The unemployment report in the U.S. was much weaker than the White House pre-supposed. Yes, the Census created 400,000-plus jobs, but somebody forgot to tell the president that while 400,000 jobs is a nice headline number, the market was looking for more growth from the private sector. Prior to the jobs number, the Canadian data was released and that was stronger than anticipated but the unwind of risk couldn’t help the LOONIE.
Just prior to the Canadian announcement was a one-two punch from Europe. The French prime minister talked of a sinking euro being good for the French and Europe, while the talk out of Hungry was a possible debt default. All of this led to risk being taken off the table and the rout was on for the equity and currency markets. Gold was initially sold off, but by the end of the trading day the barbarous relic was everybody’s haven. The U.S. and German DEBT markets also went BID as the flight to safety was on. There are fewer and fewer places left to hide as the flood waters of bad news continue to batter the previous safe harbors.
This weekend brought the release of the G-20 meeting in South Korea and as we foretold, it was a complete waste of time and energy. The Canadians proved victorous as all proposals for bank levies were dropped and the consensus was for each nation-state to do what it perceived to be the correct action tailored to their own domestic needs. In addition, it appears that the G-20 and IMF have backed away from the orgy of fiscal stimulus currently in vogue. It felt that profligate nations needed to begin to rein in obsessive spending plans or there would be more PIIGS leaving the trough on a skewer.
This was a big setback for Secretary Geithner as he was pushing the need for greater stimulus to ensure the momentum of a global recovery. His curt response was that the world could not depend on the U.S. consumer to carry global demand on its credit card. The U.S. has thrown down the gauntlet and let it be known that others need to step to the plate, but we at Notes believe this is setting the stage for beggar thy neighbor policies, especially now that the FRENCH are reveling in the fast-depreciating EURO. (That sound you hear is AIRBUS revving its engines at the expense of BOEING).
As a side note, there are reports from DER SPIEGEL,the well-regarded German periodical, that the German Constitutional Court is going to BAR Berlin’s participation in the €750 billion plan for the financial support of the profligate PIIGS. This is a decision that will rock the entire EU as it would provide Germany with an exit from the ill-conceived bailout, which will ultimately be nothing more than a transfer payment from Germany to the PIIGS. Just when you think you are out of this morass they keep dragging us back in … and so it goes.
Also, we want to attach a piece from the tomorrow’s Financial Times by Josef Joffe, who makes the argument we made about Turkey. We only cite this because unlike some other commentators, Joffe is a very well respected thinker on the world stage. We like when qualified thinkers have a different view from NOTES, but we are not hesitant in providing links to those who offer strong support for our views. Read it critically but it is one more reason to understand why 2+2=5 is also a beautiful thing.
Tags: bid, Debt, Der Spiegel, EU, Euro, French, G-20, IMF, Josef Joffe, Loonie, PIIGS
June 7, 2010 at 1:31 am |
Hi Yra,
According to Ian Bremmer (Eurasia Group´s President), US real unemployment is at 17,1%.
June 7, 2010 at 3:51 am |
A FOLLOWUP TO JOFFE’S PIECE IN THE ft.
Obama’s Foreign Policy- Russia, Turkey and the Gaza Flotilla
The Ottoman Empire breathed its last on November 1, 1922 while December 8, 1991 marked the official demise of the Soviet Union. The latter ‘s collapse was hastened by the policies of Ronald Reagan who more than eight years earlier had declared that the Soviets were an evil empire, and then took an aggressive and hard-line stance that favored matching and exceeding the Soviet Union’s strategic and global military capabilities which brought down this totalitarian regime. This conclusion seemed to have validated the thesis of Francis Fukuyama who two years before in his essay “ The End of History” posited that the end of the Cold War would mark the final evolution of human government with the universalization of Western liberal democracy. The United States was now established as the only remaining superpower whose dominance would maintain a world at peace. This status was continued by presidents Bush senior, Clinton and Bush junior.
With the election of Barack Obama in 2008, the new president promised to transform and bring change to the U.S. Globalization in the economy and working towards using international bodies in forming foreign policy were stated objectives of the new administration. Working in concert with its allies and extending its hand in friendship with its adversaries, was to be the new modus operandi, a 180 degree turn from the Reagan projection of American dominance and power. Obama as a senator had opposed the “surge” in Iraq and although approving a similar strategy in Afghanistan, by putting a timetable for withdrawal in both those conflicts, limited the extent of pursuing their conclusion to a final victory, a word that did not enter his articulate description of his goals. A strong military and continuation of superpower status has not been high up on the young president’s agenda.
Nature abhors a vacuum, and sure enough the troublemakers of the world have seen a weakening in U.S. resolve in maintaining its role as the world’s policeman. Iran continues its development of a nuclear weapon despite U.S. threats of sanctions. North Korea sinks a South Korean corvette with little more than a verbal remonstration. Russia succeeds in having the U.S. cancel ABM systems in Poland and the Czech Republic, and slowly moves into regaining areas of influence in the former Soviet republics and Eastern Europe. Putin feels strong enough to now visit the U.S. backyard and signs agreements with Venezuela. The former KGB official is now on his way to reasserting an important power role for Russia in world affairs.
The Sunni Muslim world has been operating without a recognized leader, and it now seems that Turkey, with its recent spearheading of the Gaza flotilla incident, may be looking to assert that leadership role. It has the second largest standing army in NATO after the United States, while it is an associate member of the European Union. With Muslim influence in European nations increasing every year, and with Prime Minister Erdogan asserting the Muslim nature of his nation, Turkey may be in the early stages of creating a Muslim power that would replace the lost empire of a century ago. Weakening or severing any ties with Israel, which is viewed by many in the Middle East as an outpost of Western democracy, may be a means of achieving that end.
President Obama in his vision of world peace may be creating a world that is even more dangerous than existed when the USSR and the US were vying for domination. Mutual Assured Destruction no longer is the deterrent it once was. And “The End of History” is taking on a totally different meaning than was contemplated twenty years ago.
Nature abhors a vacuum, and if current U.S. policies continue on its current path, the outcomes could be catastrophic.
June 7, 2010 at 4:15 am |
Fred is that your follow up in summary or is that a Joffe piece—not sure
June 7, 2010 at 6:15 am |
My own follow-up.