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Saturday, March 24, 2018

The ruble will collapse under the pressure of a strengthening dollar

Annual Symposium of the leading financiers of the world, sponsored by the Federal reserve Bank of Kansas city (one of the 12 FRB within the Federal reserve system of the USA was, as always, in the mountain resort of Jackson hole in Wyoming. This year it was attended by the Chairman of the fed Janet Yellen, who was absent a year ago; but the President of the European Central Bank (ECB), Mario Draghi was neither then, nor now.

photo: Dmitry Katerinov

But, of course, not in a physical presence in Jackson hole Central bankers of the planet. The main thing — to find solutions to the acute problems facing the global financial system to prevent a recurrence of the crisis of 2007-2009. On the eve of the Symposium, Deputy Yellen, Stanley Fischer, said that monetary policy — raising or lowering of interest rates may not spur up to the required speed the growth of the world economy. But, as noted by The London Guardian, the governments of leading countries of the world remained deaf to calls from the banks telling them to abandon the policy of “tightening belts” and instead encourage investment, the growth of labor productivity.

Without this, the efforts of Central banks does not bring results — helps neither the reduction in interest rates to zero and below (below in Japan, Denmark, Sweden, Switzerland) or the injection of trillions of dollars in the global financial system. According to calculations of the International monetary Fund, this year global growth will remain anemic: the U.S. GDP will grow 2.2% (many experts consider this an unrealistic forecast in the second quarter, S. G., GDP rose only 1.1%), in Japan by 0.3%, in 19 countries of the Euro zone of 1.6%. Remains elusive goal of the fed, ECB and Bank of Japan to bring inflation down to 2%: she stubbornly kept at unacceptably low levels, in Japan prices are falling, and in Europe and America are barely growing. In the US, business investment declining for three consecutive quarters, and the retail consumer is making less purchases on credit cards than before the “great recession” of 2007-2009.

Some experts believe that Central banks generally do not say and do not do so. So, a columnist for The Washington Post Sebastian, Mallaby writes that Central banks, being obsessed with the idea of stabilizing prices, has ignored its historic task — to stabilize the financial system. The US Federal reserve, indicates Mallaby, not only puts into question (and should be) the feasibility of inflation targeting — setting specific goals in terms of inflation, but started to apply a specific guideline, namely 2%. Meanwhile, there is no conclusive evidence that 2% better promote economic growth than the 3% or 4%, and that price stabilization as such, for economic benefit.

And yet the movement of the interest rates of the Central Bank leading economies — primarily the United States — remains Central to hopes for a recovery in the global economic organism. That is why politicians, economists and investors are eagerly awaited speech in Jackson hole, the fed Chairman Janet Yellen. The Guardian recalls that in 2013, when the fed first hinted at the possibility of increasing the base interest rate (based on the assumption that the situation is getting better), the global financial markets, “the stone fell down.” Weak GDP growth of industrial countries and slowdown in developing countries (Brazil, Russia, Turkey, etc.) forced the Federal reserve if not to abandon its intention to raise rates, almost to reduce him to nothing. In December 2015 the fed barely grind the rise in the discount rate by 0.25%.

Although a year ago, Stanley Fischer with optimism spoke about the prospects of 2016, the optimism, the fed has knocked down a British referendum on leaving the EU, a slowdown of the US economy and huge amounts of loans taken by governments and corporations (especially developing countries). The bulk of these loans are denominated in dollars, and if the fed will raise its discount rate, the dollar will become more expensive respectively, loans will be harder to return.

The appreciation of the dollar by increasing the rate of the Central Bank of the USA hit “rebound” by Russian currency. This, as repeatedly wrote “MK”, may appeal to the Government of the Russian Federation, which makes up and fulfills your budget in rubles, but will hardly suit the tastes of ordinary citizens — they will quickly feel the impact of more expensive imports to your pocket.

So whether or not the rate hike, the fed’s accompanying increase in the dollar? Janet Yellen gave a mixed assessment of the economic situation; it made the intentions of the fed with their usual all CB caution: “it seems to Me that in the last months there was more reason to raise the Federal funds rate”. He added: “of Course, our solutions always depend on the extent to which the incoming data confirm our assessment.

Translated from banker universal this means that if in America and in the world will not happen nothing catastrophic, the fed’s interest rate obviously, this year will grow — probably not much and only once. But it will suffice for the appreciation of the dollar (as us assets become more attractive to investors) and the depreciation of the ruble.


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