As regularly as swallows return to Capistrano and hurricanes hit the Gulf coast, post-GFC markets get all a-flutter or at least windy about any suggestion of the US Federal Reserve chairman cranking up the printing presses again.
And that’s allegedly an excuse for markets nervously doing little ahead of a central bankers’ gabfest in Wyoming on Friday night.
Despite all the wind and flutters, here’s trusting that Ben Bernanke doesn’t feed the habit: Ben, step away from QE3, you know it wouldn’t help.
Odds are that Bernanke’s increasingly-awaited speech at Jackson Hole will be more of the recent same: a promise of being ready to act if action is required, but nothing concrete, leaving the possibility of another round of quantitative easing blowing in the breeze.
The short-term danger of that is a knee-jerk reaction of disappointment that will irrationally ripple through the world’s markets. (“The Fed failed to trash the greenback – quick, sell Telstra and Woolworths.”)
In the medium term, failing to be blunt with the American public about the diminishing returns from QE leaves markets with their sugar addiction intact and American politicians continuing to hide from their looming crisis in the belief that the Fed will somehow muddle through and make it all right. The great force of American democracy can get back to focussing on the big issues: the Romneys buying 100-roll packs of Costco toilet paper and Obama hiding his past as a member of the Mujahedeen.
Some stronger language from the Bernanke, pointing out that (a) QE3 wouldn’t do much to help anyone right now except gold speculators and (b) the US doesn’t really need QE3 anyway, might just help turn attention back to the political paralysis that continues to loom as the biggest problem for the world’s biggest economy.
Sure, the central bank can always apply more stimulation, but at present US levels, it’s just pushing harder on the piece of string. To the extent that the Fed has some ammunition left, best to wait in case it’s really needed, when it’s not just the whites of the enemy’s eyes but the pulsing blood vessels therein that can be distinguished.
With distractions ranging from encircling China to hurricanes to loopy Senators imagining “genuine” rape, the one that Washington doesn’t seem to be concentrating on is how to avoid crashing over the planned fiscal cliff that will send the country into recession next year.
It is such an extraordinary situation that it engenders disbelief. Surely it’s more likely that Romney is African American and Obama a Mormon than the Republicans and Democrats have combined to program another recession. ‘Fraid not.
They need to be told, Ben. When you deliver your much anticipated speech this Friday in an out-of-season ski resort in the middle of American nowhere, please set them straight. Put the responsibility for America’s recovery back where it belongs: in the hands of the (unfortunately motley) crew that must intelligently ditch tax lurks and surgically cut structurally unsustainable spending. Continuing to debase the American dollar won’t really help.
Michael Pascoe is a BusinessDay contributing editor
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