The last week has been a non-stop flood of news. And, quite honestly, none of it is encouraging. I imagine the sole exception to that rule is the relatively sanguine nature of the US data. That said, I remain unconvinced that the US can for much longer resist the downward pull of the rest of the globe.
What more can we say about Europe that has not already been said? There has been no forward progress in the past week. To be sure, ECB bond buying has helped keep a lid on Italian bond yields. Yet, while ECB monetary policymakers focus on Italy, Spain and Belgium are slipping away. And France is clearly the next domino to fall. The “accidental” downgrade last week simply reveals that S&P has already prepared the report, clearly anticipating a deterioration in France’s budget position as the Eurozone recession deepens. And to make matters worse, Zero Hedge points us to signs the Dexia bank rescue is faltering, and the Belgians realize they need to shift more of that burden of that rescue onto France. Meanwhile, the situation in Eastern Europe is rapidly deteriorating – Yves Smith directs us to the Telegraph for that story. And in Greece, the opposition party still insists they will not sign any pledge to commit to the October deal. Was any deal really reached last month?
Conventional wisdom is that the European Central Bank eventually acts as a lender of last resort to alleviate the sovereign debt crisis. This was clearly not on the mind of ECB President Mario Draghi in his recent speech. I certainly hope something was lost in translation, as the speech has some memorable moments. Notably:
Activity is expected to weaken in most of the advanced economies. This is the result of a weakening of various components of aggregate demand, both domestic and foreign.
Economic activity is weakening because the underlying components of economic demand are weakening. I am not sure this is particularly insightful. Is this the best analysis he can muster from the intellectual firepower of ECB economists? If so, we are in very big trouble. But it continues. The first two of Draghi’s three pillars of monetary policy:
Continuity first and foremost refers to our primary objective of maintaining price stability over the medium term.
Consistency means to act in line with our primary objective and with our strategy both in time and over time.
I am having a hard time distinguishing between “continuity” and “consistency” here. The third (second?) pillar is predictable:
Credibility implies that our monetary policy is successful in anchoring inflation expectations over the medium and longer term. This is the major contribution we can make in support of sustainable growth, employment creation and financial stability. And we are making this contribution in full independence.
Gaining credibility is a long and laborious process. Maintaining it is a permanent challenge. But losing credibility can happen quickly – and history shows that regaining it has huge economic and social costs.
Translation: ”We can only save the Euro, but only at the cost of German hyperinflation of the 1920′s.” He then pulls a Ben Bernanke and tosses the ball back to fiscal policymakers”
National economic policies are equally responsible for restoring and maintaining financial stability. Solid public finances and structural reforms – which lay the basis for competitiveness, sustainable growth and job creation – are two of the essential elements.
But in the euro area there is a third essential element for financial stability and that must be rooted in a much more robust economic governance of the union going forward. In the first place now, it implies the urgent implementation of the European Council and Summit decisions. We are more than one and a half years after the summit that launched the EFSF as part of a financial support package amounting to 750 billion euros or one trillion dollars; we are four months after the summit that decided to make the full EFSF guarantee volume available; and we are four weeks after the summit that agreed on leveraging of the resources by a factor of up to four or five and that declared the EFSF would be fully operational and that all its tools will be used in an effective way to ensure financial stability in the euro area. Where is the implementation of these long-standing decisions?
Here I think that Draghi is simply delusional. Does he not realize that plans to expand the ESFS are essentially dead at this point? That France and Germany are not willing or able to contribute more capital? That the plans to leverage the ESFS are floundering as the reality sets in that financial engineering will not work here? That the Chinese scoffed at efforts to get them to buy into such a plan? That the EU political system is capable at moving even a fraction of the speed of financial markets?
I understand the ECB does not want to take on the role of fiscal authority, but what other choice do they have? Little else than to oversee the collapse of the currency they are charged to protect.
Meanwhile, word is the Greek debt haircut deal is in jeopardy. Not a surprise, as nothing real was really reached at the summit, just a desperate attempt to buy time. Market participants should by now realize the outcome of any European summit is little more than smoke and mirrors.
Speaking of smoke and mirrors, the news from this side of the pond is not exactly encouraging. The Supercommitte hit a brick wall, to no one’s surprise but Wall Street’s. The stage is set for a nontrivial fiscal tightening in short order – 5 weeks or so. Greg Ip at the Economist puts some numbers on what is at stake, and comes up with contractionary policy on the order of 2.4% of GDP. Note that the Federal Reserve forecast for 2012 is 2.5% to 2.9%, and I bet not much fiscal contraction is built into those numbers. So, make no mistake, the failure of the Supercommittee to come up with a plan for “smart” austerity – austerity focused on the medium and long-runs, with stimulus in the short run, is very meaningful. The conventional wisdom is that Congress will not go home for the holidays without at a minimum extending the payroll tax credit. I will follow that lead, but remain worried that the weight of Washington gridlock argues for more disappointment in the weeks ahead.
Across the Pacific, another storm is brewing – the Chinese economy continues to slow. Via Bloomberg:
China’s manufacturing may contract this month by the most since March 2009 as home sales slide, adding to evidence the world’s second-biggest economy is slowing, a preliminary purchasing managers’ index shows.
The reading of 48 reported by HSBC Holdings Plc and Markit Economics today compares with a final number of 51 last month. A number below 50 indicates a contraction.
Conventional wisdom is that the downside is limited, as at its heart China is a command and control economy. That said, even a minor slowdown is disconcerting, as the US economy does not need another trade shock to add to the trade and, more importantly, financial shock about to flow from Europe.
Bottom Line: The world economy remains in a precarious place as we head into the final month of 2011.
This post originally appeared at Tim Duy’s Fed Watch and is posted with permission.
17 Responses to “And the Global Economic Saga Continues”
The particular Forex marketplace is open up Day at Twenty four hours. Certainly, the key stock exchanges across the globe take turns (Central london not to mention California plus Melbourne, plus Tokyo, japan) will be possible causing little disruption to merchants, other than weekends. Often the wednesday of a Forex market begins on Monday working day with the ending of this New York Stock Exchange (22h GMT and additionally or sometimes minus 1 hour programs transfer of Day Save your time) and thus closure on the subject of Friday nighttime on the launch from the Melbourne Stock game (22h GMT plus and also excluding an hour way too).
Hiho, are you interested in a link exchange? I have already placed a link to your homepage on my own website. So please place a link to my website too, else I will remove my link after 7 days.Thx and Greets ! :)
Hiho, are you interested in a link exchange? I have just placed a link to your website on my own website. So please place a link to my website too, else I will remove my link after 7 days.Thx and Greets ! :)
Hey, are you interested in a link exchange? I’ve already placed a link to your website on my own website. So pls place a link to my website too, else I will remove my link after 7 days.Thx and Have a nice day . :)
Salut, are you interested in a link exchange? I have just placed a link to your homepage on my own website. So please place a link to my website too, else I will remove my link after 7 days.Thx and Greetings ! :)
Salut, are you interested in a link exchange? I have already placed a link to your website on my own website. So pls place a link to my website too, else I will remove my link after a week.Thx and Have a nice day . :)
Hiho, are you interested in a link exchange? I’ve just placed a link to your website on my own website. So please place a link to my website too, else I will remove my link after 7 days.Thanks and Have a nice day ! :)
Salut, are you interested in a link exchange? I’ve just placed a link to your homepage on my own website. So pls place a link to my website too, else I will remove my link after a few days.Thanks and Greets . :)
Purchases located in level ended up: 43% somewhere between financial institutions; 40% from a financial coupled with a fund director or a nonbank loan provider; and in the end to actually 17% from a commercial bank in addition to a non-financial as well as individuals that makes use of the furniture among the loan institutes
Hey, are you interested in a link exchange? I have already placed a link to your website on my own website. So please place a link to my website too, else I will remove my link after 10 days.Thx and Greets . :)
Genuinely obtained into this article. I found it to be exciting and loaded with special details of interest. I like to examine materials that makes me think. Some instances its a ache to examine what people wrote but this net web site is very person friendly. I don’t suppose you could give me any tips on getting a quoted price and how to thoroughly clean it up a bit. At any rate thanks you for sharing this wonderful content.
Prepare good, I such as
Say. Velocity of one’s drifting currency exchange progressively is going to depend solely with sell changes, it really undergoes the particular determine concerning supply and demand.
about, that have just 3% in environment operate, a significant turn down because 1994.
I am planning to move to Australia permanently. Hopefully, my immigration process will be completed this year and I will move in the beginning of 2011. Can someone suggest some excellent resources and blogs about making the plans for settling in Australia?.
Hi guy, are you interested in a link exchange? I have just placed a link to your website on my own website. So pls place a link to my website too, else I will remove my link after a few days.Thx and Greets . :)
Hiho, are you interested in a link exchange? I have already placed a link to your website on my own website. So please place a link to my website too, else I will remove my link after 7 days.Greetings Have a nice day . :)