U.S: Low rates the Fed strengthens the certainty of the proximity of a new crisis
The change in Fed policy was completed on 31 of July, It was announced by J. Powell at the G20 Central Banks meeting. It was held in Japan on the weekend of 8 Y 9 last June. There in an atmosphere of concern about the progress of the trade war between the United States and China, reducing trade and cooling global economic growth, the president of the FED, He announced to his colleagues in Europe and Japan that he would “do whatever is necessary” to maintain the growth of recent years in the US economy..
It didn't take long for Powell to be forced to make good on that promise and the 31 of July, after eleven years, The FED lowered its reference interest rate again in 25 basic points, leaving the door open so that at its next meeting in mid-September it could proceed to a new reduction.
Beyond the pressure that Trump has been exerting for this to happen and for the decrease in the cost of credit to be even more pronounced, The fact is that the reduction coincides with a drop in the growth of the Yankee economy, which went from having grown 3,1% the first quarter of this year 2,1% in the second quarter. What an alert means for the Central Bank of that country.
At the same time, Trump ended the fragile truce that he agreed with China at the G20 summit held in Japan and once again threatened to raise tariffs on 300.000 millions of dollars in products imported from China that were still outside the sanctions as of next 1 of September. China responded with a devaluation of its currency, expanding the battlefield from the commercial and technological field to the monetary field.. The noise of a new crisis in the world economy that is approaching is in the background of these movements.
Flat growth, disappointing and declining
The data, perhaps more worrying, What drove the rate drop in the United States is the disappointing growth of its economy. Although it is true that it is going through the longest period of growth after a crisis, It is no less true that this evolution is also the lowest and therefore it is disappointing. It was not enough with the colossal elimination of taxes for corporations implemented by Trump among 2017 Y 2018, whose effect was exhausted without boosting production. This reduction in rates applied by the FED, which caused a negative reaction in the international financial market, does not seem to be either..
The fact is that the lack of productive investment, engine of economic growth continues to slow and was the lowest in the second quarter of 2019, the same as the impact of the tariff war that has resumed these days, aggravated by the devaluation of the Chinese currency on 5 of August, what makes bragging, according to all analysts an even more pronounced slowdown in the world economy.
On the other hand, this fall is also beginning to be felt in the labor market in the United States., Last May was the month with the lowest job creation, setting what could be a trend. The same as the weakness of salaries that have reduced their participation in the North American GDP a 15% since the crisis of 2009. Under these conditions, a recession perspective in the United States is approaching and there are already specialists who predict that by the end of this 2019 the possible appearance of that crisis.
Europe and Japan are not recovering either
Without evaluating the shadow of Brexit that covers Europe and the consequences on its economy, the other G7 countries, That is to say, the rest of the imperialist countries such as the Europeans and Japan do not show signs of recovery either.. On the contrary, the main European: Germany, reveals clear symptoms of decline in the main productive indicators. Thus, the May indices show the fifth consecutive month of contraction in the industrial sector, dragged down by the fall of its automotive industry.
For its part, economic activity in Japan also continues to decline., so much so that the main indicator used by the Government of that country, the Economic Conditions Index, has classified the situation of its economy as “getting worse” and although this does not automatically mean a fall into recession, “There is growing concern about an economic recession” according to the spokesman for the Barclays investment fund.
In this sense, it is necessary to highlight that the G7 countries, with the exception of the United States, have been maintaining a policy of interest rates close to 0%, since they lowered them eleven years ago during the outbreak of the crisis 2008. Perhaps the most emblematic case is that of Japan, whose Central Bank maintains a negative interest rate and which has bought almost all of the government's debt and a large part of its corporations to try to pour money into investment and consumption without achieving its objectives..
Emerging countries are already in recession or one step away from it
Outside of imperialist economies and China, important so-called emerging economies that make up the G20, They are already in recession, this is the case of Argentina, Türkiye and Pakistan, while other largest ones such as Brazil and South Africa are one step away from technical recession, although the dynamics towards there would seem unstoppable taking into account the escalation of the US – China trade war..
But what shows that the economists of these countries have not understood the world of the Long Depression that we have been going through since 2008, is that they bet that the reductions in interest rates in the United States would open the flow of dollars again, even if it were only for financial speculation towards their countries. Y, What is actually happening is the opposite.. A strengthened dollar, that seeks refuge in long-term US Treasury bonds although the yield may become negative. This happens because the certainty of the proximity of a new peak of the global economic crisis is growing in the world..
Carlos Carcione
