who gave the main tax revenues. However, the economic theses of Obama enjoy the support of society. According to the latest opinion polls, more than 60% of Americans favor raising taxes on the rich.
First, a tax increase on the rich, and only then we will figure out how to live on. Such is the logic of Mr. Obama. In an interview with Bloomberg, the President of the United States said: “Let's raise taxes on people with high earnings,” and then “work out a process with a time frame and at the end of 2013, or in the fall of 2013, we will begin work on tax system reform. That is, after about a year it will be possible to think about tax cuts that have affected the rich.
Republicans also hope to create jobs in the US (however, Obama thinks about it too - it’s not for nothing that H. Clinton in the Czech Republic lobbied for Westinghouse, which will build two new units to the Temelin nuclear power plant in the country, and at the same time will create for Americans 9.000 jobs), which will at the same time increase the number of taxpayers. And the measures that the White House is now proposing will, in their opinion, be successful only in the short term: after all, the level of unemployment may rise and GDP may decline.
It is difficult to say whether Obama will achieve his goal, thinking at the same time about workplaces, about social programs, and about raising taxes on the rich. After all, there is no specifics from him.
Potomac Research Group analyst Greg Vallier is pessimistic about this declares:
"It's time to see the fall from the cliff."
Stan Collender, a budget expert, believes that one of four chances can be given - for Republicans and Democrats agreeing by January:
"It is much more likely that we fall off a cliff, and then climb on its edge - backdating, in January."
Some well-known foreign economic experts find an extremely dangerous combination of tax increases and public spending cuts, which is scheduled for January 1. For example, Martin Feldstein right declaresthat such a financial measure would reduce the budget deficit by five percent of GDP between 2012 and 2013, but despite the necessary reduction in America’s budget deficit, such a sharp reduction now, when the economy is still very weak, would be a serious mistake. (Concerning current federal budget deficitthen it is huge in the USA: 1,1 trillion dollars).
Moreover, the analyst is convinced that the Fed can do nothing to prevent an economic downturn - unless the "financial cliff" is overcome.
But how to do it?
A “cliff” can be avoided only by passing a law, that is, by approving it by both chambers of Congress and by signing by the president. But now there is a clear conflict between Republicans and Democrats because of the question of raising taxes on the rich, which seems to the expert intractable. The fact is that this is not only an economic, but also a political conflict. Indeed, despite the fact that those people who have a fairly high level of income, make up only about three percent of all taxpayers, they pay more than 40% of all taxes on personal income in America.
And even if Obama promotes his project, and the senators agree on a compromise among themselves, in the long run, US financial problems will not be resolved. According to Feldstein, the United States should slow down the increase in spending on pension programs, middle-class support programs and at the same time increase budget revenues by limiting tax expenditures as part of fundamental tax reform. And this will be only the first act of a long “fiscal play,” he writes.
As for society, it loses in any case.
The Associated Press Reviewer by Suzanne M. Schaefer says that America, having fought on different fronts for more than a decade, is now planning to cut federal spending in the areas of military medical insurance, pensions, and other areas that have been considered “untouchable” for a long time during the “deal between Congress and the White House”.
Jeremy Hilton of Burke, Virginia, who is currently caring for a disabled child while his wife gives a debt to his homeland as an air force officer, says:
“I feel the fear of the unknown, and even worse, that our family members may be left without work. We are all worried about what is about to happen ... "
US Secretary of Defense Leon Panetta and General Martin Dempsey, chairman of the Joint Chiefs of Staff, have already warned the public that new financial budget decisions will have devastating consequences for all members of the armed forces: after all, the Pentagon will be forced to make cuts of billions of dollars in the shortest possible time.
Jeremy Hilton says that waiting "drives us all crazy." Earlier, Mr. Hilton (he is now 40 years old) graduated from the Air Force Academy, then moved to serve in the Navy - and gave eight years the fleet as a submariner. Then he decided to leave military service and be at home with two children, and at the same time receive a master's degree.
Obama recently said that the salary and housing of the military, who are on active military service, will not be mainly affected, if only they manage to reach an agreement and prevent a “financial cliff”. But the cut will hurt the Pentagon’s civilian staff as well as contractors.
56-year-old Mr. Brunson retired with the rank of master sergeant after 24 years in the Air Force. His wife says that military medical insurance helps them a lot now: they pay only 41 $ monthly. She adds that military insurance covers the entire surgery her husband was undergoing, a cancer patient. So far, they have spent their personal money only 100 $. But they calculated that if the new laws were passed, they would have had to lay out 99.000 $ for everything. The Obama reform will quickly make them debtors a voracious medical system.
Reducing costs and increasing taxes, which will inevitably come into effect in January 2013, will affect mainly the Ministry of Defense. This is the beginning of a ten-year reduction program that allows you to save about 500 billion. All in all, the White House wants to save 1,2 trillion $ by all sorts of cuts.
And one of the likely goals of the reduction will be the Tricare military health care system. She now provides health insurance for almost 10 to millions of active men and women who repay their debt to their homeland, military retirees, reservists and their families. Program costs have risen from $ 19 billion to $ 53 billion. This is not surprising: in recent years in the United States more and more military. In fact, they all today enjoy almost free medical care.
The last time the speaker of the House of Representatives is Mr. Bonaire saidthat has "serious disagreements" with President Barack Obama, December 12, on Wednesday last week. And this time Bonaire made an "optimistic."
“I am one of those people who say that the glass is half full. I am still the most optimistic person in this city (Washington). But we have some serious disagreements. ”
So Bonaire told reporters at a press conference.
In recent days, Obama and Mr. Bonaire have been bargaining for 600 $ billion in order to establish the final amount of tax increase and budget cuts, which should inevitably start from January 1 - otherwise America will slide into a "financial cliff".
But analysts doubt that these two are bargaining. The representative of the Republicans from Illinois, John Shimkus 12, told reporters in December that Bonaire had advised the senators to buy Christmas toys, leave Washington and not make any plans.
Along with negotiations on spending cuts and tax increases, opponents operate with fabulous amounts of upcoming revenues: Obama believes that Native America will receive about 1,4 trillion in the budget. $ new revenues in ten years, and Bonaire speaks of roughly 800 billions. But in both cases it is completely unclear how such high rates will be achieved.
At the same time, Bonaire frankly said that the Obama program would not pass through the Senate. The main objection of Bonaire and the Republicans in general is the increase in taxation of rich people, that is, those who have an annual income in excess of 250.000 dollars. In this matter, Mr. Bonaire is not going to concede.
As we can see, analysts unanimously predict the US “financial cliff” in January 2013, the fault of which is Bonaire’s intractability about Obama's attack on rich capitalists. Even some of Obama's concessions have so far not helped the course of the negotiations. At the same time, the situation in the United States is complicated by the fact that the established debt threshold is 16,4 trillion. dollars - will be passed soon. As for investors, the markets are reeling just because of the uncertainty. In addition, against the background of the new Fed events, the dollar has been slightly shaken.
Let's wait for January ...
Observed and translated by Oleg Chuvakin
- especially for topwar.ru
- especially for topwar.ru