Time for our leaders to play, ‘Blame The Foreigners’

Well things from Jackson Hole seem to be following the script so far.

Bernanke says ‘the Fed will not allow delfation and stands ready to take whatever action is needed’. Trichet then stands up and says, ‘waiting for the recovery to happen before cutting public and private debts would be “very dangerous” and lead to a Japan style lost decade’. Japan’s Prime Minister Mr Kan then says, ‘Japan is ready to take “bold action”‘ and the head of the BoJ says he has to fly home in a hurry because the they may be about to have an emergency meeting and the rumour is that massive intervention to weaken the Yen is immanent. Cue more QE and another lost decade to add the the collection.
I did like Trichet having a go at Bernanke. Tightening fiscal policy, he said, was “not just a theoretical curiosity.” Basicall telling Bernanke, you may have written a thesis on the Great Depression but you don’t have either a clue nor any balls. Both of which just might be true.
Not that Euro-style public austerity is going to work either so long as it is constantly paired with and nullified by continued spending on bailing out insolvent banks. You only have to look at Ireland to see what sort of disaster that is.
What is most interesting to me, is how quickly the US/EU divisions are now opening up in public. I have felt for a while now that there were real division and animosties which would only fester and grow (See FED/ECB collision course and earler ones linked to from that one). I thought, however, more of an effort would be made to still seem ‘together and united’ at least in public. Seems I underestimated how far the political ill-feeling has developed betweenthe European and the US leaderships.
Trichet said the ECB was ‘concerned’ that high levels of indebtedness would ‘stifle’ any global recovery. That is basically saying to Bernanke and Geithner, you are endangering us all. Whihc is strong stuff for a banker.
This rather returns the criticisms the Fed had of austerity progrmmes in Europe. So no love lost there.
Add to this the tensions betwen the US andf China with some in Congress calling China a ‘currency manipualtor’ to which China replied by then using its own Ratings Agency to downgrade the US – and it all does seem to be unravelling a bit.
Now we have Japan about to try to do what it failed to do once before in ’04, and what the Swiss have been trying and failing to do for all tof this year, namely to force a devaluation of its currency. All of which together indicates to me that we do appear to be where the script said we should be – competative devaluation.
In GD1 we had Protectionism which is competative trade tarrifs. In GD2, because we have spent a year shovelling private debts into National Banks and thus endangering our currencies, the field of combat has shifted from trade (we have none) to currencies.
Everyone has pinned their fading and desperate hopes on growth. Everyone therefore needs exports. Which in turn require a weak currency. Something we cannot all have at the same time. Currency devalutaion is a zero sum game where every gain has to be balanced by a loss somewhere else.
The US starts this competition from the back of the grid. Their strength, turns out to be a curse as well. Very Greek tragedy. The dollar as safe haven allows the US to run insane debts which would kill anyone else. But it also stymies their efforts and desire for a weaker currency.
Many observers have taken a good guess that European banks may be even more screwed than US ones. This could well be true. Certainly the Landesbanks are where so much of the Securitized rubbish ended up. But what people need to look at now is that America’s currency woes may turn out to be a balancing factor.
Of course we could all help ourselves if we could unseat the self-serving power of our respective banks and our bought and paid for politicians. But that will require us all to NOT fall for the easy, “blame the dirty rotten foreigners” propagand which is about to get into gear everywhere.

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