Commentary: Will a European recession spill over into the rest of the world?
It is not purely economics that give pause
on the global politico-economic situation
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COMMENTARY: Tuesday, October 7, 2014
Has the Euro-zone got it backwards… again??
Even as serial weak economic data is released for the Euro-zone, more parsimonious members are calling into question the ECB’s right to implement any sort of quantitative easing program that might be effective. Of course, this is especially true for the more successful northern European states who have demonstrated an ability to generate a fiscal surplus. And the political and economic strongman among that group is always Germany, with its strong aversion to the sort of fiscal deficits that contributed to the evaporation of any value of their currency not once but twice in the last century. Yet in that regard are they taking too narrow a view, and contributing to a reasonable question over whether their heavy influence means the Euro-zone has got it backwards… again??
How Quickly They Forget
In the first instance of German disdain for all of the other Euro-zone members who have not been successful in getting their fiscal house in order, there is historic precedence for debt forgiveness being the path to economic recovery and ultimate strength. The term ‘quickly’ in the title of this section is a bit tongue-in-cheek, as the London Debt Agreement negotiation which assisted German recovery actually occurred in 1953.
Yet even more than a half century later, the same principles apply. And Germany would do well to recall that its debt from before and after the Second World War was cut in half. That reduced it to 15 billion Deutschemarks, and stretched it out over 30 years. It was thereby down to manageable levels compared to the fast-growing German economy. It seems that Germany should be willing to see similar actions taken to reinvigorate the rest of the European economy, which would obviously benefit its strong man to a significant degree as well.
And continuing to hamstring the ECB’s efforts to use monetary policy as at least a balm to keep the wounds from going from bad to worse is very counterproductive. It is not just fringe states demonstrating that fiscal rectitude cannot be achieved in a recessionary environment, as France and Italy have both indicated they cannot meet current fiscal goals. Any reasonable assessment of the situation would highlight the degree to which continued austerity risks full blown recession.
[Monday’s Global View TrendView video remains the relevant perspective and technical trend assessment for all markets. That includes our skepticism of the equities, friendliness to fixed income, and foreign exchange remaining on the cusp of a ‘confluence’ of major decisions across all other currencies against the US dollar.]
Authorized Gold and Platinum Subscribers Click ‘Read more…’ (below) to access the balance of the Commentary and Conclusion. Silver and Sterling Subscribers Click ‘Read more…’ (below) to access the balance of the Commentary discussion.
2014/10/08 TrendView VIDEO: Global View (early)
2014/10/08 TrendView VIDEO: Global View (early)
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TrendView VIDEO ANALYSIS & OUTLOOK: Wednesday, October 8, 2014 (early)
As we noted in last Wednesday’s Commentary: Fed Follies and FX Finesse, “Europe is a basket case that is not getting any help from a hamstrung ECB.” And we revisited that and the other global politico-economic stressors for the equities in yesterday’s Commentary: Will a European recession spill over? (…as in ‘to the rest of the world’.) And based on that we can keep our background perspective fairly short today, and we strongly recommend a read of yesterday’s Commentary for anyone who has not already reviewed it.
While there are some other factors as well, the other obvious culprits are the spread of the Ebola virus outbreak and the continued ineffectiveness of the US efforts to contain Isis. There is also a bit of an ironic twist to the latest US efforts to even solidify support from some of the potential anti-Isis coalition members. Along with a negative quip out of the US military on the extent of the US effort so far, that ironic note is in the Isis Crisis section near the end of the actual commentary (i.e. shortly before our technical trend Conclusion.) There are also links to a couple of key Financial Times (www.ft.com) articles on the situation in Europe and that important element of US coalition building.
Other than that, there is also quite a bit of opening discussion of how weak the global economic factors remain in spite of last Friday’s better than expected US Employment report’s Non-farm Payrolls (NFP) number. And that includes yesterday’s very weak Consumer Credit data.
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Video Timeline: It begins with macro (i.e. fundamental influences) discussion of the factors noted above. It also mentions that the IMF has noted a heightened potential for recession in Europe, and after all the weak global data there is not much out in the US today until the Fed’s release of the FOMC meeting minutes at 13:00 CDT.
It moves to DECEMBER S&P 500 FUTURE short-term view at 02:00 and intermediate term at 05:30, then the OTHER EQUITIES from 07:45, with GOVVIES analysis beginning at 12:15 and SHORT MONEY FORWARDS at 17:45. FOREIGN EXCHANGE begins with the US DOLLAR INDEX at 20:45, jumping over to EUROPE at 22:20 and ASIA at 25:40, followed by the CROSS RATES at 29:20 and a return to DECEMBER S&P 500 FUTURE at 33:05 for a final view and additional perspective. As this is an especially extensive analysis due to the extensive late week activity into this morning, even more so than usual we suggest using the timeline cursor to access the analysis most relevant for you.
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Authorized Gold and Platinum Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion and TrendView Video Analysis and General Update. Silver and Sterling Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion.
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