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In the midst of economic and financial instability, the number of defaults in the emerging markets might rise dramatically. The preliminary data suggests that the problem bonds could amount to $237 billion. No wonder investors have begun to dump emerging market bonds.
Debt restructuring will require countries to undertake fiscal and economic reforms. In addition to optimizing sources of government revenue and controlling the volume and quality of spending, taxes could be increased. The result of the last point will be an increase in social tensions. An IMF study has shown that unrest has negative economic consequences.
It is worth mentioning that in developed countries the situation is no better. In the United States, for example, consumer price growth accelerated to 9.1% year-on-year, the highest increase since December 1981. The sharp rise in inflation, caused mainly by higher energy prices, exceeded experts’ expectations of no more than 8.8%.
It is worth mentioning that in mid-June, the Federal Reserve raised its benchmark interest rate for the first time since 1994 by 75 basis points in one fell swoop, to 1.5-1.75%, to fight inflation. The Fed is expected to further tighten monetary policy at its late July meeting and raise the rate another 50-75 percentage points. But will it help to lower the inflation pressures?
Overall, the Beige Book suggests that economic activity has generally grown at a moderate pace since mid-May. However, several districts reported increasing signs of slowing demand, and representatives from five districts noted concerns about the increased risk of recession. Most counties reported a decline in consumer spending.
Against this backdrop, it is not surprising that U.S. President Joe Biden’s approval rating has fallen below the 30% mark. A recent study suggests that only 29% of U.S. voters approve of Joe Biden’s job as president, 58% disapprove and 13% are still undecided. Only 63% of Democrats like Biden’s performance, down from 88% a year ago. Approval ratings have dropped five points in a fortnight. Only 36% of Democrats want Biden on the presidential ticket for the 2024 election.
Lately, Biden has been criticized for his cognitive status. Of note is the recent accident with “end quote, repeat sentence” while reading the teleprompter. A majority of voters believe he is unfit to be president and question his mental capacity. Sixty-two percent say he is unfit to be president because of his age and another 59% worry about his mental and physical state.
