Notes From Underground

Today’s economic data continued the recent pattern of tepid activity. The EMPIRE MANUFACTURING INDEX was very soft but the analysts believe that the Japanese earthquake played havoc with global supply chains and thus impeded some manufacturing sectors. The CPI number was right on target and thus had no impact. The CAPACITY UTILIZATION and INDUSTRIAL PRODUCTION were on the soft side, which added more concern to the fragility of the U.S. economy. Markets are left with moderate growth while being plagued with the continual problems of the PIIGS.

The DEBT STRESS will not go away as long as the Europeans fail to deal with reality and seek to blame the markets for the continued problems. If the ECB and ECOFIN are going to provide a bailout, then let it happen. If a DEFAULT is to take place, then get all creditors to the table to begin some genuine workout. Muddling is not a policy! The longer the lies and deceit continue the greater the ultimate price to correct the problem will be. Again, the fact that today’s global macro board is a minor reflection of the May 6, 2010 flash crash, it is a reminder to Chairman Bernanke and others that Lehman-type events are DEFLATIONARY in nature. As credit becomes constrained, there is a rush to sell assets putting further stress on the balance sheets of TOO BIG TO FAIL BANKS and many other actors in the private sector. The problem now is that Europe is under severe stress but the voices of international financial coordination are SILENT. Where is the cohesiveness that greeted the world in September 2008.

Hey, Bernanke, you raised your voice in admonishing CONGRESSabout the fear of failing to raise the DEBT ceiling but you seemed to have lost your bravado when it comes to pushing the ECB and Brussels to find some genuine resolution to charade that is threatening the global financial system. Mr. FED CHAIRMAN, you are out of line in admonishing CONGRESS as it is not your job. If you involve yourself in FISCAL POLICY then you had better be there every time the “FOOLS ON THE HILL” create spending programs that cause future problems for the U.S. financial system. Ben, your responsibility is financial solvency and monetary policy–and yet, while Athens is in flames you are silent. What will be the role of the U.S. in aiding the Europeans in their time of great financial distress?

It is more than of passing interest that GOLD rallied today even in the face of a massive selloff in the energy and grain markets and with a strong DOLLAR rally. IN A ZERO INTEREST RATE ENVIRONMENT MONEY HAS VERY FEW PLACES TO RUN. Even the long end of the U.S. Treasury market is attractive in a frightened global market, but I wonder for how long. In a DEFLATION/INFLATION confrontation, the Bernanke FED will choose INFLATION. DEFLATION is a non-starter for the class of 1937. Never let go of the concept that the FED will do all it can to prevent a DEFLATIONARY outcome to the world’s DEBT-laden economies. The poster child of DEBT-levered growth is of course none other than Bernanke’s immediate dominion.

A quick aside on why the French are always to be watched. President Sarkozy was on the wires pushing for “tighter regulation and surveillance of the commodity markets.” Sarkozy was warning that the financialization of commodities has caused great pain for the world’s emerging markets and its consumers. The French president reiterated that one of his goals as head of the G-20 this year was to regulate the commodities markets in order to lower prices. He says, “It’s necessary to limit the leverage effect by imposing a minimum cash deposit for each transaction–that’s the demand from France.”

Mr. Sarkozy, the European agricultural programs have done more to harm the emerging market farmers than any damage arising out of the commodity markets. The DOHA round would have been concluded long ago if not for the agricultural subsidies that countries like France and the U.S. supply to their farmers. I would argue that the ETHANOL and BIOFUELS programs of the developed nations have done the most to raise global food prices. So Mr.Sarkozy, remember that when you point your finger there are three more pointing back at you. Gee,I can’t wait for Lagarde to head the IMF.

Tags: Bernanke, biofuels, Capacity Utilization, Commodities, Congress, CPI, debt stress, default, deflation/inflation, DOHA, Dollar, ECB, Empire Manufacturing, ethanol, Fed, fiscal policy, France, Gold, IMF, industrial production, PIIGS, Sarkozy, too big to fail banks

This entry was posted on June 15, 2011 at 5:19 pm and is filed under Europe, Federal Reserve. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.