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Written by Piero Messina
The United States is walking on a razor edge. They need a new war to resolve their internal crisis. Let’s look at the numbers. Comparing US GDP and debt data for the third quarter of 2023, we find that the US economy generates less than $1 in growth for every dollar in new debt. The US deficit, in December last year, grew by 129.4 billion, that is, 40 billion more than the average estimates which expected 87.5 billion and above all more than a 50% increase compared to the 85 billion budget deficit of December 2022. We are at 2020 levels, when the federal budget was conditioned by the pandemic emergency. Yet all of this is happening as Wall Street celebrates unprecedented growth.
The reason for this euphoria on the stock market is quickly explained. To address the local banking crisis that was bringing US monetary policy to its knees, the Fed had introduced a system of subsidized loans, The Bank Term Funding Program (BTFP).
As the official note from the Federal Reserve explains, “The BTFP was a new program put in place on March 12, 2023, to deal with a panic among depositors that had led them to yank their cash out of a bunch of banks, in some cases essentially in days, leading to the collapse of three regional banks, Silicon Valley Bank, Signature Bank, and First Republic, where all depositors were made whole by the FDIC, but investors were wiped out. A fourth bank, Silvergate Capital, which had experienced the first run on the bank in this cycle was unwound under pressure but without FDIC funding”.
The BTFP will be suspended on March 11. With what consequences? US regional banks survive only thanks to the BTFP, the Fed’s support fund which is now used for amounts exceeding 148 billion weekly. It’s not easy to navigate the crazy rules of global finance. Yet one thing is quite clear. Without that financial support, the King of Wall Street could appear naked and everything suggests yet another crisis with the epicenter, once again, the real estate sector.
Because in reality, putting the stock indices aside, the real US economy is instead gasping. On January 11, the annual trend data for US inflation for the month of December 2023 was released, which was found to be 3.4%, therefore 0.2 points higher than the estimate reported by Bloomberg which collects the estimates of operators of the Wall Street market. The following day, January 12, air-naval military operations began by the Americans and the British in the Red Sea area adjacent to Yemen, at the important entry and crossing strait of the Red Sea towards the Suez Canal. A situation suggests uncertain and worsening prospects for trade, both in Europe and in the USA.
Furthermore, the multiplication of crisis scenarios makes it increasingly probable that the price of oil will rise again, with values of 110-120 dollars. An event of this type would make the inflation phenomenon uncontrollable, with values that within a few years would once again exceed the 7% average inflation rate. A situation that would be impossible for the Federal Reserve to control, causing public debt to spiral out of control.
It is for this reason that economists at large banks such as Citigroup, Deutsche Bank and JPMorgan Chase believe the US economy is more likely to enter a recession in the next 18 months. While not technically indicative of a recession, which results in negative economic growth, Fed officials expect U.S. economic output to grow just 1.4% in 2024, which would be the weakest growth since 2009, barring the reversal trend of 2020 caused by the pandemic.
“A mild recession is not a mild event and would generate a significantly more adverse outcome than a soft landing with slow growth,” explained Bruce Kasman, JPMorgan’s chief economist, in his 2024 forecast.
The question to ask is: can the Biden administration face ten months of electoral campaign with an economic crisis in its backyard? The answer is, of course, no. For this reason it is reasonable to expect a resurgence of proxy wars. And in fact, the US administration first officially closed the Ukrainian case, announcing the end of military aid, putting the EU politically offside. Now it has moved into action towards the big target. A few hours after Joe Biden’s first official mention of Iran, the US and UK attacked Houthi rebel positions in Yemen as a reaction to the attacks in the Red Sea. The reply was immediate. The retaliations will be severe. I mean, we’re at war now. A war that will be fought in the name of financial madness. With Gaza now far away, transformed into a political argument and showdown by an international tribunal. Everything is ready for the “March surprise”.
