End of Third Quarter: Almost No Variation

The difference between what is going on in the United States and Europe in relation to the recuperation of their respective finances will be a subject matter to feed the study of economic sciences in the future. The efficacy of the stimulus measures taken by the central bank (FED) and by the state and federal government to maintain cheap money with almost zero percent interest rates, increase consumption and employment, rise production and ultimately generate growth of the Gross Domestic Product and the recuperation of the economy can be perceived. In Europe, a general stagnation is evidenced, characterized by the permanence of high unemployment indexes, developmental disparity with slow or no growth in many countries, risk of prices decreases, hard access to credit, and political malcontent with the threat of ultranationalist tendencies, which threaten the European Unity project continuity, whose first achievement was to install the Euro as single coin in eighteen countries. Possibly the result of the analysis of the causes of this difference is rooted in the fact that the United States is a single state, with a sole central government and a unified monetary policy, while Europe is a sum of many national states, with diverse fiscal, monetary, and customs policies and conflicting financial interests. In this diversity, during and as a consequence of the 2008 and 2009 crisis, some states (like Germany and other northern European states) became stronger and they improved their trade balances without unbalancing their budgets, while others became weaker, became indebted and where pressured to go into asphyxiating fiscal austerity processes, the visible result of which now is the almost generalized lack of economic growth and slowness in recuperating from the crisis.

In this scenario, during this month, assuming postures that would seem a reversal in the European Central Bank attitude, whose discourse has been deficit and debt reduction for countries, its’ president, Mister Draghi has spoken in favor of using public spending to invigorate the Eurozone’s stagnant economy. He suggests that government stimulus can come in the form of reduced tax financed by cutting unproductive expenses, to increase public spending in areas in which state investment is lacking, as are transport grids and public infrastructure. Additionally he suggested that governments could guarantee private banking emissions, these backed by fixed assets, which would be packaged and sold to investors, and this would free resources for the banks to make new loans to small businesses. In this sense, the central bank itself (E.C.B.) will begin this same month to buy these bank documents in an effort to inject money into the Eurozone economy. The asserted criteria extends to expressing that the recuperation will only come with higher investments, and that these need better banking loan conditions, easing in the requisites for making corporations (diminution of bureaucratic barriers) and government stimulus. But, at the same time, Europe criticizes France for delaying its fiscal deficit reduction measures, France proclaims that it cannot nor it should not adjust further and rather that it needs investments and reforms that encourages them to increase the volume of its tax revenue. Ultimately, the road to pursue in order to obtain sustained growth is not clear. There is no definite recipe. The next months will be cautious. On the other hand, there are separatist winds. In the United Kingdom (where shares fell 3% this month) they just have gotten over, or postponed, Scotland’s attempt and in Spain the Catalonian schism is felt. Even in the middle of this environment, in general, the stock markets remain tranquil; share movements are not dramatic and returns on bonds show a slight lowering tendency.

The outbreak of war in Ukraine and the correlated incidents between Russia, the United States and the European nations have not seriously affected stock exchange centers. And the “caliphate” threat promoted by the Islamic movement, which threaten Iran, Syria and Iraq, reopens the possibility of continuing bellicose activities in that region. This has not reflected important variations in oil prices.

The presidential elections in Brazil must be closely observed. In this month Brazilian Shares have suffered important loss of value, and a change of hands would mean a switch at the helm, which surely would generate instability, even if it were during the time it would take to clear the scene.

The petitions for democratic aperture that are publicly displayed in Hong Kong have altered the level of stock exchange activity in that locale. But it seems these will not influence the direction of China’s economic activities, the pace of which still has part of the vigor that served as the world’s economic engine during the days of the 2008 recession.

In a general way, this third quarter has been relatively calm. It is so reflected in the main stock exchange indexes: in the United States and in Europe almost no variation, with the exception of the United Kingdom in which a 3% decrease is seen, related to the Scottish separatist referendum. The fourth quarter should be similar, save that any of the mentioned political issues runs out of its course.

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