In the United States, the fear of a major financial accident

Shareholders and investors can no longer stand the torment inflicted by Jerome Powell, the chairman of the Federal Reserve (Fed), who is slowly and inexorably raising its rates, “cutting the cat’s tail in small pieces”instead of acting firmly, all at once, with a major upside.

Mr. Powell is right: his method made it possible to deflate the bubble on the New York Stock Exchange, without causing it to burst. Thus, since the start of 2022, bond prices have fallen by 15% – a major drop for fixed income products – the S&P 500, by more than 20%, and the Nasdaq, the tech-rich index, by almost a third. A decline in good order, which did not cause a major accident on Wall Street.

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Nevertheless, everyone is worried, believing that by dint of strangling the economy, an accident will eventually happen. There are of course the major geopolitical risks of a Russian nuclear attack in Ukraine, of a Chinese invasion of Taiwan, subjects where finance can do nothing. But she also scrutinizes the corners in her garden from which the threat could arise.

“The depth of the market has fallen sharply”

In fact, the accident has already happened, with the crisis suffered by the United Kingdom, which led the Bank of England to intervene and caused the resignation of the Chancellor of the Exchequer, Kwasi Kwarteng. From now on, the political hierarchs can no longer get into debt anyhow and the markets, the gendarmes of orthodoxy, are on the way to regaining power. Brutally. “My experience in life shows that when you have things like what we are going through today, then there are other surprises”warned, Friday, October 14, Jamie Dimon, CEO of JPMorgan bank.

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For the moment, it is outside the United States that the crisis has taken place, in countries suffering from the surge in the dollar, which has gained more than 16% against all currencies since January. The rise of the greenback, combined with the rise in interest rates and the explosion of energy prices, will stifle developing countries, and even European ones, as evidenced by the attacks on the British pound or the Hungarian forint.

And it will last: Janet Yellen, the Secretary of the Treasury, in charge of American exchange rate policy, validated the concept of a strong dollar, believing that it was the “logical result” of the Fed’s monetary policy. Simply, it is preparing to manage a sovereign debt crisis as was the case forty years ago, with the bankruptcy of Mexico, in 1982: “I believe that we must be ready to help countries that fall into financial difficulties. »

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