The March "default" of America: the country will save Jack Lew
Western predictions about the imminent collapse of the dollar. - Greek way for America? - In the global financial game, everyone puts on gold. - Who will save the US economy? Mr. Obama knows the answer: a new finance minister, Jack Lew, will help out his homeland. - Above 16,6 trillion The US government debt ceiling will not rise: Lew will agree on this with Congress.In recent weeks, there have been a proliferation of forecasts about the imminent collapse of the dollar and its replacement with some other currency (or special drawing rights - a basket of currencies, on which Mr. Soros is a big fan of the IMF’s activities). Sources of gloomy forecasts - Western media and blogs, American and European. Amateur authors and experienced analysts, one and all, unanimously predict the inevitable collapse of pale green money, and immediately speculate that it will replace the dollars. Many look at Russia: why is she buying so much gold in recent years? Should we take an example from her? Other authors talk about how to survive a new world without a dollar.
In the Global Europe Anticipation Bulletin (GEAB), published in the European Union, analysts reason about the reorganization of the world on some new beginnings to be taken in connection with the coming dollar collapse.
The terrible crisis of the US dollar, say the authors of the material, will force the world to completely transform the structures of global governance. We should start with changes in the international monetary system: otherwise, it will be impossible to prevent a storm, which is ready to strike at the most different currencies. One trouble: such a reorganization will have to be carried out in a hurry - after all, it will start storming from March to June.
However, the old world is not going to give in to the new. Well-read authors even quote Gramsci: “The old world is dying off, and the new world is fighting for its birth — the time of monsters comes.” The monsters will not calm down in any way, GEAB analysts write in their press release.
The main question here is that it is not just about dollars, but about petrodollars as the primary elements of American economic domination. In fact, oil in this case turns out to be a global problem. The world economy faces the ninth wave of the crisis. And it is foreshadowed by smaller waves.
Today, the world economy is shaken by “currency wars”: they have not only a financial, but also a political dimension. In essence, they are crushing faith in mutually beneficial relations between states.
The second major wave is the problem of a budget agreement between Democrats and Republicans in the US Senate. Here we are talking about the unpopular increase in taxes, and the sovereign debt ceiling, and the “default”, which breaks out, if not in March, so in May.
The third wave is the likely decline in GDP in the first quarter of 2013. The recession will be caused not only by the general crisis, but also by the fact that few days of economic activity in the north-east of the country were lost due to the Nemo blizzard and the flu epidemic.
Of course, psychological expectations will also have an effect. To quell this fourth wave, a dam was built: the credit rating agency Egan Jones, which is less biased than the three Big Brothers (one of whom has downgraded the United States to 'AA-' three times), For 18 months it was forbidden to assess the country's rating. And of the three major agencies, S&P - the only one that dared to downgrade the United States - was targeted. Others can only look under their feet, European observers sarcastically note.
The following waves are rolling too. World finance insiders have already made huge short bets with an expiration date at the end of April 2013. Examples: two Swiss banks are changing their legal form - so that their co-owners do not bear personal responsibility for damages. It is also known that Eric Schmidt sold the shares of Google to 2,5 billion dollars.
And then there is the US government: by all indications, it is clearly waiting for chaos in the country. It is armed to the teeth of the Ministry of Homeland Security: the assault rifles alone have bought 7 thousands. Recently, Obama signed a law allowing the execution of Americans, representing the "imminent threat." Society grumbles, but the president doesn’t care.
A special wave, foreshadowing the ninth wave, will be the bankruptcy of many US banks. And the government will not be able to save them: the crisis will be implemented in the so-called “Icelandic style”: the rescue of drowning people will be provided by the drowning people themselves. Banks can go to the bottom or flounder: all this is their personal grief. Real market economy, what do you want?
By the way, judging by the recovery of Iceland, such a “cool” solution looks on the scale of the country much more effective than state support programs. In addition, support simply has nothing to pay.
But, European economists sum up, whatever the management policy, the new crisis strike will accelerate the loss of its influence in the world by the United States. "Absolute weapon"- the dollar - will become useless.
