We have seen recently the ECB’s the announcement about receiving Eur137 B from 278 bank of 523 got use of the first round of the ECB Ltro offer with option of paying back after a year while the market was waiting for what’s lower than Eur100B showing no need to have this liquidity by the banking sector for getting over its current financial situation which looked improving to the markets specially since the recent reached deal of aiding Greece by the end of last November helping EURUSD to make its rally to the current levels.
While we are now again near October 2007 US stocks indexes rates in but this is not a real economic reaction as it is artificial growth and prices levels by the Fed which pumped cheap money turned into higher prices levels fueled by more than USD3 trillions from its balance sheet until now with open ended declared plan of pumping liquidity by USD85B monthly in mortgage backed securities and treasuries for driving down the yields giving higher chances for borrowing and easier crediting conditions.
These efforts of forming artificial demand could really help the economy to avoid harder collapse to reach the real demand of the economy which could lead to stocks prices below 1st March 2009 low.
But when the real US economy can be durable enough to pay back the Fed’s money which will be materialized paid anyway?
Is it when the inflation rate gets above 2.5% yearly or when the employment gets down to 6.5% to have this pumping of the Fed stopped?
And then the next option cannot be other way but turning back leaving behind this easing policy which has gone far beyond zero interest rate for reviving this economy which has been troubled by the end of last year fearing of fiscal cliff can be one of the ways by the US citizens get back to the real stance of the US economy as they will be the only ones to pay any way the price of this pumped money by the Fed for avoiding too big to fall investment companies controlled the global economy for centuries from their prosperity in the form of getting better creditability and better financial situation of the US government or not anyway the price of bailing out this economy will be paid one day by God’s will.
And the payer is no one but them in the form of higher taxes or lower public spending, it is not the issue which can be a matter of political fight but at the end, the US citizen is who will carry the cost.
But again will it be when the real US economy is durable enough to pay back the Fed’s money which will be materialized paid anyway?
In the beginning of this year after above 5 years of the beginning of the credit crisis, it looked not a suitable time to start.
But to who were not following my analyses during the crisis, I have said it as it is exactly materialized right now and even before all of these efforts by the Fed that “saving the financial sector will take from the creditability of US itself by God’s will”
Let’s say that it is to be with unemployment rate at 6.5% even if it is cannot be convincible soon, Will the US housing market can endure unwinding of the Fed’s balance sheet which can lead to collapse of prices even fearing of this movement not the movement itself can do that?
And surely, this stance of labor market cannot be without actual need of containing inflation for containing rounds of effect by new wages even with the personal income which rose by 2.6% monthly last December coming down.
But when we say that it is the inflation 2.5% yearly to end this stance of the Fed and it is the nearest to mentality, it is easier to be understood that the Fed will go tighter for containing the prices by standard measures like hiking the interest rate or unstandard measures by unwinding of its loaded assets in its balance sheet for avoiding facing the US citizens these prices which are themselves cost of what it has done before!
Anyway, the real stance now shows annualized shrinking of US GDP by 0.1% in the fourth quarter of 2012 without imposed any scheduled austerities measures for underpinning the US Governmental fiscal position. We have weaker consuming performance as the recent US consuming confidence data have shown by slumping to 58.6 in January but positively, we have had cheeriness after avoiding the fiscal cliff in the beginning of the year pushed several stocks and economic indicators up like US ISM manufacturing index which rose to 53.1 in Jan.
FX Market Strategist
Walid Salah El Din
Mob: +20 12 2465 9143