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Obsession With “Economic Heating” Worries Major Investors In America And Europe

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Central banks in major economies face bitter choices in dealing with the risks of “economic heating”, and dealing with the growing “asset bubble” in the money and real estate markets, especially in America and Europe, as well as the growing risks of digital currencies.

And the voices of senior investment figures, financial experts and economists in the world are rising on the need for global central banks to return to tighten monetary policies and stop programs for buying debt bonds through which liquidity is injected into the markets.

“Economic heating” means rapid economic growth that leads to an “economic bubble” that may harm financial markets and balanced growth that ends in a recession or a major depression similar to what happened in the wake of the global financial crises.

Billionaires and economists call for avoiding the “economic heating” catastrophe by raising the bank interest rate and confronting the fierce rise in inflation rates and an “asset bubble” by tightening monetary policy and ending government bond purchase programs.

The market value of American assets rose to levels close to the rates that led to the catastrophe of the Great Wall Street Crash and the Great Depression of 1928.

In this regard, Desmond Lachman, a fellow economist at the American Enterprise Institute, and former deputy director general of the International Monetary Fund, Desmond Lachman, says that the market value of assets in America has risen to levels close to the rates that led to the catastrophe of the great collapse that occurred on Wall Street. It caused the Great Depression in the United States in 1928.

US real estate prices also rose above the rates that led to the financial market crash in 2008-2009.

Lachman points out in an article he wrote two days ago in the “The Hill” newspaper, which is published in the American capital, Washington, that central banks pumped money to stimulate the global economy over the past year, far exceeding the real need, which increased the volume of liquidity in the market.

Since the start of the Corona pandemic last year, the budget of the Federal Reserve (the US central bank) has increased by about $ 5 trillion to $ 7.69 trillion. The Fed continues to buy $120 billion in debt securities each month.

The US interest rate is close to zero and ranges between zero and 025%, which means that commercial banks and financial institutions obtain almost free liquidity and pump it into the markets and lend it to consumers. And thus, an interaction of economic heating, and its result was the rapid rise in real estate prices and many assets in the “Wall Street” market.

The statistics of the American University of Michigan in its latest survey indicate that the prices of consumer goods in America rose at an annual rate of 6.25%, and the annual inflation rate rose to 4.6%.

The Biden administration has approved a stimulus program estimated at $ 1.9 trillion, and is heading towards pumping another $ 2.3 trillion in infrastructure investments.

On the other hand, the Biden administration, since ascending to power, has approved a stimulus program estimated at $ 1.9 trillion, and is heading towards pumping another $ 2.3 trillion in the form of infrastructure investments, which means that the money that has been pumped into the economy since Biden’s rise to power far outweighs the losses of the economy. And that this will lead to rapid growth and “heating the economy” that threatens to turn into a recession in the future when the “asset bubble” bursts.

For its part, the European Central Bank has raised its budget by about 4 trillion dollars to reach 9.5 trillion since the beginning of the Corona pandemic, while continuing to buy debt bonds in the economically weak countries in the euro area.

And US economist Lachman warns that the European Central Bank risks, by continuing this monetary policy, by increasing inflationary pressures in the rich eurozone countries, especially Germany, whose economy is witnessing rapid growth.

The bank continues to buy government bonds in eurozone countries, including those of Italy, Portugal, Spain and Greece.

Lachman comments on this trend, saying that this continuous stimulus policy threatens a debt crisis in the eurozone similar to the one that occurred at the beginning of the last decade, due to which many countries went bankrupt and almost led to the disintegration of the European Union project without the intervention of the IMF.

In the same regard, the great investor and American billionaire, Dreaken Miller, criticized the policies of the Federal Reserve, which continued to pump trillions into the market, without considering the negative consequences that would result in liquidity in the market.

Miller said in comments reported by “Forbes” magazine that “there is concern among investors about the risks of turbulence in the financial markets due to the continuous rise in the rate of inflation.”

He described the stimulus operations that have taken place since last year as unprecedented in recent American history and the largest since World War II (1939-1945).

The American investor, who owns a large hedge fund, warned of the dangers of these policies, saying that they “threaten the stability of the dollar exchange rate, as well as the collapse of financial assets.”

Draken Miller indicated that the US economy has returned to normal before the pandemic, and it is time for the Federal Reserve to review its monetary policy.

American billionaire, Draken Miller: “Concern among investors about the risks of turmoil in the financial markets due to the continued rise in the rate of inflation.”

The dollar exchange rate witnessed sharp fluctuations during the current year due to investors’ fears of inflation and the significant increase witnessed by the yield on US Treasury bonds for 10 years.

Bankers explain the lack of interest of monetary policy planners in America by saying that the Federal Reserve has adopted a policy of supporting money markets and risky assets in recent years, and is currently continuing this policy even with the rise in economic growth rates to the level of 6.5%.

The fierce competition currently taking place between the United States and China, which emerged early from the pandemic and achieved a growth rate of 18.3% during the first quarter of this year, may be one of the main motives behind sacrificing high inflation for the sake of great and rapid economic growth in the United States despite its risks.

The administration of President Joe Biden seeks to curb the US economic and commercial expansion in the world this year by establishing alliances with major capitalist economies such as Britain.

But economists give priority to combating “economic heating” and fear its risks to the unbalanced American recovery, when the Federal Reserve returns in the future to the policy of raising interest rates and turns to combating inflation, simply because many high-risk assets may face an investment flight from it and lead that automatically to a turmoil in the money market.

In this regard, the former trader at the US investment bank Merrill Lynch, Har Lee Basman, believes that the Federal Reserve, since 2009, has adopted a monetary policy based on “forcing money to migrate from safe investment havens to risky investments, in order to finance rapid US economic growth.”

The Biden administration seeks to limit the US economic and trade expansion in the world during 2021 by creating alliances with the major capitalist economies

It is noted that this policy gradually led to the continuous growth in the value of the American stock market, which rose by the end of last year to more than 50 trillion dollars, which is equivalent to more than twice the size of the American economy.

And she led the policy of injecting cheap money into the market that succeeded in saving the economy from the strikes of the Corona pandemic.

But these policies led to many dangers in the United States, including income imbalance and wealth distribution, as they raised the wealth of billionaires at the expense of the working classes and white collars, and almost eliminated the middle class, which is the backbone of the stability of the Western democratic system.

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