Money News Browser Glenn Kalinocki пишетthat the share of the dollar in the total supply of currency in the world is decreasing. The dollar share fell to a 15-year low. The reason, according to IMF experts, is in the readiness of countries to use other currencies in their trade.
“Generally speaking, the overwhelming majority do not believe that the US dollar will lose its role,” said Dick Bove, vice president of stock market analysis for the dealer company Rafferty Capital Markets. “But this will happen, and perhaps in the shortest possible time, years through 5-10.”
Presumably, this is quite an optimistic forecast. After all, the share of the dollar in the global supply of money has really dropped a lot - from almost 90% in 1952 to about 15% today. The same Bove indicates that "the Chinese yuan, the yen and the euro have a large share in this amount."
And now the United States will lose in the currency battle as much as China’s share of its currency in the world market will manage to increase.
“If the dollar loses the status of the most reliable currency in the world, the United States will lose the right to print money to pay its debt,” explains Bove. - You will have to pay. Rating agencies have already launched a discussion, arguing that the government’s debt is probably too overvalued. The US Congress, both chambers, as well as the president himself, are experiencing a crisis of loss of financial confidence. ”
The struggle for budget sequestration only heightens concerns about maintaining financial stability in the United States.
Barry Eichengreen, a professor at the University of California, warns that if the dollar, as a key currency, cannot maintain the security expected by investors, it will not be able to function as a stable security. It will immediately lose its attractiveness as a form of storage of international reserves.
Loss of reserve currency status by the dollar, dollar depreciation (which will certainly cause currency wars and disruption of trade relations), according to the chief editor of Fortune magazine Alan Sloan, will block America’s channels for sucking money out of the whole world, which allows the White House to “not bother with balancing accounts”.
February 27 Finmarket an extensive material was published under the heading "The United States will take the path of Greece and bring down the dollar." The article is based on analysts scenario of the debt crisis in the United States, developed by Frederick Mishkin, a professor at Columbia Business School. According to him, if American politicians fail to reduce the budget deficit, by the year 2018 the States will fall into a crisis of the Greek type. In this case, the Fed will have nothing to do but to bring down the dollar: with the help of high inflation a “hidden default” will be held. Moreover, the risk group today is not only the United States, but also Japan and the countries of Europe. According to the latest theory of American economists, the debt and budget crisis is inevitable for countries with public debt above 80% of GDP and a constant current account deficit. Even Germany and France get here. As for the United States, they can get into a crisis like the Greek in 2018, if politicians do not succeed in urgently reducing the budget deficit.
The professor and his staff calculated what the country's budget surplus should be in order to stop the growth of public debt. If this indicator is far from the average historical value for the country, then the state sooner or later will have to pay a risk premium to lenders. If the situation with the budget deficit fails to normalize for a long time, then investors begin to fear either high inflation, which will reduce the real payments to them, or a “default”. They are asking for more and more risk premium. This happened in Greece: lenders did not believe that the deficit could ever be reduced without leaving the eurozone and inflation.
So with regard to the United States, the main risk is high inflation. With its help, the authorities can accelerate the growth of nominal GDP and not reduce real payments on debt obligations. However, forecasts do not take into account the likely sharp rise in the cost of borrowing.
According to Mishkin, national debt at the level of 90-100% of GDP significantly slows down economic growth. Negative effects begin to be felt already when the ratio reaches 70-80% of GDP. And each percentage point of the growth of the budget deficit in relation to GDP increases the cost of borrowing on 4,5 bank percent.
“If the current account of the country is absolutely balanced, but the national debt has grown from 0% of GDP to 40%, in this case, the rates on public debt will increase by just 44 b. But if the national debt rose to 80% of GDP, then the rates will increase by 109 bp Growing another 40% of GDP will add another 174 bp to yield.
