Wednesday, 1 September 2010

No Clothes - Pessimism about the USA

With so many countries - Germany, the United Kingdom, Japan - thinking they can rely on increasing exports to stimulate their growth while cutting back their spending at home to reduce government debt, what is happening in the world's biggest market takes on extra significance. And in the United States the signals are not good as its economy staggers along with unemployment still approaching 10 per cent and growth insufficient to stop it rising further.
These extracts from the article No Clothes -  on Tim Duy's Fed Watch website give the flavour of the problems ahead.
"Rereading Federal Reserve Chairman Ben Bernanke's recent speech and measuring it against the incoming data leaves me with a pit in my stomach. I sense Bernanke reveals in this speech he is the proverbial emperor without clothes, short on policy options but long on hope. A last ditch attempt to persuade us that as long as we don't believe deflation will be a problem, it will not be a problem." 
"Bottom Line: Bernanke's speech struck me as anything but reassuring. He made it clear that the Fed's remaining options were weak and/or less than palatable for policymakers. With such low ammunition, how can we take seriously his conviction that the Fed will aggressively defend against the threat of deflation that is already upon us? Simply wait around for the fiscal policy backstop? Don't hold your breath - this Administration is about to be on the run; they have already dropped the policy ball, and there will not be a second chance. We already had a lost decade, and another is upon us."
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