Miguel Navascués | For some months we have been looking with concern at the spread of interest rates of US 10 minus 2 year bonds as an indicator of an ever closer recession. Indeed, this indicator has been moving towards zero, and if it goes negative – which seems to be the trend- it would signal the threshold of a recession. But I don’t think it is such a precise indicator.
Articles by Miguel Navascués
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President of Argentina, Mauricio Macri, has not taken long to see the writing on the wall: he has officially asked for help from the IMF. On Monday, the peso/$ devalued 5%, which is a savage drop. Domestic and foreign equity have completely lost confidence in the economic governance and have fled terrified, with huge losses, given the peso’s accumulated depreciation.
Miguel Navascués | When the signs of an incipient slowdown in the European economy begin to multiply – the matching indicators suggest that industrial production slowed in 2018 – the case for reaching an agreement on Brexit and refocusing attention on unifying the capital markets becomes increasingly more powerful and urgent.
The biggest economic threat today is not the interest rate, nor the exchange rates, nor the possible trade war fuelled by Trump: it’s the debt accumulated by countries across the world. This has increased 12% of GDP since the crisis, totalling 225% of global GDP. Starting with China, followed by Europe and ending up with the US, the threat from the current and future debt is terrifying.
The interest on the US 10-year bond has reached 3%, its highest level in 10 years (blue line). There is nothing exceptional about this given that, as we can see in the graphic, expected inflation has also taken off.
It’s been some time since Europe has had a leader with such clear ideas as Emmanuel Macron, but Angela Merkel is not really happy about it. And that’s logical, because she has been calling all the shots. She has the power in Europe and so don’t expect even the slightest concession from her which is anything more than esthetic.
The height of the paradox, or the oxymoron, is that Venezuela has such high inflation that bank notes have become one of the most sought after ítems! Added to this is the fact that Maduro has decided to round up the value of the bank notes, knocking off zeros.
Spain is far from complying on deficit and State debt targets. It’s still surprising that out of a total amount of debt issued equivalent to 137% of GDP, there can be an official debt of 98%, thanks to a cut which, under the EU’s conditions themselves, is fully approved. This growing divergence has been there for years, particularly since the PP entered government in November 2011.
If I haven’t got the wrong end of the stick, Italy plans is to create a parallel currency to the euro, guaranteed by the Italian government, but which I don’t know who will control. A Bank of Italy? The government would issue these BOT, endorse them with the BI, which would give it the money to be shared out amongst the unpaid creditors. It seems a lot like Helicopter Money.
Europe, where everyone is against everbody else. The victory in Italy of the populist Five Star Movement and Lega has shattered into a million pieces the slight possibilities of having a more united Europe, or a more federal one, or whatever you want to call it.