The US already capitulated and re-started QE. They tried to soften the edges by saying it was ‘just’ re-investing money already in existence that was coming free as previous holdings of mortgage backed securities expired. Yadda yadda! It was QE and the markets knew it.
Today shares in Japan had their first good day in weeks. Why the rise? Well today it is widely expected the BoJ will do again what it has done for nearly twenty years – have some more QE. Free money for the banks, a weakened yen and the never expire just get old and grey, Miss Haversham-style hope, that consumption and borrowing will somehow come back.
So unless BoJ surprises us all, that makes it two down one to go.
Will Europe follow and plug those printers back in? Well there is certainly a lot of pressure building. Not least is the never ending contest of competative devaluation. Everyone wants to be an exporter and grab some growth. So everyone needs their currency to be lowest.
In Europe the Euro has been gaining and that as much as anything, is what has stopped the much hailed but short lived growth in German exports. While the Euro was low Germany did well. The euro has strengthened. Time for QE to put that right.
News out of Scandanavia is of fears in Sweden, Norway and Finland of a housing bubble burst. Analysts at RBS (They have analysts? – please administer a teaspoonful of ‘salts of incredulity’ at this point just as a safety measure) are predicting a 20% house price decline in Sweden. The Swedish finance ministry agrees with them.
In Finland the government is worried they too have a bubble and in Norway house prices have risen 19% since the end of ’08.
In all three countries household debt to income is high. 167% in Sweden. 107% in Finland and is expected to reach 197% by year’s end in Norway.
Whether QE would help or make matters worse is a question that might not get much attention. Because further south Greece is boiling with anger at the evident debt death-spiral it has been forced into and Portugal and Spain are going to be hurting as their regional government’s debts emerge into the light and their banks become even more dependent on the ECB for their only funding.
Summer is drawing to a close. Autumn is coming and it is not going to be kind.