Debt Industry: metaphysics of the US elections

 Janet Yellen, the second time this week announced the possibility of purchasing shares, and second market practically did not indicate any reaction to these, in fact, the policy statements. And here we turn, as they are directly related to the Fed's further plans.

Thus, we assume that the Fed really intends to raise rates in December and, moreover, to tighten it to the target level of 3%, if not in 2017, then at least in 2018. What are the implications of these steps?

In an attempt to understand look at the semi-annual report of the US Congressional Budget Office (Congressional Budget Office, CBO).

Budget Office - the independent agency, not subordinate to any political party, his task - to give the Congress a real picture of the state of the national economy, without any recommendations.

Twice a year, the Office, together with OMB present a report that evaluated the probability of exceeding the maximum allowable deficit, calculate the volume of budgetary resources for a possible sequestration, and most importantly - preduprezhdyut Congress of the decline in production, which may lead to a rising budget deficit.

In other words, the CBO stands on guard of the budget, and therefore its estimates are more or less objective character, which is taken into consideration by all parties.

So, what we reported another report published in August? And he says as much about the probability of a recession, even without taking into account the possible growth rates!

Despite the fact that the CBO expects nominal GDP growth of about 4% per year in the run up to 2016, it is unclear due to some factors, this growth will be maintained. Judge for yourself - the growth of consumer spending to slow from its current level (4.3% in the second quarter, the latest figures) to about 2% per year over 2-3 years. business investment growth in the basic means of production will remain at a very low level, which would not allow any to upgrade production facilities, nor rely on the growth of corporate earnings.

Due to the rising interest rates and the inevitable growth of the federal debt interest payments the government will grow nearly 3 times during the next 10 years and 2 times in relation to GDP. The implications for the budget, and for the state as a whole will, according to the CBO, quite serious:

          - Budget spending on a growing debt service will increase significantly as a result of rate increases;

          - Labor productivity will decline, overall wages will decrease, with the result that lower and the total wealth of the nation;

          - Reduced room for maneuver in spending;

          - As a result, significantly increase the likelihood of a new financial crisis.

Obviously, at the same time with the growth rates required to take and powerful measures to stimulate the economy, and above all to prevent the collapse of sulking in recent years bubbles.

In the first place, this conclusion applies to the stock market, and the words must be understood literally Yellen - the Fed is preparing a package of measures designed to replace the mechanism buyback (repurchase of shares).The inevitable tightening of credit conditions hamper companies' access to resources, plus they will be more expensive, but the Fed will take over part of the problem by buying the stock market on its balance sheet, that is actually going on the way of Japan. This will keep the capitalization companies, and most importantly - their investment appeal, ie the launch of this mechanism may lead to inflow of foreign capital into the growing stock market.

Another point - consumer debt. By the end of 2016. its total volume will be about 14 trillion. USD., or 77% of GDP.CBO predicts growth of debt to 23 bln., Or 86% of GDP in the coming years, approximately $ 1 trillion. in year:

As is known, household reluctant to take out loans and, on the contrary, increase the savings rate when you are not confident in the economic growth. Now this is the situation - demographic changes are negative trends (aging population and a decrease in the labor force in the total population), the lag in growth of average wages from productivity growth, which also has the lowest rate of the last 40 years.

Due to what we can expect credit growth? Only through new, large-scale stimulus measures, consumers need to be convinced that their real incomes are growing, but not reduced. So, should reduce the risk of collapse of the pension system and compression system of social benefits, are expected to grow deposit rates, the yield on the securities, and most importantly - higher rates should start rising real wages.

All this, I remind you - on the background growth of the budget deficit. To achieve a similar effect without massive stimulus is impossible, and therefore our conclusion is quite clear - the Fed is preparing a powerful package to stimulate the economy, which, apparently, will be complemented by government measures aimed at domestic protectionism, as for the success of these measures largely need to be localized within the United States.

The obvious consequence for the rest of the world is exactly what they will, by design, to pay a significant portion of future costs. This means tighter credit conditions for foreign borrowers, credit crunch, and as a consequence - increase in demand for the dollar since December and increased its global status.

According to the materials of Alpari