Who hates real growth?

Last amongst the three, but not at all least after Germany and France, the US economy was reported recently to have left recession behind and manage to have grown by 3.5% during the third quarter of the year, the Commerce Department in Washington said, almost bringing the Atlantic economic volume to a better environment. Only a few weeks ago, we learned that Canada, Australia and Norway have also crossed the Rubicon of Recession and now march to growth. Many analysts, despite welcoming this unexpected turn in the US, say that this tempo of growth cannot be sustained, because the GDP increase was greatly supported by Washington’s car scrappage scheme, which ended on August 31st.
In any case, the American economy appears to have entered a new growth period, but in the next months the tempo of GDP increase may be much less than 3%. This development, seen together with the good news from the two large Eurozone economies Germany and France, has changed the scenery of the entire Atlantic economic volume. Only Britain still remains in recession, and in its case the exit from the negative side does seem to be close. Altogether, the real Atlantic economy is now seen in much better shape than during the same period of last year, and the rate of GDP real growth is expected to continue on the positive side, albeit low. Understandably, over the next months, central banks will take measures to protect the economy from inflation by raising interest rates and reducing the liquidity. So it was not by chance recently that stock exchanges lost a lot of ground. But let’s take one thing at a time.
All the major western central bank governors have left to be understood they will now reassess their monetary policies, aiming at controlling the inflationary pressures which usually accompany growth. Of course, those inflationary pressures do not seem to be around the corner.  If they were, stock exchanges would have taken the fast lane down. This newly-found US growth has multiple effects. Even if it proves to be true that over the next months that GDP increases remain minimal, probably in the region of decimal points of a percent, the value of the turn to more healthy grounds cannot be underestimated, and it is not. Stock exchanges take it very seriously. So at the end of the day we are left with an awkward situation, where the main stock exchanges on both shores of the Atlantic consider growth of the real economy as their major threat. Actually, this where things stand.
The reason is that central banks at some point during the next year will start to claim back the liquidity they have generously granted to each and every commercial and investment bank. The real economy was financed to a much lesser degree than the banking sector.  All that central bank financing in the banking sector has been invested in stock exchanges and other risk markets such as oil and gold. So it was a surprise to see oil and gold prices fall after it was announced that the US grew by 3%. Why? Actually, such an announcement should have boosted oil prices because of the prospects of higher demand for energy, but still oil markets fell. The secret is that now banks will be forced to retreat their betting from oil and gold markets because the monetary authorities, sooner or later, will ask back the low-cost financing, and consequently the investment banks bets on all markets will diminish. That is why oil prices fell. Over the coming months, we will watch closely those developments. It will be rather interesting to see how much those US investment banks fear real growth. As things stand, investment banks will find it difficult to adapt to higher interest rates and less generous public money that’s still available.