Better tomorrows are not coming

What was not successful strategy in Germany was successful in Austria. For the first time a pure euro skeptic party founded by billionaire Frank Stronach will enter into the Austrian parliament, with 5.8 percent of total votes. It seems that euro skepticism is a one of the new political movement connected with the outcomes of join European project. This is not anything new for EU leaders. As during old socialist times the most important academics, policy-makers and politicians gathered in Brussels to discuss the future of EU. Actually, there were more pessimists than optimists. The pessimism was connected with economic stagnation, high young unemployment and so called lost decade. But we could see the same solutions and suggestions as in the last decade. Our main problem is not about political will and the ability of our political leaders to explain what they are trying to do but about too much regulations, indebtedness, high taxes and elimination of market forces.

We had ECB monetary decision this week but as accepted nothing happens. All basic rates remained at the same levels. The only surprise could come with some announcement of third round of LTRO but Mario Draghi did not mention anything like this. We also had a quite big frustration about the political activities in Rome but Silvio´s party finally supported present government and we could feel one big breathe from Brussels and ECB. Otherwise we could finally see what really means OMT mechanism from the EBC.  For now everything stayed calm.

During the summer period, France announced some economic growth. After that, new surprising information has appeared. It seems that the aim of the French president François Hollande, to reverse the unemployment trend, would come true. In august, the unemployment rate has lowered by 1.5 %. It was the first time that the rate of the unemployment has lowered since 27 months. 277.500 job-seekers were deleted from the list of Pôle emploi (the French Job center). The French minister of Labor, Michel Sapin has considered the celebrations as too early. Finally, he added that these were the first positive numbers and that the policy conducted by the government was the right one. However, this enthusiasm did not last for a long time. On Monday, Pôle emploi has announced that the result was influenced by a bug. The French telephone company SFR, which is responsible for sending messages to persons registered at the Pôle emploi, has sent messages but these persons have not received them. Thus, their situation has not been updated. It means that the unemployment rate has really lowered but only by 0.7 or 0.9 % not by astonishing 1.5%.

First Spain forecasted its debt to almost 100 % GDP, precisely 99.8 %. Four days later the Economy Ministry issued a correction to 98.9 %. As spokesman of the Ministry said it was caused by person who just switched last numbers. But this figure is not important anyway because we have to look at the trend. The trend is set up very clearly. More and more debt. Spain had public debt on the level of 68.5 % of GDP in 2011, to have 85.9 % in 2012 and Prime Minister Mariano Rajoy believes that this year Spain will end with debt of 94.2 % of GDP. Spain is definitely a big problem for EU.

Bank of Japan has not changed its policy at all. The Policy Board of the Bank of Japan decided, by a unanimous vote to proceed to increase monetary base at an annual pace of about 60-70 trillion yen. The purchases will consist of Japanese government bonds, Exchange-traded funds (ETFs) and Japan real estate investment trusts.

The US was on the radar of everybody this week. The debt ceiling issue and so called shut down of the federal government had moved by markets all the week. Frankly speaking there is nobody who really thinks that the ceiling will not rise. It must. Otherwise it will be a real chaos. Everybody is talking about.

debt_ceiling

Failure to raise the U.S. debt ceiling could damage not only the United States but the rest of the global economy according to the International Monetary Fund and the same opinion is held by nobody else than Mario Draghi. The fact is that this political issue is on the radar of all investors. American banks for example are afraid also from the reaction of public. They allegedly stuffed ATMs with more cash in the case of panicked withdrawals. We should provide just two interesting points connected with this state of affairs. First of all the so called shut down is only imaginary. Everything works like any other time. It means that approximately 85 percent of all government activities are actually being funded during this “government shutdown” and approximately 1,350,000 “essential” federal employees will continue to work during this “government shutdown”. You will receive mail, public school stay open, FED is printing, air traffic controllers will continue to monitor traffic at US airports and so on. All people know that it is impossible not to increase debt ceiling and the debt of the US government. The debt is right now more than 106 % of GDP or 16 trillion USD and it will rise. So the crucial question is where is the end? Frankly speaking it is precisely at the time when investors became very cautious to lend money to the US government. Otherwise we will see only one thing. They will increase their debt ceiling once again and once again. So this is not the last time it going to happened.

Matúš Pošvanc

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