The irony of Europe
by Peter Switzer
Right now Germany’s Chancellor Angela Merkel represents the forces for fiscal discipline, as well as money supply control, which means the European Central Bank can’t ride to the rescue of the PIIGS countries, which at the moment are being forced to pay outrageously high interest rates for their borrowings.
Add this to the austerity program and it explains why Europe is heading into recession, why stock markets are selling off and why the Yanks are worried that the total effect will hurt their fledgling recovery.
Remember, the US has gone Keynesian by spending as well as increasing debt and the money supply, which is based on the idea that by providing money, demand happens, production results and so do jobs, which brings taxes that will help pay down the debt.
It’s a gamble but it was the big economic lesson of the Great Depression.
The other approach preaches fiscal and monetary restraint – pay off the debt and then this will result in confidence re-emerging, spending and growth.
In times where you don’t have a deep recession and frightened markets, I could sign up for this, especially when it is only a few economies but when it’s a big region like the eurozone, I think the wait and unemployment fallout could create terrible economic conditions for longer than is necessary.
Right now Europe has robbed us of a Santa Claus rally, which would have happened if all EU countries signed up for the fiscal restraint treaty and the ECB started to buy Italian bonds, on the basis that promise of fiscal responsibility justified some monetary stimulation — call it help!
The Dow ended 45.33 points, or 0.38 per cent, higher to 11,868.81.
The S&P rose 3.93 points, or 0.32 per cent, to 1215.75.
Away from Europe, the US economy is showing some great comeback signs. Overnight this is what we found:
- Weekly initial jobless claims came in at a three-and-a-half-year low and this follows last week’s revelation that unemployment is now 8.6 per cent.
- FedEx reported earnings better than expected and this is a good leading indicator company.
- The Philadelphia Fed’s Business Outlook for December shocked economist with a positive reading of 10.3 and this was 6.3 points higher than what was tipped!
- The Empire State general business conditions index put out by the New York Fed shot up to 9.53 from 0.61 in November and this was way over the three reading, which was expected!
- Retail sales over the festive period are forecast to be higher than expected as well.
I think the US will benefit from lower energy prices, which will help the US consumer and this means, if Europe can surprise us all and do something positive for markets, a strong rally is waiting to happen.
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Published on: Friday, December 16, 2011
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