There were two most important news of the last week. First one was the FED´s meeting we mention above. The FED will continue with purchasing of mortgage-backed securities and long term treasuries in $85 billion amount per month. According to James Rickards the basic aim is to support the domestic consumption by small threat of inflation. The tools which FED is going to use are weakening the US dollar, maintaining low rates, support the export and import inflation (weakening of the dollar will cause more expensive imports which will be transpose into the prices of consumption goods).
The second most important issue is agreement of the EU leaders about the form of the so called banking union. The agreement is some kinds of compromise for Germans who doesn´t want direct supervision over their regional network of banks. The ECB will supervise 150 biggest financial houses in the EU and local central banks will have the competences for the smaller banks. The supervision will be running by March 1 2014. This means one important date. The EU leaders are prepared to save anybody on any costs at least till this date.
Greece tried to reduce its debt by 11 % but was not so successful. Greece had to buy-back its bonds from investors with a discount to reduce its debt. The average price of buy back was 33.5 cents per 1 euro slightly above what was expected. It means that the goal of 124 % debt / GDP ratio in 2020 will not be achieved. But I think that it would have not been achieved anyway so we could consider this as a small step ahead.
Standard & Poor’s warns UK that it is possible that it cuts the AAA rating within the next three year. This should be a result of a delayed and uneven economic recovery, or a weakening of political commitment to consolidation. Another reason for this statement was the calculation of S&P that the debt/GDP ratio could hit 100 % from present day 80%.
Do you want to know who run the greatest deficits as % of GDP in the period 2008 – 2012? Ireland, Greece, Spain and the US. And they have had to fund It but nothing else just with more debt:
CPI inflation in China was 2%. Chinese consumers paid 2% more for goods and services in November than they did a year ago, the government’s National Bureau of Statistics reported Sunday. Last year inflation in the Country was 4% but the government tries to hold it under this number. The country´s trading surplus with the US hit the new record $29.5 billion. It was very common that the surplus was usually used to buy the US treasuries but it is almost a year when China stopped to buy them. Instead they started invested in commodities and realize new investments in Africa.
The US Food stamps program hit also a new record. The increase of Americans on this social program was the highest since May 2011. The one month increase was 607,544 new people and there are 47.7 million people on the program just now. It is more than 15 % of the population. The last week unemployment numbers were very positive (under 8%) but I would not be so happy to be president Obama. Almost 73% of new jobs created in last 5 month are government one. The total number of people employed in the US had climbed to 143,262,000 in November and the number of people employed by government increased by 621,000 to 20,559,000. These 621,000 new government jobs created in the last five months equal 73.3 percent of the 847,000 new jobs created overall. The U.S. government budget deficit just for the first two months of fiscal year 2013 was incredible $292 billion because higher spending for agriculture, Medicare, veteran’s affairs and other programs. And the fiscal cliff solution allegedly consist of some suggestion for spending cuts in the area of Medicare and other programs but the condition of Mr. Obama is also increasing taxes for 2% wealthy Americans. So we will see if they come to any conclusion. The fact is that they have just a few days for agreement.
Matúš Pošvanc