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Weekly Summary of Financial Markets 12-23-2013

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Now that the U.S. is headed toward recovery appeared the International Monetary Fund (IMF) which has predicted that the U.S. economy will grow faster.
Thus the IMF goes to support the FED following the change in leadership and the recent decision to reduce bond purchases.
Christine Lagarde, head of the IMF praised the Federal Reserve’s decision to gradually reduce debt purchases, emphasizing the upturn in economic growth.
The growth forecast for the U.S. in 2014 according to the IMF is 2.6 percent after the growing of 1.6 percent this year.
However, the only item that appears like a cloud on the horizon is the debt ceiling. Recent discussions in order to increase the debt ceiling were complicated and it appears that could be even worse in the future.
These discussions in Congress could cause a conflict difficult  to unlock and whose result could affect the global economy.
The U.S. Congress, which is very divided among party ranks, managed last week to approve a limited two-year budget agreement to reduce some planned spending cuts and limit the risk of a government shutdown.
But the law does not prevent a possible debt default in United States which could happen if Congress does not increase the country’s borrowing limit.
The administration of President Barack Obama has warned that the government could run out of the necessary borrowing power to pay its bills in February if lawmakers do not quickly increase the debt ceiling.
The next battle will be in February and the Congress should quickly approve the increase in the debt otherwise this would have negative consequences.

Japan is planning to issue more debt

Now we change the focus of the information to Japan. The Japanese government plans to issue 155.1 billion yen (1.49 billion dollars) in government bonds in the next fiscal year starting in April.
Japan will also increase the issuance of inflation-indexed bonds in 1 trillion yen to 1.6 trillion yen in fiscal year 2014-2015 and could increase more that amount if demand increases, the sources said.
After a year in office, Prime Minister Shinzo Abe will try to approve the budget for the next fiscal year, trying to achieve economic recovery
Japan is trying to estimate the demand that the market will have, and based on these calculations will issue debt. The 30-year government bonds are popular among Japanese life insurers and other institutional investors.
That’s why long-term debt is issued and short-term emissions will be cut.
The goal of Prime Minister Abe is to achieve an annual inflation up to 2 percent to end a long period of deflation and encourage new investment.
If Japan fails to achieve this objetive, the country will be getting into trouble. The country’s debt is huge and this plan will continue to increase the gap between GDP and debt.
The following table shows the abysmal ratio between debt and GDP of the country, far exceeding United States, Greece and other countries.
Major debtor countries in the world
Japan will issue  1.2 trillion yen each month in 20-year bonds, 2.4 trillion yen per month in 10-year debt and 2.7 trillion yen monthly in titles of 5 and 2 years.
The country issued 700,000 million yen per month in 30-year government  bonds eight months of the year and will offer 600,000 million yen per month in 30-year bonds during the four months remaining.

 

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