Financial TAFTA, Trans Atlantic Free Trade Agreement

Publié le par Jean-Pierre Chevallier

 

A new TAFTA, Trans Atlantic Free Trade Agreement is being born, at least concerning the financial markets.

Indeed, American and Europeans rates converge: the 2-year yield in euro zone was yesterday Tuesday August 28 at 4.02% and that of United States at 4.08% (4.05% this Wednesday August 29).
The long rates (10-year) still presented a variation of 25 basic points because the difference between the rates of the two central banks is too large: 5.25% for the Fed and 4.0% for the ECB.
The central banks must make converge their rates towards their neutrality which is around 4.25% because the financial markets converge.
Now, the too high rate of the Fed causes a strong slowdown in United States which will be accompanied by that in euro zone (because ECB will raising its basic rate).
Dark future for people in Euro zone…
Figure 1: http://s3.archive-host.com/membres/up/2107676425/20070829USEZ1TX.gif

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The difference between the 10-year on the two sides of Atlantic is tightened, 

Figure 2: http://s3.archive-host.com/membres/up/2107676425/20070829USEZ2SPREAD.gif 

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The 10-year American yield reaches finally 3.50% this Wednesday August 29 with some problems…

Figure 3: http://s3.archive-host.com/membres/up/2107676425/20070829US306.gif,

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to fluctuate in the band between 4.0 and 4.5% with the 2-year (as from 2002 to 2005) when the Fed finally drops its rate which was neutral at 4.25% (as from December 13, 2005 to January 30, 2006),
Figure 4: http://s3.archive-host.com/membres/up/2107676425/20070829US402.gif

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Since the middle of the Sixties, the Fed reacts always too late and too slowly, which creates these unhealthy cycles whose amplitude however decreases.
The trends of the rates and the markets correspond perfectly to my previous analyses which I published on my old blog on " Turgot Institute" which is removed…

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