The annual meeting of the Federal Reserve (FED) in Kansas City, with representatives of the main central banks of the world, din not avoid itself from the tensions that the world economy go through today, and, in the first place, the American one.
Before the meeting, Trump manifested his disconformities with the increase of the interest rate by the FED, which could put -according to him - at risk the economical activity of the country. For September it is expected a new increase, as part of the four ones such organism anticipated for this year. Is the first time that a president dares to pronounce about the FED policy.
Under the light of this complaint, it is revealed de weakness of the advertised American economical recovery. In the second trimester, the increase higher than the 4%, of the annualized GDP, the most important since 2014, was accompanied by a reduction of unemployment, it was based on precarious labor and low salaries. But, besides, this increasing course it's founded in and increasing indebtedness and low levels of productivity and investment. The president of the FED, Powell, put into question the relation between economical growth and low unemployment. Though the unemployment has went down, the economy continues with an anemic growth.
The rise of the interest rate, until now, has not provoked a recession. We may not forget the taxes reduction ordered by the White House, by the hand of other subsidies to American companies. Nevertheless, this resource has lost its first vigor, to what we might add a deceleration of the other capitalist powers and, also, of China. The international price of copper, a classic indicator of the march of the industrial activity, it's falling since June.
At the same time, the corporate debt in the United States keeps on rising, as it happens in most of the planet. With its 8.6 trillion dollars, the debt of American companies is today a 30% higher than in its former peak, in September 2008. With the 45.3%, the index of corporate debt in relation to the GDP is in historical maximums and recently has surpassed the level previous to the last two recessions.
WE are in front of a real time bomb. In the ten years passed from the global financial crisis, the debt in hands of non financial corporations has grown 29 trillion dollars globally -almost as much as the governmental debt-, according to a new investigation of the McKinsey Global Institute.
The average quality of American debtors has fallen. 22 % of the corporate non-financial pending payment debt includes "trash" bonds from speculative grade issuers, and other 40% has a BBB qualification, barely a step above from "trash" one. In other words, almost two thirds of the bonds are from financially compromised companies, among them, many American retailers. This companies has a lot of speculative grade debt which deadline expires within the next five years, which aggravates due to the sales fall, meanwhile the consumers make their shopping on line.
This is what explains the interest rates that American companies pay (which goes from 5 to 8%) being similar and even superior to the emergent countries ones, including countries with default risk. A higher increase of the rates could sweep many of them. Trump wants to avoid this scenario.
On the other hand, the pressure from the tycoon against the interest increase points to cheapen the dollar valuation in relation to other currencies, in tune with the commercial war in course. Let's remember that this was the promised made in Davos by the secretary of the Treasury, Mnuchin, at the beginning of the year. To the contrary of these aspirations of Trump, we assist to a strengthening of the American currency. By its part, the State has to face a 20 trillion dollars debt, which surpasses the GDP and which is called to rise in the next period with motive of the adopted measurements by the present administration. The rise of the public expenses together with the taxes trim implies a fiscal hole of several billion dollars in the public accounts.
The increase of the interest rate is not the origin but the consequence of the extreme vulnerability of the economy, taken as a whole. The United States has twin deficits -it's not only an Argentina's attribute- and needs to repatriate capitals settled abroad to attend the crisis of its own internal front. And to that extent, it becomes a dislocating and destabilizing factor of the world economy.
The peak of the large leader companies (Amazon, Google, Apple and Microsoft) cannot darken the most general state of the economy. "The profits in the non financial sector of the United States has been decreasing, while the global profits of the companies has fell again in negative territory. This is something not seen since 2015, and was soon followed by a recession in 2016 (Michael Roberts, Sin permiso, 8/28). This put red hot the stocks bubble that has reached its historical maximum, in moments in which the divergences between its valuation and the performance of companies in the real economy accentuate. This year, the companies had spent more than a trillion dollars in repurchasing stock shares of their own companies, to impulse their valuation.
Instead of investing in productive actives, the large companies has increased their indebtedness and spent their money in buying financial actives. The accumulation of corporate debt threatens with reducing even more the profits if the interest rates increase and the salaries recover themselves.
An indicator of the beginning of a depression has been in the past the inversion of the yields curve of the bonds. The interest rate for the loaned money is usually smaller in the short than in the long term, since the lender recovers the loan before. But when the relation is inverted, it is because the access to credit turns more expensive and difficult. In a general way, it's a symptom of the proximity of a recession. The curve of the United States goes in that direction. "The gap between the two year yield and the ten year one, it's now in a very plane curve" (Idem).
Division and political crisis
This is what explains that some voices, even inside the Fed itself, pose to suspend a new increase in the interest rate. There exists, as well, a growing worry for the consequences of the new increases in the world economy, and especially, in the emergent countries. Besides from Argentina and Turkey (Ukraine, South Africa and others) and the capital leak it's making itself feel in every emergent nations, starting with China. There's a founded fear of the cascade effect this crisis may generate at world scale.
Together with the polemic on the interest rate, it is extending the deliberation around the commercial war encouraged by the government.
The American bourgeoisie is divided and sectors that pose the need to put a stop to commercial retaliations come winning. "Despite the good result of the labor market, the American businessmen fear that the imposition of tariffs to international commerce would stop the generation of new employments and investments" (El País, 8/27).
Except from the siderurgical sector, most of the corporate organizations consider prejudicial the imposition of tariffs of 25% to steel and 10% to aluminum imported from the European Union, Canada and Mexico. The effects of protectionism impact equally in the agriculture, economical lung of the States that lead Trump to win the 2016 elections.
In this point, the clashes that the official economical policy provokes are crossed with the political crisis, which are increasing its voltage.
In November there will take place the midterm elections where the government is at risk to lose the majority in both chambers. In the meantime, the threat of an impeachment has gained intensity. It has just been published a manuscript from one of his officials, which identity remains hidden, revealing a chaotic functioning of the White House. That in addition of the denounces of bribing and sexual scandals, which Trump has responded explosively. This crossed fire put into surface that the United States has entered a scenario of coups and counter-coups, which end is open.