FOMC clings to economic argument.
Looking back over H1 ‘17, Janet Yellen the Fed Chair has hardly mentioned a Dow Jones Index that has risen by a third in eighteen months. Yet inflation which has fallen from a peak of 2.7% to 1.9% this year has driven the Fed to hike rates three times. Sledgehammer/nut anyone?
Looking at a chart of US inflation since 1914 (yes, I know I should get out more), it is striking that since the turn of the millennium and disregarding the troughs created by the recession, in 2009 that we aren’t far from the mean.
The US thrives on its capitalist foundations, even the political left wing promotes its entrepreneurial values It is therefore very difficult, almost treasonous for the central bank to openly admit to driving stock markets lower.
Alan Greenspan a former Fed Chairman faced a barrage of abuse twenty years ago when he called the dot.com bubble irrational exuberance. At that time, investors were giving crazy valuations to businesses that had never made a profit.
Although it took four years for the bubble to burst, it is Greenspan who is “credited” with starting the fall. Today historically low interest rates and ultra-easy monetary policy have driven investors looking for return.
UK facing summer of economic discontent
It is hard to find a concrete effect of Brexit that is slowing the UK economy other than the value of the currency that has fallen by 14% against the dollar and 13% against the euro, importing inflation.
Producer prices continue to climb at double digits and bringing the threat that consumer prices won’t fall anytime soon.
Brexit will start to drive the economy in practice rather than theory once we know how much it’s all going to cost. The hard/soft Brexit argument is starting again now that the government finds itself on slightly more solid ground.
Unfortunately, the referendum only asked if the populace wanted to stay or leave. It didn’t ask what kind of Brexit was wanted. The four freedoms weren’t really given too much consideration other than in an abstract way over immigration. Perhaps businesses should have been given their own vote to allow the people to understand what they were voting for.
It’s all academic now (unless you are Donald Tusk tucked up in bed dreaming of the United States of Europe, including the UK). Brexit is happening and demonstrating remainers who have nailed their colours to the “soft Brexit” mast look for small victories despite the war being lost.
US vows to defend Japan (and itself)
On TV the other evening I was watching a US academic call the “North Korean situation” a problem without a diplomatic solution. He couldn’t see a way in which the problem could be defused since Kim Jong-un will never give up on his “right” to a nuclear arsenal. Is he just playing games with the US or does he intend to use this capability in a first strike knowing the consequences?
Now we all know that Kim has done more than save up his mum's washing up liquid bottles to build a rocket, the threat is being taken seriously even if Kim isn’t.
This is, and will continue to be, an issue that needs to be handled delicately since the three major superpowers and two major industrial nations are facing a diplomatic and military nightmare. Japan and South Korea don’t want a military conflict on their doorstep. China, the supplier of most of North Korea’s imports feels bound to, if not support Kim, then at least try to understand him. Relations between China and the US are strained at best while Russia looks on happy to listen if not comment.
Where is Kissinger when we need him?