Chances that the world economy is approaching recession are gaining more weight every day. Recently, former US Treasury Secretary Larry Summers said that we may be passing a major turning point with the situation in Britain.
But what happened in Britain? pension crisis The government was forced to intervene with £65,000 million sterling (GBP/USD) to avoid the collapse of the bond market.
These pensions were invested in 10- and 30-year government bonds, known as gilts, with the belief that they were safe and profitable assets. However, the monetary policy of quantitative easing Beginning in 2008, with the Central Bank of England (BoE) cutting interest rates, the return on these assets fell to historic lows.
To achieve their return targets, the managers of these pension funds had to take on higher risks, as was the case with all investors, in both stock market as forex,
To hedge the higher risks, he leveraged himself with derivatives and used public assets as collateral for these derivatives. Despite everything, the price of these public bonds continued to fall, with the final footing after the September 23 mini-Budget, which increased the need for government financing and reduced bonds again.
Thus, the pension once again had the problem of paying the promised returns and returning the capital. This, in turn, spurred more bond sales and lowered their price even further, bringing these funds closer to bankruptcy.
If we review the position of the pound sterling, we can see how It is down 17% against the US dollar so far this year and 19% in the last twelve months. In just the last three months, with these problems, as well as the country’s presidency change and the death of Queen Elizabeth II, more than 6% have survived.
The amount of the penalty has not been so high against the euro as the single currency lags behind in its monetary policy. The pound drops 3% of its value against the euro in the past twelve months, is more or less what is left so far this year. Of course, it has fallen by more than two percent in the last three months.
The origins of the British problem are common
Part of this situation is due to the 15 years that we have been living with low interest rates around the world. As we now see the need to raise interest rates to fight inflation, many investments are being penalized.
This doesn’t happen so much in forex because it is a very tight and liquid market where there is a lot of trading in the short term and it is the expectations of interest rates—rather than increases in themselves—that move currency pairs. .
However, the situation in the United Kingdom is a warning of what could happen in other markets, as the new economy has rapidly taken off and not all markets, countries or economies are going to adapt to it in time.
Ukraine had inflation before the war
Let’s remember that inflation has spiraled out of control since the Russian invasion of Ukraine, but it was warning us earlier, as the global economy was warming up since the end of the pandemic. The economic mix that countries now face is economic policies with runaway inflation, rising interest rates, and high public spending.
Although central banks are confident that they can achieve a soft landing for their economies through raising interest rates, the truth is that they have not been successful throughout history. This means that it is very likely that a hike in rates will lead to an economic slowdown and economies will face a hard landing.
As some experts point out, the role of the financial system is no longer to borrow money in deposits and lend to other companies and individuals, but to sustain consumption and global growth. To do this, much of it depends on collateral, which is usually the issue of public debt.
Thus, the high indebtedness of countries to come back from the rapid and pandemic recession needed to curb rising inflation could reduce the value of public assets that are used as collateral around the world so that more To be able to get higher returns through risk. ,
And in forex, the fact that interest rates are rising around the world, but with economies at different speeds, volatility in different currency pairs opens up sales, which are real investment opportunities.
The world economic situation has gathered its claws in Chile
The world economic situation has not left Chile indifferent, a country that, despite all the difficulties it experienced during the pandemic, had managed to steadily recover economic activity. Recently, however, the Central Bank revealed a series of alarming data on Chile’s economic performance, and in particular the bio-bio sector.
In addition, many analysts have expressed their concern about the declared economic crisis looming around the world by the year 2023, with inflation resulting from war in Ukraine and great liquidity and, above all, reduced economic activity. The IMF states that the only country that will face an economic contraction during the year 2023. The slowdown in the Chinese economy will be the main determining factor in all of Latin America’s economic difficulties, however, the only economy that will not develop is Chile, according to IMF estimates.
Added to this is the fact that Chile is a country Highest interest rates on the continent, 11.25% to be exact. This measure is extremely useful for controlling inflation, but its high price, growth, which is limited by a reduction in economic activity, is another factor of critical importance in determining the economic fallout that the country will suffer next year.
Bio Bio gives the first alarm
Recently, the Central Bank of Chile had communicated Monthly Index of Economic Activity (Imacec) Which saw a decline of 0.4% for the first time in the year with respect to the same month of the previous year. And it is that during the month of September a number of situations arose which reduced the consumption of both the commodities to a great extent.
Despite this, it was highlighted that production grew by 0.1% year-on-year in the month of September 2022, matching this growth in the mining sector, and that the industrial sector would have grown by 4.4%. Where the decline could be seen was in the commerce sector, with activity declining by 10.2% across almost all retail sectors. On the other hand, the services sector grew by 2.9%, primarily focusing on personal services, primarily education and transportation, factors that somehow managed to balance the balance with respect to the reduction in trade, but This is the first sign of losses. Chilean state and business community.
