Investor's window  |  February 27, 2013 11:42:40

What happens when the Fed stops printing money? In connection with the last published article , which took issue over a possible cyclical development of U.S. equity indices and their potential drop by the end of 2014, perhaps many think about what could have triggered such a dramatic decline in the financial markets. Although we have no crystal ball and we can not even say with certainty what will happen in a few hours, maybe subconsciously some suspect that monetary easing program in the U.S. (known under the term quantitative easing QE), which smacks of big trouble, would beeconomic shock could take care of. What is the impact on the financial markets could have a definitive end expansionary monetary policy in the U.S.?

Recent dramatic drop in U.S. equity markets, we experienced in late 2008 and 2009 after the financial crisis peaked in the fall of U.S. investment bank Lehman Brothers. At that time the decision by the U.S. central bank (Fed), which began the first round of QE, can not have her boss Ben Bernanke apparently none as bad as significantly helped to stabilize the situation in the turbulent financial markets and restore confidence among banking institutions. The meaning of the second round of QE is possible to argue and the importance of the third and fourth longer seem to doubt all those interested in the issue.

Contradictory third round of quantitative easing started in September 2012 and lasts until now with the fact that now is not determined its definitive end date. Within the project, the U.S. central bank each month in the markets buying mortgage bonds worth 40 billion dollars to reduce unemployment in the U.S.. Amount Fed QE3 within a year released, would be enough to create 9.6 million new jobs with an annual pay 50 000 USD (950 000 CZK). Unfortunately, the Fed released more money does not guarantee more jobs to Americans. To do so, they would have dollars end up in the hands of consumers, not the banks. Domestic consumption is therefore the primary driver of the U.S. economy as it accounts for more than 60 percent of GDP. This, when started, it is able to contribute to the healing of labor.This is from the year 2008 when the financial crisis hit a huge slump, stiff and unable to return to pre-crisis values ??of 6 percent.

Historical development of the unemployment rate in the U.S.

In order to restore the appearance of the expected labor market, banks must release money into the economy through lending, which would have started the above consumption. You do, however, left for them and buy stocks whose price increase them for quick profits.The S & P 500 since the summer, when it is QE3 eagerly anticipated, strengthened by more than 20 percent, the Dow Jones over 16 percent, the German DAX 31 percent and the index of the largest 50 firms Eurozone by 35 percent and the index of European banks by a staggering 78 percent.

Breathtaking was the announcement of indefinite fourth round of QE in December 2012. In which Fed nekupuje10 to 30-year U.S. Treasury bonds in the amount of 45 billion dollars a month which is aimed at reducing long-term yields and thus supporting the housing market. Long-term government bond yields are now higher than the inflation expectations in the U.S., which the Fed, which has the following assets in its balance of tracks automatically.When the U.S. central bank in its existing program under which releases 85 billion per month, continuing until the end of 2013, the total releases in 2013, 1020 billion dollars. Thus, the Fed zmonetizoval approximately half of the annual U.S. budget deficit. If the Fed actually got money in the economy, this would suffice to create 20.4 million jobs, with an annual salary of 50 000 USD.

The Fed is now getting into tricky situations. On the one hand there is a huge country inflation, if they get money from the banks to the real economy, which the Fed threatens its basic mission of price stability. On the other hand, when the Fed starts downloading from the market liquidus, strongly feel that the U.S. GDP. This is further threatened by consolidating fiscal policies that the U.S. must undergo as soon as possible.For this reason, it is possible to believe that the Fed just from day to day QE program terminates. Most likely the program will finish first in the third or fourth quarter of the 2013th

The stumbling block here is that since 2008, when the stock markets collapsed last, from the fundamental point of view of the U.S. economy has not changed too much. Just get into it pumped money anchored assets in investment banks. All problems are more - less extinguished by pouring a huge package of money into the economy. From this fact, the resulting potential threats and the question of what happens when the Fed stops extinguish fire by pressing the new money?

If that were to happen, so under pressure from the withdrawal of stimulus measures by the Fed, which could disrupt global economic growth would be the first to find themselves banking stocks, which since summer 2012, when it started to talk about the third round of QE, greatly successful and titles sensitive to the evolution of the business cycle (industrial titles). We could then see investors rotate from cyclical to defensive stocks. Index grew by volatility (fear) VIX, probably gold and the Japanese yen known as a "safe haven" assets. The decline in U.S. GDP, as the number one economy in the world, it was also associated with a decline in oil prices. Ending QE means a decline in demand for U.S. Treasury bonds, thereby reducing their costs and increase revenue.

Michala Moravcová

Michala Moravcová

Vystudovala Vysokou školu ekonomickou v Praze obor Finance. Působila ve společnosti WOOD & Company v Praze, kde pracovala jako trader na akciových trzích. Specializovala se zejména na trhy střední a východní Evropy. Momentálně pracuje jako analytička finančních trhů ve společnosti Bossa. Součástí její práce je analýza domácí i zahraniční makroekonomické situace a její vliv na finanční trhy, zejména na forex. Věnuje se ekonomickému vzdělávaní veřejnosti a publikaci ekonomických článků.

Logo BossaSpolečnost BOSSA je stabilním obchodníkem s cennými papíry, který se v evropském hospodářském prostoru pohybuje již 17 let. Za dobu své existence se dočkala mnohých ocenění. Např. časopisem Forbes byla několikrát označena za brokera roku a to zejména na svém domácím - polském trhu. Od roku 2012 vstupuje také na trh český, kde může své klienty oslovit obchodní platformou Metatrader 4 pro PC i mobilní zařízení, kamennou pobočkou v centru Prahy, technickou podporou i zpravodajstvím v českém jazyce, stejně tak strukturovaným systémem bezplatného vzdělávání, které zajišťuje tým zkušených odborníků i mnohaletých traderů.

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