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Main » 2016 » October » 27 » Direct obvious threat: fears that the US Federal Reserve
Direct obvious threat: fears that the US Federal Reserve


Direct obvious threat: fears that the US Federal Reserve

The Fed failed to convince investors that the end of the year the key rate will be raised by a quarter per cent, but the reasons why the Fed is going to make this decisive step, is still inconclusive, the state of the US economy from the experts is likely skepis than optimism, and there a reasonable question - what is real, not far-fetched reasons for the tightening of monetary policy?



Let's try to identify one possible cause, especially since it is usually behind the scenes, which will compare the position of the United States and China in terms of participation in the world economic sectors.

China has sustained current account surplus, that is, China, in fact, the lender to the rest of the world, because it produces more than it consumes, according to the results of 2015 the surplus amounted to 2.7% of GDP.

The United States, by contrast, is a debtor, ie the borrower for the entire world. Consumes more than it produces, and therefore have a sustained current account deficit, which by the end of 2015 is the same 2.7%.

However, the state of the current account is determined not only by the structure of the trade balance, but also the state of foreign assets with liabilities. 

Net foreign assets of China account for about 20% of GDP. It's quite a lot, but what is the income received China on its assets? Income is negative and is equal to about -0.6% of GDP by the end of 2015 That is, foreign assets at a loss for China?



Quite the opposite picture in the United States. The net external position is minus 40% of GDP, but the income is positive, about 1.2% of GDP in 2015, that is a huge liability generates a profit!



This surprising result is explained by the fact that China and the United States are different in quality assets.China, with a current account surplus, forced part of the surplus dollar placed in foreign assets. The higher surplus, the more excess, and the only asset that is always available in any volume - it is low-yielding US Treasury securities. Accordingly, for its obligations, China is paying full interest on assets and forced to settle for a minimum income.

In the US, the situation is the opposite - the assets mainly consist of portfolio investments, which investors receive a high income, and US obligations to pay measly percent.

In similar conditions, are all developing countries. To remedy the situation you want to change the structure of the economic system, which is what happens, in particular, in Russia and China.

But if Russia in terms of GDP can not make the United States to compete, here are the actions of the Middle Kingdom to the stability of the current financial system much more clear threat.

Herein lies one of the reasons the Fed haste, and not the mantra of the US economic recovery. It is necessary to keep the status quo, need to stop the exodus of foreign capital, which is required to increase the return on assets to re-make them more attractive.

The fact that China is working to change the structure of assets, say the figures in recent years. China's foreign exchange reserves peaked in June 2014, when they accounted for slightly more than $ 4 trillion. USD., and since then it has been steadily declining, losing about one quarter of the maximum. Usually China are advised to take action against the outflow of capital, they can be in a variety of restrictions and controls the purchase of foreign assets or tightening of monetary policy, however, China is becoming more and more obvious, does something entirely different - sell low-yielding assets and resources guides on the rise the internal market. In 2008-09, investment in China in the production and fixed assets amounted to 25 to 40% per year, and did not decrease even during the crisis, now an annual growth slowed to 8.1% (data for August 2016).

Indicative changes in the import structure. For example, coal imports increased in the current year is due to the fact that in order to improve the profitability of policies and tightened its own production conditions, an increase of 38% on an annualized basis was changed. Oil and iron ore grew more modestly, by 18% and 8%, respectively, and it is a sign that China's economy continues to grow, despite the crisis. But it falls, as it imports copper, and so this is the same criterion that points to future changes.



Copper is a metal that is used primarily in the production of products of high processing -. Electronics, automotive, household appliances, aircraft, etc. If oil, coal, iron ore - the raw material, oriented primarily to the domestic market, and volumes imports of these raw materials are rising, the reverse situation for copper indicate that China is willing to lower exports and reorientation of the economy towards domestic demand.

In order not to give leave to the Chinese capital (and more broadly - the capital of all countries with a surplus of foreign trade, and especially the oil exporters), it is necessary to increase the appeal of Treasuries, it is necessary to ensure that they are more profitable. Therein lies one of the reasons the Fed haste. Continued soft policy will lead to the fact that countries with a trade surplus will continue to come out of US assets, that is, cease to finance the US debt. A forecast of the Budget Committee of the Congress, as we have noted earlier, it is necessary that the inflow of foreign capital has not faded away, as the budget deficit will grow.

In this scheme fits and rising raw material costs. On December 22, just after the Fed meeting, will come into effect new regulations that hinder the possibility of US banks (and, in the broadest sense - financial holding companies and hedge funds) on trade and possession of natural reserves of raw materials, which among other things means and cancellation conditions operating since the early '80s


According to the materials of Alpari


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