August rumbles away, leaving more uncertainty than happy vacation memories. Federal Reserve Chairman Ben Bernanke pretty much admitted in his Jackson Hole speech that the central bank is powerless to create jobs and stimulate growth without help on the fiscal side from the White House and Congress. That won’t happen. President Obama is timid. As for Congress, as Daniel Weeks, president of Americans for Campaign Reform put it, “Congress isn’t broken — its fixed by special interests.”
There will likely be no QE3 unless deflation appears as a serious threat (what we really need is a little inflation to help with debt deleveraging). The Federal Open Market Committee is divided over the path forward. The Fed faces unprecedented threats to its independence, not least from Rick Perry, potentially the next president, who implied that further easing would be treasonous.
Meanwhile, Europe remains broken, specifically the southern European nations that borrowed too much from big banks and Ireland, which made the bad decision to bail out its banks and their dodgy real-estate portfolios. The counter-party dangers here are extreme — who loaned what to whom? — and may reach into American big banks. Chancellor Angela Merkel is not going to sacrifice a strong German economy and prosperous German society to bail out Italy. This is not 1944. Along with slowing growth in America (and a dip in Canada’s growth that shouldn’t have been a surprise), Europe presents a major threat of a new (or continuing and worse) downturn.
Today’s Econ Haiku:
If Boehner allows
Obama will speak on jobs
Where are their pink slips?