Financial crises occur when debt levels exceed reasonable limits and lower asset prices. Can then mitigate the recession that arise from this situation by large increases in government deficits and deep cuts in interest rates.
Today, the terms of the financial crisis following is a list already. Is still the religion of pre-crisis levels, and prices of U.S. stocks, real estate, the British are seriously exaggerated. But the ability to reduce the impact of recession following substantial increases in government deficits and sharp declines in interest rates faded.
Private sector debt levels of concern is the other, as evidenced by the financial crisis in Ireland. Before the economic crisis in Ireland, the country had a surplus in the budget and national debt are low, but private sector debt was large. Since governments can not allow the collapse of financial markets, the taxpayers' guarantee in practice the overall debt, although it is not the specific implications of the private sector.
In the United States of private-sector debt is currently 2.6 times GDP, and nearly twice the level reached after the crash, which happened in 1929, which fell to 31 per cent by 1945. Much of this debt against the assets of a real believer, and when asset prices fall, creditors feel concerned about paying dues. But borrowers are not out of the trap. What they still have to repay their faith.
Then become the obvious value of net debt, which is always zero in the record, is negative. Thus, amplified the impact of falling asset prices, the higher the level of gross debt greater, the greater the degree of inflation.
The worrying thing is that these high levels of private sector debt coincides with the exaggeration in the assessment of the U.S. stock market. There are two ways, only two, to evaluate the U.S. stock market, and the two ways are powerful when they are tested. First rate Q, which is market value of non-financial companies to their net worth, adjusted for inflation. And the other Cape CAPE, the average price periodically to the percentage of the profits. These two measures and shows that the U.S. stock market are priced at about 60 per cent increase in their real value. This value is much lower than the highest levels reached in 1929 and 2000, but similar to the highest levels attained in the years 1906 and 1937, and 1968 - followed by low market and cases of stagnation.
Value and give a guide to small movements of the markets in the short term. If given such evidence, you'll notice even central banks and fund managers, and stock markets will remain close to fair value.
If we're lucky, you will not go down the stock market fell sharply for some time. In fact, I expect them to be supported for some time purchases by companies. In recent years, the U.S. stock market rose and fell completely in harmony with the purchases made by companies. Professors and proved Gamaaan, Donald Robertson and Stephen Wright, that this was a major factor in the behavior of the stock market during the past hundred years or more.
It is therefore important, if possible, one would expect if the companies will remain strong points of purchasers of the shares in the coming months. Show the balance sheets of financial companies is likely to be the case.
U.S. companies that have relatively high levels of cash compared to the overall debt levels, although less liquidity than it was in 2006. During the past decade, at least, this was an indication of the liquidity ratios for major purchases of shares by companies. Therefore, there is a good chance that support the procurement processes undertaken by the companies the stock market, and perhaps even driven to the top.
But official statements issued by the Fed and the American Bureau of Economic Analysis show that U.S. companies with near-record levels of debt, whether measured gross or net cash, and both are compared to the gross or net terms. This contrasts with the more shocking allegations that reverberate far that the balance sheets of American companies in an excellent position. And derived from the allegations of misuse of the data in the balance sheets of listed companies. Contrary to the data of the Federal Reserve, should not use this data to compare the debt at different times. One of the reasons for this is that changes in inflation, which Federal Reserve data taken into account, have a significant impact over time. So you should use the official data, and if you seek the truth, even if you do not necessarily seek behind the commission.
So if we look more forward, the prospects look weak. It seems that in 2013 will be an important year - according to the ancient Chinese curse. It is the first year of the new Chinese government, and the new European mechanism for stability and the most important of all, it is the first year of the new American government.
The People's actions are not usually taken immediately after the elections so that voters have more time to forget, if they can not forgive.
Thus, it can be a bond market reaction to any bad in 2013 failed to produce reasonable long-term plan to rein in fiscal deficit of the United States. But if a policy of credible, it is almost certain to fall sharply liquidity of companies, because the improvement in the U.S. deficit must be offset by a significant decline in cash flows for foreign and private sectors of the economy.