Dangerous growth in the U.S. is brewing a new global crisis

© RIA Novosti / Gina Operate in fotoreceptorilor pointer on wall street in new YorkDangerous growth in the U.S. is brewing a new global crisis© RIA Novosti / Gina Operate the image Bank

MOSCOW, may 18 — RIA Novosti, Natalia Dembinski. A rapid increase in the yield of US Treasury bonds has excited investors and crippled the stock market. Wall street closed in the red, panicked and on the other financial markets: stock indices and currencies of most countries fell markedly. The dollar, on the contrary, strengthened. However, the yields of us securities more than three percent, not seen since 2008, does not Bode well for neither the U.S. nor the global economy.

Came to dangerous levels

The yield on three-month US Treasury bills exceeded the dividend yield of the S&P 500 index for the first time since February 2008. Even more concern is a key benchmark for global financial markets — a ten-year treasuries.

Their yield, which indicates the decline of securities themselves, have updated the highs, punched psychologically important mark of three percent, coming close to a dangerous line.

According to analysts Morgan Stanley, one of the largest U.S. banks, if the yield on ten-year debt securities will exceed that of 3.05%, will collapse.
Why yield growth is bad

When the fed increases interest rates or implementing other measures to tighten monetary policy, «cheap money» in the financial system becomes smaller. Accordingly, market participants have fewer opportunities to purchase government bonds.

Ten-year treasuries — the benchmark paper, they depend on the prices of bonds around the world. With the increase in us yields their price falls (and Vice versa), and market participants expect higher interest rates from Central banks.

The higher the interest rate, the greater the cost of borrowing for companies. This means that they do not raise salaries, invest less, shareholders get less profit. In the end, stocks lose their appeal. In addition, because to a ten-year treasuries bound rates on Bank loans and mortgages, reduced purchasing power of the population.

The yield on two-year US treasuries are also at multi-year highs: the 2.5% level of September 2008 — and is already close to 2.6 percent.

As experts explain, the current difference between short-term and long-term profitability means the following: investors ‘ to invest in us debt maturing in two years is almost as risky, like lending to the US economy for ten years. But in the normal functioning of the economy short-term investments in public debt is always less risky.

Market participants closely monitor this difference — the so-called yield curve. The smaller the gap in yields short-term and long-term treasuries, the higher the probability of the collapse of the economy. Smoothed yield curve — a traditional harbinger of a recession.

On the other hand, the rise in us yields has a negative impact on the stock market, namely the decline of the major stock indexes economists believe one of the key factors that can lead to collapse. Experts indicate that the global economy is moving into a new phase. More and more Central banks ready to turn the program of quantitative easing and to raise interest rates ultra-low level which stimulated the boom in the securities markets.

The second largest threat to global economic stability comes, again, from the United States is the protectionist policies of Washington. Protectionism would negatively affect the prices and availability of American and Chinese products in the supply chains of companies from other countries. This will cause a decline in trade hurt hitting the global economy.© Depositphotos / Elnur_ПадениеDangerous growth in the U.S. is brewing a new global crisis© Depositphotos / Elnur_Падение

Well-known American economist and investment banker James Rickards says that the current rapid growth in the US and European countries leads to epic stock market crash, similar to what happened in 1929. And then a prolonged worldwide recession is inevitable.

How will this affect Russia? In the four years of sanctions from the US and EU the economy is bad tempered, say economists. In the beginning of the year is recognized by the international rating Agency, raised the Outlook on the sovereign rating of Russia from «stable» to «positive». Analysts said that the country has not only successfully coped with the collapse of oil prices and Western sanctions, but also prepared for possible disasters in the global economy.