In what was a very slow new weekend the most significant story is that Spanish PM Rajoy’s political party held on to power in the PM’s home state of Galicia. This was considered to be an important test for Rajoy for if his support in his traditional support base had turned against him, there would be no chance that the PM would have proceeded down the road of further austerity. Now Señor Rajoy may be emboldened to surrender to the demands of German-imposed CONDITIONALITY so as to receive the proposed bailout from the ESM. This should be short-term bullish for the EURO as it will remove one of the obstacles that was blocking a massive dose of liquidity into the Spanish financial system. The trade-off game of financial support for enacting more austerity should help the markets as near-term fears of a Spanish collapse should be postponed.
This week’s calendar is heavy with politics and central bank meetings. The Bank of Canada will announce its rate intentions on Tuesday, followed by the FED and the RBNZ on Wednesday. I am not looking for any surprises from any of the banks and expect the status quo to be maintained.
Monday night will bring the last of the Presidential debates and will deal with foreign policy. From my perspective, this issue is of significance in this regard: If the U.S. is becoming more energy independent then it should be possible to begin cutting the military budget. I am at first a deficit hawk and believe that reining in the free spending ways of a profligate Congress is the most important issue facing the nation. In a very non-political way I have always been opposed to DEFENSE SPENDING for it is the basis for much of the misappropriation of U.S. funds. Defense spending has been the third rail of Congress because so many districts are affected by its impact and the military-industrial complex gets massive support because of the largesse of defense dollars spread to so many congressional districts.
If the defense industries were to get their ox gored, many other appropriations would be cut resulting in the beginning of real budget reform. David Stockman has recently been in the media citing the need to cut defense expenditures by 25% in order to get serious budget reform. If, as both President Obama and Mr. Romney proclaim U.S. energy independence, then it should logically follow that the U.S. military needs will be reduced. The rationale has been a large navy as the bastion of protecting the sea lanes for the flow of the lifeblood of the global economy–oil.
Well, it is time that other nations dependent on the free flow of oil begin to carry the financial burden. If the U.S. won’t cut its defense budget it must mean that imperial overreach is the goal of U.S. foreign policy. If that is the objective then the candidates should proclaim it loud and clear. Otherwise, cut defense spending for the initiation of real budget reform. Again, this is not a partisan viewpoint and only state the case for a sound financial system.
***What are the Canadians thinking? Over the weekend it was announced by Ottawa that a $5.2 billion Petronas bid for Progress Energy Resources would be blocked. It seems that the Canadians don’t want a domestic energy company purchased by a state-controlled company (Petronas is owned by the Malaysian Government). The Canadians continue to say they are open for business but over the last few years some major deals have been blocked by the government. BHP was prevented from buying Potash Company but in that deal the shareholders were also opposed as they felt the BHP bid was too low. There is another pending deal in the energy area: NEXEN Corp being in favor of a $15 billion takeover by CNOOC.
If the Canadian government blocked the Progress Energy deal for foreign government involvement, how promising can the NEXEN deal really be? (Although the Nexen deal was going to be reviewed by CIFIUS because of its holdings in the Gulf of Mexico.) It seems that Canada needs to review its policy on globalization. It has been a recipient of the free flow of money and natural resources for many years. Does it really want to start playing games with global capitalism?
***A quick heads up to an interesting article from last week. In a Financial Times oped piece, Gavyn Davies raises the question: “Will Central Banks Cancel Government debt?” It is very thought-provoking and how to discuss this further as more people familiarize themselves with the proposition that is put forward.It is of more than a passing interest.