Global Economy is Rebalancing Down; U.S. is Short-Funding Persistent Budget Deficit According to BNY Mellon's Hoey

LONDON and NEW YORK, Sept. 28, 2011 /PRNewswire/ -- The global economy is rebalancing down, as the stresses on the developed economies have increased.  Odds therefore favor a global growth recession rather than a full-scale global recession, according to BNY Mellon Chief Economist Richard B. Hoey in his September 2011 Economic Update.

"The key to the global economic outlook is whether the resolution of the European financial stresses evolves in an orderly, semi-orderly or disorderly way," Hoey states.  "We expect a semi-orderly pattern, which should be consistent with a global slowdown at a subdued pace rather than a full-scale global recession."

Hoey regards the global economy as fundamentally recuperative after the Great Recession, but vulnerable to shocks since private sector deleveraging and fiscal consolidation in developed countries is not yet complete.

"Our interpretation is that the U.S. is 'short-funding' a persistent U.S. budget deficit rather than financing it by the sale of long-term bonds to the private sector," Hoey says.  "We view the sale of new bonds by the Treasury followed by Federal Reserve purchases of Treasury bonds in the secondary market as the Federal government selling bonds to itself.  After all, the profits of the Fed flow to the Treasury.  At some point in the future, persistent deficits will need to be funded by increased sale (net of Fed purchases) of long-term Treasury bonds to the private sector."  

"The Federal Reserve has now taken responsibility for the yield on long-term Treasury bonds, some 60 years after it won its independence from the need to support the long-term Treasury market," Hoey concludes.  

See http://www.bnymellon.com/foresight/pdf/update.pdf for Hoey's complete September 2011 Economic Update.  

Notes to Editors:

BNY Mellon Asset Management is one of the world's leading asset management organizations, encompassing BNY Mellon's affiliated investment management firms and global distribution companies. Information about BNY Mellon Asset Management can be found at www.bnymellonam.com.

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets.  BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team.  It has $26.3 trillion in assets under custody and administration and $1.3 trillion in assets under management, services $11.8 trillion in outstanding debt and processes global payments averaging $1.7 trillion per day.  BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).  Additional information is available at www.bnymellon.com and through Twitter @bnymellon.  

SOURCE BNY Mellon; BNY Mellon Asset Management

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