Confusion rained/reigned today as all the main global equity markets rallied as if spooked by some possible sea-change in policy. While some analysts attributed the strong rally a low volume short covering rush to the exits, I BELIEVE IT IS THE RESPONSE TO THE LARRY SUMMERS’S PUSH FOR A MASSIVE GLOBAL BASED FISCAL STIMULUS PACKAGE. This has been Summers’s mantra for the past year and it is gaining a following in the inner sanctum of the global elite. There is no question that the DAVOS CROWD has been battered by the gaining strength of “fringe party” electors around the world. There is a need on the part of the self-selected elite to maintain their hold over government policy. A massive stimulus package spent on investment tax credits and massive infrastructure projects will provide the boost to maintaining positions of authority. Those who are concerned about budget deficits will be told that with interest rates at record lows it would be folly not to invest in our children’s futures.
The idea of the burden laid on the next generation is not an issue for those seeking to maintain their hold on the positions of power. Low interest rates are the key to fiscal stimulus. Expect to hear more about the work of the retired chief economist of the IMF Olivier Blanchard for his analysis of the effects of fiscal stimulus lay out the powerful multiplier effect from public investment.
The central banks of the world are under attack for the continued use of monetary policy as the “Only Game In Town”: The effects of QE and QQE are both failing to provide the boost that was expected. Prime Minister ABE, who is hosting the G-7 in Japan this week, has been lobbying fellow heads of state on the issue of large stimulus spending. The magnificent seven are (and don’t laugh): Canada, Italy, Japan, Germany, France, Great Britain and the U.S. The only two countries openly opposed to a G-7-coordinated program are Germany and Great Britain.
The Brexit vote and P.M. Cameron’s need for G-7 support means Britain will agree to any policy the majority wants. The odd man out is Germany and they will be demonized at this meeting because of their desire for budget austerity and with it, the German’s massive trade and current account surpluses. The game is on and we have our villain. Money rains. We don’t need no money rains. We have fiscal stimulus to provide the needed economic spark. Part two tomorrow.