The collapse of stock indexes and the decline in the value of commodities to multi-year lows for many was a shock. But sooner or later it had to happen, because the National Bank of developed countries to inject trillions of dollars into the markets after the 2008 crisis, which has not been transformed into investments in the real economy. The question now is whether the US government and China keep the world from a new crisis.
Weeping and gnashing of teeth… Global equity markets continued to decline against the backdrop of the situation in the Chinese market and disappointment in US stocks, – described what was happening in the last days in the global markets.
The fall in stock markets began on Friday. The formal reason was the publication of the index of business activity in the manufacturing sector in China, which was weak (47.1 points), confirming investors’ concerns about an economic slowdown in China.
Such a two-day decline of quotations (7.0% more) were observed in December 2008. Then, within two months, the S & P 500 stood out about ten days unfavorable when the two-day fluctuations exceeded the current scale of the changes, – noted in Sberbank cib.
On Monday, the Chinese Shanghai Composite Index fell 8.5%, the European stoxx Europe 600 index fell 5.3%, the British ftse100 lost 4.67%, while the US S & P 500 finished trading lower by nearly 4%.
On Tuesday, the stock markets of the Asia-Pacific Region (APR) finished trading mixed: while some markets started upward correction after the recession of the previous day, the Exchange of China and Japan have shown a negative trend (in particular, the Shanghai Composite Index fell to 7.63% and the Japanese Nikkei 225 fell by 3.96%). After the Black Monday, the major stock indexes in Europe closed Tuesday trading in positive territory. At the same time, the US Dow Jones Industrial Average set a new anti-record. For the first 119 years of its existence it for four days in a row was down more than 200 points. S & P for the day lost 1.35%.
Investors are waiting for decisive action from the Chinese authorities to stimulate growth. But the beginning of the recent devaluation of the yuan only added questions and generated new fears. This time, there were suspicions that Beijing will start a currency war with the United States and other countries, which threatens to further undermine the stability of the financial markets and world trade.
On the other hand, there is the impression that the Chinese authorities to control the situation, he said in an interview with Bloomberg head strategist at the bank of the SEB Group, Thomas Thygesen.
All this is happening against the backdrop of the ongoing soap opera with an increase in rates by the Federal Reserve System USA. The next meeting of the Committee on Open Market, the Federal Reserve in September, and at least up to this point the markets will continue to be in limbo. If rates are raised, it will lead to rise in price of the dollar and further weakening of other currencies.
While the monetary authorities of China and the United States maintain a high level of uncertainty as to their actions, even in the short term, the markets continue to storm. Of course, in the troubled waters many traders make a fortune, but the situation is too unstable, and a new collapse can happen at any time. By and large, the global economy and could not recover from the crisis of 2007-2009, and enter the path of sustainable growth, and the world stands on the threshold of new shocks.
Evidence of this are many. Developing economies are stagnating, many greatly devalued currency. The Chinese economy, as already noted, brakes. GDP growth slowed down to 7-10% per year to 6%. Exports and imports are falling, and the stock market bubble deflates. The next real estate.
The EU as a whole and the euro area in particular are in a state of recession or weak growth (for example, this year, Moody’s expects an increase in GDP of the euro area by 1.5%). Plus EU officials have been unable to find a solution to the Greek problem. Even the current compromise when the country will allocate new loans in exchange for a reform seems just another timeout. Now, Europe will still have to deal with hundreds of thousands of illegal migrants that will not add to drive the economy of the Old World.
US formally in 2009, came out of the recession and unemployment have overcome, but economic growth was low. But the real picture of what is happening in the world’s largest economy is hidden from the general public. As recognized in July this year, the Bureau of Economic Analysis, US Department of Commerce (BEA), it regularly inflates the quarterly figures for the GDP growth rate since 2011.
In some cases, the scale of fiddling up to five times per quarter (as in the third quarter of 2013 GDP grew not really by 2.5 and 0.5%). As a result, it reduced the annual growth rate of GDP in 2012 from 2.3 to 2.2%, in 2013 – from 2.2 to 1.5%. US statistics regularly show the wonders of manipulation. For example, in the first quarter of this year, decline by 0.2% after a clarification was replaced by an increase of 0.6%.
Around the same way they dealt with unemployment. Temporary and part-time help to improve the statistics (now the unemployment rate in the US is 5.3%), but did not make the situation on the labor market more healthy. According to the critics, busy said US statistics, for example, even the person who has sold something for $ 100 per month on the internet auction eBay.
It is also important to note that both the EU and the US, in fact, ended the era of the consumer economy. Demand over clocked to unprecedented heights by increasing the volume of lending, the de facto ceased to increase. Sales of the largest US retailers do not grow for eight years. Even a minimal increase in prices, and even deflation, caused by falling oil prices, increases consumption only within one and a half percent per year. And it’s a huge problem, because the same US consumption accounts for about 70% of GDP.
GDP growth in the US and the euro zone is not strong enough to prevent the global deflationary shock, – said Thomas Thygesen. Attempts by the national authorities to withdraw the country from the recession with the help of pumping the economy with cheap (actually free) money given little effect on the real sector, but led to the formation of bubbles in global financial markets and real estate. Only the US Federal Reserve has poured into the financial sector more than $ 3 trillion over 2008-2014. Almost six years, the rate is at the level of 0-0.25%. Approximately the same rates now the Bank of England, the European Central Bank, the National Bank of Japan. At the same time governments are building up debts of the past decade. The US national debt now stands at about $ 18 trillion (that’s a little higher GDP), the EU – € 12 trillion (87% of GDP). The excess free money led to very strange distortions, creating, for example, Europe’s pool of government securities trillion euros with a negative yield (adjusted for inflation). That is, the lenders pay their debtors.
Since none of the world’s leading economy is not growing rapidly, and those that were growing, began to slow down, falling commodity prices. The raw index, calculated by Bloomberg, on Monday fell to a minimum in 1999.
No metals or energy is not needed in the current volume of the global economy. The oil market, as it is known, adding the problems of Saudi Arabia and other Middle Eastern countries, to pump up the oil market is unnecessary to keep the level of quotations on the lower level and crush competitors from the United States, producing shale oil.
Outcome sad – the devaluation and the inability to enter the high growth rates. For the US, it is also a reduction of tens of thousands of jobs in the oil and gas industry, and the threat of default under the dialed shale project loans. Thus, the current situation in the world economy seems very unimportant. A huge amount of free money will not disperse it, and turned into a clumsy dinosaur that could collapse at any moment.
The popular portal Zero Hedge, known for its alarmist publications, no doubt, will soon begin a new round of crisis: We came the bad times. The only question is the date. The fact that almost all the major emittion centers of the world have resorted to a policy of cheap money (and have done so very effectively), means that if in the near future will be a new crisis, the ways to deal with it will be a little.
According to The Wall Street Journal, on traditional instruments can not be calculated as follows: interest rates are at zero, tax incentives for high levels of public debt is complicated, and a potential increase in the budget deficit due to the retirement generation of baby boomers.
Of course, there is still a lot of chances that the Federal Reserve, the People’s Bank of China and the authorities, and the EU will be able to find some ways to support growth. You can believe in the words of the French President Francois Hollande, believes that the world economy is strong enough to have growth prospects, which depend not only on the situation in China. Although, frankly, even in France the word Hollande is not taken seriously.