Posts tagged interest rates
The Fiscal Bazooka

Markets remain undecided on whether to treat the signs of intensifying global economic weakness in Q4 and a looming slowdown in earnings growth as the kitchen sink—a signal that the worst is over—or evidence that conditions are worse than anticipated. As such, I thought that I’d discuss the other macro story du jour: The likelihood of a grand global experiment in coordinated fiscal stimulus to take over from our tapped-out monetary policymakers. Laughable you say; perhaps, in the short run, but the signs are clear enough if you care to look. Fiscal discipline has become unfashionable, even to the point that it is deemed outright irresponsible for individual economies to pursue such a strategy from the point of view of global economic growth. These days, economies who show fiscal restraint with large external surpluses—the savers who finance the borrowing of others—are “leaches” on global aggregate demand. If they do not change their ways on their own, they should be coerced. The flirt with the idea of a big fiscal push diverges in intensity across the major economic regions, but I identify three common denominators.

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Is the Fed's Script Already Written?

I have a feeling that many readers didn’t like my conclusion last week, that the major markets and asset classes are a bit like watching paint dry. I concede that it was a lousy metaphor, but last week provided an excellent example that markets are still playing second fiddle to events elsewhere in the public sphere. The NATO summit in Brussels and Mr. Trump’s visit to the U.K. drew all the headlines*, once again forcing economists and strategists to take on the uncomfortable mantle as armchair political analysts. To the extent that Mr. Trump’s odd ways are the common denominator across most geopolitical risk these days, experience suggests that investors should ignore it. That said, I suspect the resurgence in the dollar has something to do with it. The U.S., and by extension Mr. Trump, wield extensive power in the global economy. The more that the White House throws its weight around—on the laughable premise that the U.S. is being short-changed as part of the post-WWII world order—the stronger the dollar gets. In other words, Mr. Trump can win the trade wars, and extract pounds of flesh from his allies, but if the dollar zooms higher, the end-result could be the opposite of what the president, and his base, set out to achieve in the first place. 

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