If the country also has problems with the current account deficit, the debt crisis will develop much faster. For example, if the average account deficit for five years amounted to 2,5% of GDP, the growth of public debt from zero to 120% of GDP will lead to an increase in rates on 517 bp. And the bigger the deficit, the faster the profitability grows. ”
If the country also has problems with the current account deficit, the debt crisis will develop much faster. For example, if the average account deficit for five years amounted to 2,5% of GDP, the growth of public debt from zero to 120% of GDP will lead to an increase in rates on 517 bp. And the bigger the deficit, the faster the profitability grows. ”
The professor figured out that, for example, Ireland, Italy and Japan needed a surplus above 4% of GDP. But Portugal has a national debt above 100% of GDP, and the cost of borrowing is 11%. So that the debt does not grow, Portugal needs a surplus already in 9% of GDP! You can stop the growth of US public debt if you reduce the budget deficit to 1,8% of GDP from last year’s 7,8%.
It would seem that the United States is not so bad financial affairs. But there is one interesting "but", thanks to which the United States can become a "giant Greece."
Economists deal with a unique case: the US national debt in 2011 amounted to 103% of GDP, while the cost of borrowing remained record low. Now it is about 1,4%, and a quarter of the debt is expressed in bills with a maturity of one year or less, and the coupon rate on them is zero. The explanation of such low rates on US debt: historically, the dollar is the reserve currency, and investors are forced to buy dollar-denominated government bonds. There is another explanation: if you do not take into account the portion of the debt owned by US government funds, the national debt of the country would be only 80% of GDP.
But in the coming years, debt will grow. The Congressional Budget Office predicts that it will grow to 107% of GDP in 2014. From here the cost of servicing the debt will go up.
The USA will overtake the budget crisis, believes prof. Mishkin. In the long term 25, the US national debt will grow to 176% of GDP. The Congressional Budget Office makes a smaller growth forecast: up to 159%.
“Unless imports slow down and the current account deficit rises to“historical»3,7% of GDP, then by 2037 the US national debt will be 180% of GDP.
... If the sequestration assigned to 1 in March is canceled, and unemployment does not fall below 6%, then the ratio of government debt to GDP to 2037 will reach 304% of GDP. The United States will repeat the experience of Greece - the yield on the country's bonds will soar to 25% of GDP. ”
... If the sequestration assigned to 1 in March is canceled, and unemployment does not fall below 6%, then the ratio of government debt to GDP to 2037 will reach 304% of GDP. The United States will repeat the experience of Greece - the yield on the country's bonds will soar to 25% of GDP. ”
And the Fed here will not save the government. The Fed will have to get rid of the paper purchased under the "quantitative easing." Today, the income from their ownership of the Fed transfers to the Treasury, which, by the way, is a source of budget replenishment. But in the 2017-2018 years, according to the calculations of the professor, it will dry up: after all, the Fed will begin selling assets in the 2015 year (according to Mishkin).
The professor is inclined to think about the upcoming “monetization” of the US debt - that is, the dollar depreciation through inflation caused by the usual printing of money. This can be avoided only by the consent of the government to reduce costs. In the US, the cause of "monetization" of debt may be the constant deficit of the federal budget and the apparent unwillingness of politicians to develop a plan to reduce it. If the White House does not succeed in breaking the political stalemate, a debt crisis will inevitably begin in the country. The Fed will have nothing left, Mishkin believes, and it will have to "monetize" the national debt, thereby bringing down the dollar and moving along the Greek scenario.
Against the background of a slow, but “confident” movement of the dollar to collapse, gold is becoming more expensive in the world. it is twelfth year in a row. Investments in pure gold in 2012 amounted to 354 tons versus 103 tons in 2011. Silver is bought in the world. The American Mint was forced to suspend the sale of silver coins: they ended up in stock due to unprecedented high demand.
In America, bad things are not only with silver, but also with gold.
Recently, the US Treasury published the results of the year 2010 conducted an audit of its gold reserves held at the Fed Reserve (New York). The most noteworthy discovery in this report was that the United States held a total of 34.021 gold bars of high quality on the deposit of the New York Fed.
It can be calculated that the Department of the Treasury has recognized that the actual gold reserves in the Treasury at the Fed are only 466,57 tons (instead of the officially declared 8133,5 t). True, the Treasury (according to him) stores gold in Fort Knox - but only up to half of the reserves.
