FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 26 January 2015

Epoch Of Belief, Epoch Of Incredulity (2) – “Role Reversals”

Written by ,

Epoch of Belief, Epoch of Incredulity (1) "Beginning the End" suggested a reversal of fortune for the US economy and the US Dollar would get underway in the New Year.

                                             "All Hands Back on Deck."

John Williams provided further support for this worldview last week; when he opined that the Fed should be in no hurry to raise interest rates, because latent economic weakness remains - [i]. Williams is already on record, from Age of Wisdom, Age of Foolishness (50) "Hiding in Plain Sight" - [ii], for signalling that any weakness in the US economy would take future tightening off the table. His recent comments therefore suggest that the tightening is already being taken back. The latest FOMC minutes also signalled that the global headwinds from Europe and Asia were blowing at the last FOMC meeting - [iii], causing the Fed to adopt its "patient" stance that may soon become a reversal. No move on raising interest rates is now expected in Q1. This is the baseline from which to detect any future reversal of course.

The debate over QE from the ECB entered a critical phase last week. The latest Eurozone CPI numbers suggested deflation - [iv]; so in theory Draghi should have the upper hand in the debate over QE. Unemployment in Germany - [v] however hit new lows last week, just as it hit new highs in Italy - [vi], signalling that extreme resistance to QE from Germany will be met with extreme support for QE from Italy. Pundits, including Angela Merkel, have been swift to point out that Greece represents less of a threat of Eurozone breakup risk. This view however omits the new risk posed by Italy. Germany is in a position to argue, with some justification, that its own policies of fiscal discipline are showing tangible economic benefits. Germany therefore in theory serves as a model for how the rest of the Eurozone should behave. In practice, Germany needs higher interest rates, whereas Italy needs lower interest rates and a currency devaluation. Such a clear binary solution therefore begs the question of how the Eurozone can hold together under such divergent trends.

Angela Merkel now appears to subscribe to this binary outcome; and is actively promoting the thesis that Greece can now leave the Eurozone - [vii] with a little wishful thinking thrown in, that this will occur without any contagion spreading. Merkel's posturing should be read as the kind of extreme brinksmanship; in which Germany will threaten the very survival of the Eurozone, in order to extract the economic reforms it demands from each nation as the quid pro quo for QE. Germany has already prepared for the next crisis, by creating a budget surplus. Another debt crisis will therefore have no impact on Germany. In addition, Germany has no budget deficit to monetize and break the rules.

Perhaps the greatest threat to the Eurozone, in fact comes from the political fallout from the "Charlie Hebdo" massacre. Germany has been experiencing a resurgence in anti-Islamic marches of late - [viii]. The French massacres can only have succeeded in increasing the swing to the Far Right in France and the rest of the Eurozone. Since the Far Right parties are anti-EU by default, the political pressure for a breakup has thus increased. The ECB's first action of 2015 was to throw out a potential 500 Billion Euro figure, for the intended QE process - [ix], to see if this scale will assuage the fears in the markets. This is however putting the cart before the horse since, according to Jens Weidmann, QE is legally suspect and by no means a done deal yet. The Eurozone has to stare into the void and address the fears of a breakup first, in order to mobilize the kind of horse trading of QE for economic reform which lies at the heart of the matter.










Click here for Historical News Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Contributors


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
Is Free Trade Harming the Economy?
Bank of England Endorses Post-Keynesian Endogenous Money Theory
News Blog
What We Read Today 21 February 2017
Wife Of Soldier Kisses His Flag-Draped Coffin: It Was Heartbreaking
The Age Of The Employee-less Employer
Projected Costs Of U.S. Nuclear Forces, 2017 To 2026
63.4% Homeownership Rate In 2016 Was Lowest Since 1966
The Homeownership Gap Is Finally Closing - Part Four Of Five
Infographic Of The Day: The Best And Worst Financial Decisions People Make
Early Headlines: Asia Stocks Mixed, Oil Mixed, Dollar Up, Gold Down, Microsoft Growth, US Cities' Homicides Up, Battery Age, Higher-Priced Carbon, Sweden Crime Data, Russia Passes Saudi Arabia And More
February 20, 2017 Weather and Climate Report - Transition to Spring can be Cruel
More Buck For The Chuck
More About What's Going On In Retail
Your Dog Has A Better Memory Than A Chimpanzee
Where Shadow Economies Are Well Established
Investing Blog
Market And Sector Analysis 19 February 2017
Dollar Looks To Head Higher
Opinion Blog
Fascism Defined And Described By Oswald Mosley
Charity Is Not How We Solve Poverty
Precious Metals Blog
Deflation And Gold: A Contrarian View
Live Markets
21Feb2017 Market Close: New Record Highs, Crude Slips Off Session Highs, US Dollar Settles Near Highs
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved