Interesting that just as the American people may have reached the point of government spending fatigue:
WASHINGTON—Spooked by concern about deficits, the Senate shelved a spending bill that included an extension of unemployment benefits, suddenly cutting off a federal cash spigot opened by President Barack Obama when he took office 18 months ago. (WSJ)
Martin Wolf of the Financial Times recently referenced a paper that made the case that fiscal contraction will actually stoke consumer confidence and induce consumer spending that is necessary towards achieving a healthy recovery. Cut spending and taxes, so the argument goes.
That’s a very interesting idea. Wolf went on to propose some reasons, however, that that idea won’t work in this environment. Perhaps the main reason: consumers are still in deleveraging mode, unwilling to spend much. Duly noted.
I was reading George Soros’ criticisms of Germany this morning. If the euro experiment fails, it will be all Germany’s fault, according to Mr. Soros (yeah, okay, sure). It seems Mr. Soros wants Germany to start raising wages and do all it can to boost domestic spending. The old ideas of thrift and hard work be damned—the basic virtues that have led to economic success through the ages should be jettisoned now for all things to be okay. Of course there is a deeper message than just saying party on, but at times it gets lost in translation.
We could refer to our once-upon-a-time Currency Currents that criticized the stress tests administered to US banks, but really we wouldn’t be saying much more than: ‘they were a phony, propaganda-laden strategy that aimed to deceive investors of the obvious risks that remained with US banks.’
Despite much recognition from news sources of the problems, limitations, and shortcomings of the stress tests, they achieved what their designers had hoped: relative calm in the markets. Even though we were failing to truly test these banks and fairly evaluate them, we could say we did enough.
China pulled the trigger on the quid pro quo of not being labeled a “currency manipulator” by the US government, by announcing a move to a crawling- instead of the effective fixedpeg exchange rate system they have been employing. The key word in the last sentence may be “crawling.” One can crawl at varying speeds.
…theoretically speaking, the reasoning may be something like this:
