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Tuesday, 29 October 2013

Stuck in a liquidity trap!

The U.S. have " caught " have been buried alive in a way, the " trap of quantitative easing » (QE-trap) - with little chance of escape. In such a trap is driven by the central bank when , in an effort to increase liquidity , buying long-term bonds - resulting , at that time, to decrease the corresponding rates , a "trend" above the normal .

This means in turn that the growth rate of the economy is recovering , returning quickly to previous levels - though one can not determine the exact amount , much less how it can be maintained.

However, when growth returns , grow fast long-term rates (Figure I) - because bond buyers worry that the central bank will start reducing liquidity.
Αποδόσεις 10-ετή ομολόγων Αμερικής. (*Πατήστε στην εικόνα για μεγέθυνση)
With a simple example , it is like one is in the fast lane (in this case the economy to growth ) , where suddenly forced to stop presses the accelerator (reduction of QE), unable to overcome the adjoining car.

The increase now term interest rate reduces the demand in those markets, which are " interest rate sensitive" as in car loans and property - thereby limiting the growth rate accordingly . This requires the central bank to further increase liquidity , open up even more then the tap to reduce long term interest rates - so the whole process starts over , repeated continuously.

On the other hand, the main problem of the economy remains unchanged - after experiencing an era debt states, businesses and households. The result of over-indebtedness is not only continuing credit crunch , but the failure to develop world trade - where both imports and exports show signs of fatigue seriously.
Εμπόριο Αγαθών παγκοσμίως:  1. Τέρμα πάνω (κόκκινα κουτιά): 0,3  ο όγκος του παγκόσμιου εμπορίου το β' τρίμηνο 2013 και -0,8 όγκος τον Αυγουστο του ίδιου χρόνου.  2. Ακολουθούν τα στοιχεία  ΕΙΣΑΓΩΓΩΝ για Αμερική (0,8), Ιαπωνία (1,5), Ευρώζώνη (-0,1) και Ασία (-2,7).  3. Τέλος, τα στοιχεία ΕΞΑΓΩΓΩΝ για Αμερική (0,9), Ιαπωνία (6,4), Ευρώζώνη (0,9) και Ασία (0,3).  (*Πατήστε στην εικόνα για μεγέθυνση)

World trade fell by 0.8% in August compared with the previous month, while industrial production worldwide increased by only 0.3%. In most major regions of the world, excluding the U.S. and Japan, imports fell - and also exports to developing economies.

The "promises" then U.S. President, according to which would double exports superpower within just five years, it is doomed to be disappointed - because not all countries together to increase their exports, especially in such a global environment (something as for Europe, since otherwise fails austerity policies imposed by Germany).
Up to " recover " So (if ) the global economy , the Fed should continue to hold " down the throttle ' , provide an ever- new liquidity , hoping to overtake the next car - obliging and other central banks planet to mimic . The above evidenced inter alia by the recent decision of the Bank of England, on the use of the same method.

The money of course end up in financial markets, as investors shun be placed on the real economy due to the recession - which , on the one hand feeds the dangerous bubble shares , secondly unemployment, as shown even in those countries which are interested particularly for jobs .

In particular , several companies in Sweden and Denmark reduce their number of employees by addressing issues in mood, especially in the export market - with the result that further fueled the global recession, which will lead to further increase in liquidity from the central banks coke .

Now in the case of Spain, where attempts to spreading false hopes about the exit from the crisis (recovery), financial data documenting the exact opposite  - by increasing these indices to result solely the excess liquidity by central banks.
Πτώση αιτήσεων για ενυπόθηκα δάνεια κατά σχεδόν 90% (*Πατήστε στην εικόνα για μεγέθυνση)

In the figure above III clearly shows the decline in mortgage by almost 90% since the beginning of the crisis - which denies the recovery of the economy. In the next chart, the credit crunch in the country demonstrates the enormous weaknesses in the real economy - which is even greater than the corresponding in Greece.
Πιστωτική συρρίκνωση στην Ισπανία - σε μη χρηματοοικονομικού τύπου επιχειρήσεις (μπλε) και σε νοικοκυριά (καφέ)
As we can see , loans to Spanish businesses have fallen by almost 20% , so it is impossible to speak of " reversal ". The same is true across the Eurozone , leading to continued recession and unemployment - forcing the ECB to mimic the policy of Fed, until the " terminal decline ."

You might assume now that Germany is in a better position , having large surpluses in the current account . Besides that greater stock indicators also due to excess supply of liquidity by central banks.

But this is , as we substantiate in a next analysis us, wholly erroneous conclusions, which do not correspond to reality at all - let alone when German companies laying off more employees .

writter is vasilis viliardos article from www.analyst.gr