Saturday, September 10, 2011

Finance Heads Ditch Obama-Decide Business Cycle Must Run Its Course At Last.

Sy Harding of Asset Management Research Corp. has posted an article at the financial analysis site:
 Market Oracle titled "Prepare For A Recession and Stocks Bear Market." Apart from the economic analysis, which I believe is cogent and correct in its views on what lies ahead there are, I believe, an important political considerations to be gleaned.

In the extract below, and please read the entire article for all the support information, Harding sets  out that central bankers intervened to prevent a cataclysmic collapse then once that had been voiced bankers in the rest of the developed world let the business cycle start its normal course. The USA did not and pumped in huge amounts of printed money which has not had the desired effect of lowering the unemployment rate.

Clearly the world's bankers are willing to ride out the social dislocation, slow growth (U.K. for example) to prevent inflation. Even China has reined it the massive expansionary policy which was in danger of igniting food inflation and the subsequent threat to the regime that would have posed. Harding makes the point that Bernanke too now seems to have reconciled himself to the fact that further stimulus will not work and, like his colleagues world-wide, appears ready to let matters take their course.

It is not only the bankers. Even the real estate industry leaders, which is a decimated area of the economy, are pushing for the natural ebb and flow to be allowed to take its course. See " Realtor's, builders say housing bust must run its course"

That this should have been done right after the economy stabilized is a sad matter of history and one can give Bernanke credit for being a concerned human, even though mistaken, as he took action to stave off what he thought would be another 1930's scenario for too long. Perhaps he thought he might end up in the history books as another Bruning whose overly tight economic policies in Germany led to the level of social dislocation that led, in a major part to Hitler's ascendency.

Harding goes on to say:

"President Obama did call for Congress to step up to the plate and pass his $450 billion jobs bill.

But even if the proposal should get through the political grinder of the grid-locked Congress, it would be too little too late by the time it could be implemented.

"So prepare for a recession and bear market."

The bankers clearly see no need for President Obama, as if they are willing to allow for the unemployment rate to stay as it is, the share market to go bear, and for the recession to stay at least at the level it is now, then his chances of getting re-elected would be slim. It shows that, perhaps, the economic payers are ,in the end genuinely concerned with controlling inflation, and preventing, on the other hand, a cataclysmic depression, more than they are with controlling who is the president.

This may open the way for a genuine progressive conservative like Sarah Palin who can propose an economic and social populism, a return to a states rights focus as her history of solid economic management in Alaska would not give the money men pause and they just might not bring to bear the power of the media etc against her if they saw no threat to their core concerns.

From Harding:

"But the recession and bear market are coming to the U.S. too, and may have already arrived.

You can be sure of that because it’s been one world economically for years, and historically global economies and stock markets tended to always move in and out of recessions and bear markets together even before their dependence on each other became so pronounced.

You can be sure of it because central banks seem willing to let it play out this time as in days of old, without intervention.

In the financial crisis of 2007-2008, it took a massive coordinated effort by global central banks to pull the world back from the brink of what would have been a total global financial collapse.

But when their economies began to slow again in 2010, without the world being on the brink of financial Armageddon, major nations outside of the U.S. were content to let the business cycle play out normally, arguing against the U.S. Fed’s decision to jump in with its QE2 stimulus efforts.

Indeed, while the Fed was making that massive monetary easing effort, central banks in Asia, Europe, and South America were tightening monetary policies and raising interest rates to ward off rising inflation, and to tackle the government debt crises created by their 2008-2009 bailout efforts.

The Fed’s QE2 effort pushed a flood of additional dollars into the global financial system, spiking the prices of commodities and paper assets like stocks, but had no lasting effect on even the U.S. economy.

This year, as global economies again slow significantly, central banks outside of the U.S. again seem content, or at least resigned, to letting the business and economic cycle play out, even though it likely means a global recession.

They refrain from saying anything too negative that might make matters worse, but for instance, this week the central bank of Brazil, which actually has one of the world’s strongest and fastest growing economies (but highest rate of inflation), warned that this downturn in global economies will not be as severe as in 2008-2009, but will be more prolonged.

The Financial Times reported Friday that “As the Organization for Economic Cooperation and Development’s forecasts showed on Thursday, the near-term economic outlook for the Group of Seven is dire, yet the mood is one of resignation. . . . Finance ministers across the G7 are searching for ways to explain their lack of likely coordinated action.”

And even in the U.S., the Federal Reserve has been clearly transparent about its reluctance to intervene this time.

With the economy far weaker than it was when the Fed intervened with QE2 last year, Fed Chairman Bernanke continues to say the Fed has some tools it can use if necessary, but will wait and see. In his most recent speeches he cautioned that the Fed is limited in what it can do anyway, and called for Congress to step up to the plate."

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