Pif the House of Representatives does not act, the US will go bankrupt on June 5th. More precisely, according to the local Ministry of Finance, they will not be able to pay their obligations due to reaching the current debt ceiling. However, not only political observers, but also investors do not expect this catastrophic scenario. Otherwise, the financial and capital markets would have already collapsed.
At the international conference of the Anglo-American University in Prague on the reform of the European Union’s fiscal policy, questions were raised as to why there is still such interest in American stocks, indices, the dollar and the market there in general. After all, the USA also has a lot of economic problems and high public debts like we do in Europe.
The perspective of investors and traders in the financial and capital markets on public debt is not black and white. Using the example of Greece and its budget crisis, we can document how debt approaching insolvency has long-term harmed investors in Greek securities. The main stock indicator Athens General Composite Index fell from 2,683 euros in 2009 to 1,121 euros in the first half of 2023, which represents a long-term depreciation of Greek companies by more than 50 percent.
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At the same time, the bond market of not only Greek government bonds was distorted due to the bottomless support of the European Central Bank. This happened after a logical fluctuation – a sharp increase in income, and therefore a decrease in the value of these assets. And that brings us to the original question of why investors around the world tend to trust American securities.
The essence does not lie in the different budgetary policies of the governments in the EU and the USA or in a fundamentally different monetary policy. The difference is in the interventions of these authorities in the market. Interventions distorting information from the market discourage investors. The fiscal policy of the EU is complex, artificially interfering with the budget policies of individual countries, which, however, share a common currency.
This confirms that bad news coming from the market is still a better option for investors than seemingly good news camouflaged by state intervention.
