Investor's window  |  January 02, 2013 11:59:08

Fed in 2013 zafinancuje half the U.S. budget deficit

Few things are beginning to calm the financial markets so important as the fact that it was the beginning of the U.S. central bank will increase bond purchases in the third round of quantitative easing. While the Fed has bought bonds each month for mortgage-backed $ 40 billion. Since the new year for these purchases add an additional $ 45 billion a month in government bonds. In total, so his balance every month will increase by $ 85 billion.

The validity of these measures is unlimited.Strictly speaking, the Fed is likely to start only when limit when unemployment falls to 6.5%, which is in the current economic and fiscal situation in the United States essentially terminological derivative of the word unlimited. Assuming the Fed on its policy in 2013 will not change, so using simple math we find that the end of next year, had its bond portfolio inflate by more than a trillion dollars to approximately 3.8 trillion. Just an idea, one trillion U.S. dollars, ie one with twelve zeros is equal to approximately 7% of U.S. GDP, thirteenth salary for every American, including toddlers, or a tenth of the nominal value of all the gold on earth.

Why does all this and why another trillion? It should be emphasized that the central bank can not anything else. If the economy fails, they must reduce the rate. If the rate to zero and still fail, they print money. If printing money and still fail, they print money and so on and so forth.So at least says the monetarist doctrine.

Shortcoming of this approach is that with each stimulus Fed buys less money for the same music, which is especially obvious today, where the short-and long-term rates at historic lows, so there is nothing to stimulate. It is the difference drops to ten yields from 5% to 1.7%, or from 1.7% to 1.5%. Room for further rate cuts is now very limited and it is almost certain that the real economy impact of further trillion dollars does not count.

To the Fed, by decision greatly help the American government. From that falls trillion dollars in the next year of about $ 540 billion in purchases of government bonds, which will be about half of the budget deficit of the United States in 2013. So the Fed's monetary policy in the new year will be less about stimulation, as to maintain the long-term unsustainable and 2013 central banking closer again closer to its original, now almost forgotten purpose. This has been and probably always will finally financing lavish governments that do not have the courage to finance all of its spending tax collection.

Jaroslav Brychta

Jaroslav Brychta - principal analyst at X-Trade Brokers

  • He graduated from the Economic Policy at the Silesian University in Opava. The XTB operates since 2007, currently as chief analyst. It mainly deals with the analysis of exchange rates, as well as bonds, the banking sector and monetary policy. His professional articles and interviews contributes to most of the leading media.
  • Logo XTB X-Trade Brokers(XTB) is an international brokerage house that provides its clients with professional trading conditions for forex, commodities, stocks and options. Its services are constantly improving, as evidenced by a number of international awards and it is confirmed by the titles Broker Forex broker and year, obtained at the Investment Summit MoneyExpo 2012th

    In addition to the standard menu XTB allows Forex traders direct access to the market, thus enabling them to reach the lowest spreads. Beginning options traders can use the optional possibility of opening an account with no minimum deposit of 2500, - CZK. For XTB offers its clients advice on trading, 24 in the Czech language support, free training courses and daily news from the financial markets.
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