Short Term Trading forex trading links forex trading books market statistics trader values euro and us dollar Shocks Crashing U.S.: Debt Remains a Challenge

Sunday, 25 March 2012

U.S.: Debt Remains a Challenge

(Image by antony_mayfield via Flickr)
The U.S. debt is a problem that nobody wants to face. The U.S. dollar should fall again, despite current equilibrium.

QE3 is still an option.

The labour market could strengthen further in the coming months. It should fuel the economy and stimulate inflation. Eur/usd is oscillating between 1.35 and 1.26. Nonetheless, the longer-term prospective is bearish for the greenback. The federal budget deficit is a top priority, but nobody wants to deal with it right now. However, debt has to be paid and the yield of the ten-year Treasuries is pushing higher. So, for Mr. Bernanke, QE3 remains an option. It would contain bond yields and also postpone the solution of the huge debt. The tail of the crisis is not over yet. In effect, while non-farm payrolls have improved tangibly, the household survey has given more volatile results.
The gap among various regions stays high. The south has shown the strongest rebound lately. At the contrary, the comeback in the north-eastern states has been mild so far.  Wages and hours worked are not competitive. Confidence is low. Unemployment could rise again over the longer-term, before eventually collapsing. Debt has improved among households, while student loan debt is at around 6% of the G.D.P. According to the New York Fed, one-in-four students have fallen behind repayments. The strain might continue for few more years, thus eventually limiting the economic growth.
Hungary is under focus again.
Recession is unfolding in Europe. Austerity measures weigh on the economy, especially in the southern countries. Greece is saved for now, but problems will surface, once money will run out again. Athens dropping out the euro zone within few years is a realistic possibility. On the other hand, Spain and Italy are working hard in implementing the reforms, but the road stays tortuous. Parties in Italy are battling the new law that will change the labour market regulation for good. The support of most groups is critical for Monti’s survival. As the crisis is fading, the E.U. is focusing on other issues.
Hungary, as an example, has already been sanctioned by the E.U. Nevertheless, the country is not following up with the austerity plan. The fiscal challenge is not the only problem between Budapest and Brussels. In fact, the populistic coalition of Prime Minister Plan has implemented various authoritarian laws to bring the Hungarian society under a firm grip. It has altered the Constitution and changed the electoral system. The government has increased the influence over independent entities such as the central bank and the judicial system. A far right state in the heart of Europe would set a negative example for other countries.  
What will happen to the euro zone is yet to be seen. Nonetheless, the U.S. dollar could increase 40%/50% from the bottom and the trend could last for 5/7 years. The new dollar’s cycle should coincide with a top in commodity prices. When will it happen? In the past 80 years, bull trends in commodities continued for 12/13 years before reversing. The last bull-trend began in 2002.
Angelo Airaghi,
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed, neither the information presented nor any opinion expressed constitute a solicitation of the purchase or sale of any forex, futures or commodity product. Those individuals acting on this information are responsible for their own actions. Forex, futures and commodity trading may not be suitable for all recipients of this report. The risk of loss in trading forex, futures and options can be substantial. Each investor must consider whether this is a suitable investment. All recommendations are subject to change at any time. Past performance is not a guarantee of future results. Please Note: All performance figures and illustrations were obtained using historical back testing on a computer and are not the results of an actual account. No guarantee is inferred that future performance will be like the results shown. Futures, forex and options trading involve risk. There is a risk of loss in futures, forex and options trading.


Juan Fernando said...

There is not a single policy I've read about reforming the tax code which has not been greeted with harsh level of resistance, establishing that issue one of several toughest difficulties struggling with United States immediately. It is unjust, no matter what part of the discussion you fall on. To maintain the degree of services states provide, at the same time lacking the government income of yesterday, lots of states have got resourceful measures to gain back tax income. This isn't a tale:

ProfitsOn said...

Can you make few example about the "resourceful measures"?

Thank you.

Post a Comment