Notes From Underground: Merkel set to stand firm in the face of an electoral setback

Chancellor Merkel has said that there will be no shake-up in the ruling coalition even as the CDU/FDP suffered at the voting booth as the German electors have grown tired of the vacillating vixen of Berlin. The German chancellor has wavered on EU BAILOUTS, NUCLEAR ENERGY and even deserted her allies in its ill-conceieved intervention in Libya. So a leader who has not stood fast nor firm is telling Germany that after the election defeat she will stand firm. Now we all ought to be nervous. I hope that Germany will be firmer in honoring its committments to the European Financial Stability Facility (EFSF) than Merkel has been to adhering to some form of political principles.

Also, it was interesting that President Obama declared victory in the Libyan campaign and handed over control of the operations to NATO. Is France a member of NATO this week? The U.S. and its allies have entered a dangerous period in its intervention in LIBYA. As I wrote just after the Egyptian rebellion, the real game changer will be Syria. The Assad Regime has severely suppressed the incipient demonstrations as expected. Secretary of State Clinton was asked if the U.S. and its allies would intervene to halt the slaughter of Syrians–as it claimed to be doing in Libya–Madam Secretary stated that Syria was not Libya because Bashar Assad had promised visiting U.S. legislators that he was bent on reform. Therefore, the reform-minded Syrian president is not a candidate for the military reprisals.

Again, the U.S. and its erstwhile allies have entered down a very dangerous path. Hmm, where are the international lawyers for clarification? The road ahead in the MIDEAST will be full of all types of obstacles and it seems that the Western powers have failed to consult a GPS system.

Today the Treasury auctioned $35 billion of two-year notes and the outcome was tepid at best. Over the weekend, St.Louis Fed President James Bullard suggested that the FED could end QE2 before its full allotment. In addition to Bullard, Plosser and Fisher were screeching like HAWKS in heat about the need to end monetary ease and begin the removal of liquidity to halt the rise of inflation. It seems that FED presidents become very hawkish during their time away from Washington.

All the inflation hawks bring me back to my playground years: Plosser and Fisher are like the kids across the playground who yell obscenities and talk tough as their mothers sit in the car waiting to pick them up. If inflation is such a threat, why is every vote at the FED unanimous to stay the course of QE2? Hoenig, the outgoing Kansas City president, was the oldest FED member and the only one with a backbone. For me, I care not what these anti-inflationists say. The proof of FED action will be in the 2/10 curve for it has no voice but speaks loudly. Just ask the PORTFOLIO BALANCE CHANNEL.

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2 Responses to “Notes From Underground: Merkel set to stand firm in the face of an electoral setback”

  1. Arthur Says:

    QE3… An interesting comment by Barton Biggs: “Maybe the good news about this weakness in house prices is that we’re going to get QE3 because I don’t believe for a moment that if house prices continue to fall for another two to three months that Bernanke is going to end QE2.”

  2. yra Says:

    Barton Biggs firm is Traxis—Yra Harris is Praxis—-we differ in more ways then just one letter.Barton needs the FED to QE3 to make sure his stock market call is correct–I think it is not that simple.A QE3 would provide a whole new range of problems—housing cannot be the only variable as it has already been the catalyst for FED thinking

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