In addition, in the Los Angeles Times, it’s not in vain to write:
“It is worth noting that it would be nice to invite Germans or Swiss as a third party to the audit, rather than conduct a strictly private internal audit. Another problem is that the Treasury Department completely ignores loans and re-pledges of physical gold bars stored in the central bank. Tungsten in gold bullion is only part of the problem ... "
Analysts believe that "the publication of the results of the" golden "audit of the Treasury Department" is "extremely timely" and smacks of a desperate attempt to restore the loss of confidence in them from the central banks of the world. "
Meanwhile, Russia is accelerating. is buying up gold. Over the past ten years, the Central Bank of Russia has acquired 570 T of this precious metal: it is three times the mass of the American Statue of Liberty and a quarter more than the volume of purchases by China, which took second place after Russia.
As a matter of fact, in terms of gold reserves, Russia is only at the eighth position, and China is at the sixth position. Most of all gold in the United States is more than 8 thousand tons. For the States are Germany with 3,391 thousand tons and the IMF with an indicator of 2,814 thousand tons. Fourth, fifth and seventh positions are occupied by Italy, France, Switzerland.
The “gold rush”, accompanied by the decision of Germany to return part of the gold from America “home,” is very sad for the US Treasury. However, investing in gold is extremely profitable. In 2005, its cost was 495 $ per troy ounce, and in 2013, it is around 1665 $ per ounce.
Russia also has natural reserves of a valuable metal. In 2012, gold production in the Russian Federation, according to the US Geological Survey, amounted to 205 tons.
Russian market analysts are expecting the consequences that Ben Bernanke’s speech might bring, which will try reassure markets with statements about the need to continue implementing the “quantitative easing” program. The speech of the head of the Federal Reserve can play against the dollar in the medium term.
Accordingly, it is possible to predict the preservation and growth of the price of gold, as well as the active buying up of precious metals by central banks of different countries, including those that are called "developing" in the United States.
What about all this doing the United States? How to solve the problem of public debt and budget deficit? How to keep the dollar among the key currencies? Barack Obama has come up with only one thing: appoint Mr. Lew to the post of Minister of Finance.
February 28 стало известноthat the US Senate approved Jack Lew for the post of new head of the Ministry of Finance. 71 senator voted for his candidacy, against - 26.
Obama probably believes that Lew is the one who will save America. “His reputation as a financial expert who can work with leaders of both parties has already helped him succeed in some of the most difficult positions in Washington,” the US president said. Thus, Lew is assigned the role of intermediary between Republicans and Democrats in Congress, who argue about cost-cutting measures: after all, “automatic sequestration” will cut 85 billion dollars from the budget by the end of the year. And by 2022, spending should be reduced by 1,2 trillion dollars.
The most urgent task for Lew will be to find a compromise to reduce the strength of the economic blow in the amount of 85 billion. Compromise must be found no later than 1 March. However, the funds for most government operations end not March 1, but March 27. As for the borrowing ceiling, the US government is expected to reach it on May 19. This day may become the day of "default": it will take place, unless a budget agreement is reached between the Republicans and the Democrats, as a result of which the ceiling can be raised again.
Lew is likely to take the lead in difficult negotiations with Congress to cut the US budget deficit and keep the national debt ceiling at $ 16.600 billion.
The new finance minister is optimistic and even promised to put pressure on the second largest economy in the world - the Chinese. Lew and Obama do not like the fact that China is weakening its currency, which allows it to benefit from foreign trade. Meanwhile, the artificially low value of the yuan causes damage to US companies.
Whether Jack Lew will succeed in solving those large-scale tasks - control over the state debt, reduction of the budget deficit, victory in the currency war with the Chinese - which he took upon himself, we do not undertake to judge. One thing is clear: American finance ministers lived with these growing problems until Lew, successfully postponing their decision for the future. Lew was in the last chain: move further - nowhere.
Observed and translated by Oleg Chuvakin
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