Who will pick up the slack?
That's the $64,000 question, isn't it? I personally don't believe Europe has the potential for absorbing capital flight from the US, making a bunch of nifty products and convincing their domestic markets to buy them. Sure they are great at filling the needs of foreign markets and exporting here, but I just don't see the potential in the domestic European economy. I may be mistaken on that assumption, but my gut says they don't.
But I think the overnight comments in Japan with regard to pursuing a "weak Yen" policy should take some pressure off the Fed with regard to interest rate policy. With competing currencies like the yen declining, there will be even more pressure on the Fed to lower US rates, as well as more leeway to do so, since Japanese capital now has increased incentive to remain committed to US markets.
They may wait for the Euro to roll over and commence a retrace before giving a intra-FOMC meeting 1/4 point decrease (in the name of preserving the global system, of course), or they may just wait until the next FOMC meeting.
But since the Fed hardly does anything in increments of more than 1/4, if we don't get a rate cut in early January, followed by another one at the meeting, the market will be sorely upset, imo.
But as friverola so aptly put it, AG applied the brakes too hard and they locked. And when your brakes lock, you have to release them quickly and then reapply pressure gradually.
Thus, the only way to prevent the economy skidding into the barrow pit is to release the financial breaks and reduce by 1/2 point as a form of shock treatment that turn consumer psychology around.
Regards,
Ron |
