What’s the Buzz, tell me what’s happening

The news cycle sometimes slows down, but this week was overwhelming.  We got both German Constitutional Court Approval of EMS and QE3 from the Fed, plus pro-Euro results in the Dutch election (and the market zoomed up as I predicted on Sept. 9th — see previous post).  All of this seems to have pushed concerns about Greece’s looming bankruptcy to the sidelines.  Everyone is looking happy, and confident that the Euro and markets will prove strong and resilient.  And so they will; for a while.

The problem that remains is the lack of economic growth.  The Fed targeted Mortgage securities in this round of Quantitative Easing, to push the housing market forward and light up one of the crucial elements of any recover.  But people without jobs or savings will not buy houses, so it will still take months and months for this easing to really push up house prices.  In Europe, the trade-off for central bank infusions of funds seems to still be austerity programs.  This is, frankly, nuts.  The point of making it easier for European governments to borrow should be to allow them to invest in infrastructure, education, vocational training, tax breaks, investment write-offs, and so on to boost growth.  Saying we will make it easier for European governments to borrow is like filling the tank of a car with gas but then telling the driver he has to push hard on the brakes.  How is he going to start going forward?  So unless we see bigger FISCAL policy changes to complement monetary policy, I fear things will still bog down again.

Other things happening this week that got even bigger headlines:  Attacks on US embassies and consulates in Cairo, Libya, and now spreading elsewhere, with one distinguished ambassador and other officials killed in Libya.  And in China, the transition to a new leadership has been unsettled by the sudden disappearance of leader-in-waiting Xi Jinping.  Xi, reportedly down with a back injury, has been out of public view for two weeks, cancelling a host of meetings with foreign ministers and missing high-level domestic meetings as well.  Why?  No one knows for sure.  But the stream of bad economic reports for China continues.  Is Xi taking a rest cure to devise a new strategy?  Being elbowed aside by officials panicking and seeking a new direction?

On both Libya and China, unlike some Presidential Candidates (who will remain nameless), I prefer to wait until we have sufficient facts before offering analysis of what’s really happening.  So stay tuned — I will post on the new Arab attacks and China’s leadership issues once we have a few more facts and a few more days to sort out rumour from events.



About jackgoldstone

Hazel Professor of Public Policy at George Mason University
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