Opposing Policies

With great care and in order not to alarm the markets, the Federal Reserve system has just announced the end of the massive purchasing program of financial assets and mortgage loans because, in their opinion and as facts show, the American economy is expanding at a moderate pace and is creating jobs. A few hours later, it was confirmed that the annual growth rate in the third quarter was 3.5 percent, which is lower than 4.6 percent in the second quarter but higher than 3.1 percent as analysts expected it to be. Janet Yellen knows that uncertainties remain — inflation on a downward trend, mortgage market almost at a standstill — and this is why she will keep the cost of money at zero percent for a long period … that may end by mid-2015.

Leaving those stimuli behind is a far-reaching change that will have consequences for the worldwide economy. The United States has injected more than $4 trillion into its economy during the past six years with almost no side effects on inflation. Fed representatives did not even get swept up in the fear of bubbles in some sensitive markets. The stimuli that are now disappearing have contributed to the increase of growth and employment rates, even if not as expected, and have caused side effects for international markets which will now have to improve their strategies. For the purpose of the crisis correction, what matters is that Ben Bernanke clearly saw in 2008 that it was necessary to practice a policy of expansion (virtually boundless) in order to fight against recession (less growth, more unemployment) and the deflationary threat.

While Washington is closing the period of monetary expansion with mildly satisfactory results, even though the economy has not reached its potential growth yet and salaries are at a standstill, the eurozone has not even started its period. It is true that the euro has some considerable disadvantages: It is not just one country, it lacks a treasury and its national economic policies are erratic or contradictory. However, they do not explain the absence of a debate around monetary and tax policy and the eternal excuse of “bureaucracy” to delay decisions that should have been made long ago. The United States is on the way to recovery — the question is when the timely moment will arrive to declare a rise in interest rates; the euro is unaware of the following steps that will be taken.

It is a policy that does not even offer prospects to markets and has high costs for the whole of Europe, including Germany. In Spain, these are the consequences: The quarter-over-quarter growth rate in the third quarter was 0.5 percent, one-tenth less than in the second quarter. It is the first symptom of deceleration; they are more likely to appear in the fourth quarter. Short-term prospects are not so optimistic anymore. Low inflation, -0.1 percent in October, complicates even the refunding of the debt.