So much of what is ostensibly bothering the economies and equity markets right now is being blamed on Europe. Yet, we still feel that much of the concern should rightfully be directed at the weak outlook for the US economy. The most prominent center of consumption (conspicuous or otherwise) for the other global economies seeming damaged contributes significantly to the sense of weakness elsewhere. The rest of the world may no longer get pneumonia when the US catches cold, but they can surely catch cold if the US has pneumonia.
And that includes the degree to which China is no longer simply cooling, but seems headed for a much harder economic landing than was previously predicted. Of course, there had been some signs of that; most prominently in the last couple of month’s OECD Composite Leading Indicators, which we highlighted when they were released. That had already shown China moving toward a potential real slowdown. Contrary to hopes in some quarters, it was never reasonable that the emerging markets were going to rescue the developed economies. In fact, for all of the fixation on China’s aggressive growth, it is still a relatively small economy compared to the major, mature developed economies. As such, it still relies heavily on its exports to those economies; especially the US.
And what have we seen over the past couple of days? Nothing less than the failure of the US administration and Congress to come to grips with steps necessary to reinvigorate the US economy, and an imperious tone from the President on demanding action on his Jobs America bill during the press conference at the top of his Cabinet meeting yesterday.
After hearing from Dallas Fed President Fischer yesterday about the degree to which the Fed should not be attempting any further major actions, we wonder what we will hear from Chairman Bernanke today? To further convolute matters, anti-Fed Congressman Ron Paul will be exploring the potential to audit the Fed. Talk about basic bad timing all the way around!
As noted previous, there is even a pernicious new phase of protectionism entering the picture. Do we really need a trade war? Someone should illuminate the Congress on a little thing called “Smoot Hawley” (same protectionist instincts circa 1930.)