Despite the efforts of yours truly to create as strong a profile as possible in the world of econ-blogging I regret to inform my readers that the organizers of the World Economic Forum in Davos have not found it within their hearts to invite me to Switzerland.
This is pity actually as while the last couple of years have been dominated by doom and gloom it appears that this year champagne corks are once again flying high and the good spirit is back. How else could you interpret the Bloomberg story from the forum that the big banks, far from being tarnished knights, are now back in full confidence;
I can add little to this than a simple shrug. If the world of high street finance was weird to me before the crisis, it has not become any less weird by the fact that the industry seems to have returned to their old ways only a few quarterly statements after many of them were injected with tax payer money and free money from the Fed.
Now, much of this of course is based on growth in Asia and other emerging markets, but the comparison with past golden years of global growth makes me feel a bit uneasy. Indeed, I would say that it is somewhat of a stretch to assume that the origins of the financial crisis will lead to a recovery of these proportions. But of course, I am being a party pooper now and I would certainly not exclude the possibility that the global economy is in for a super cycle of economic growth. I would however only add a small probability to this happening.
What I am basically saying here is that I can understand why the global intelligentsia and finance jet sets, by simple virtue of the need to do something different, are emanating almost über positive messages from this year’s get-together.
Yet and while I promised not to spoil the party I thought that I would still let you in on my presentation prepared for Davos in the hubris like expectation that I naturally would be invited as a keynote speaker for several of the finest cocktail parties.
In addition, the upshot is that my presentation would be very short and only downbeat to the extent that all those intelligent men and women at the forum would not be able to tell me (you) how it is the developed world is supposed to get economic growth going forward. This should be easy then, or maybe not …
Being a European I would then start with the following chart;
(click for larger picture)
I probably would not say much here, but anyone believing in any form of super cycle hitting the shores of Europe should at least be able to explain where growth is going to come from. This is especially the case in the context of the ongoing focus on fiscal austerity which is going to pull away the main source of growth. This would then bring me neatly to my next chart;
(click for larger picture)
Obviously, I would probably at this point be branded as a fiscal apologetic who believes that governments can just spend as if there is no tomorrow. This would be a mistake. Indeed, if you want to speak of debt and fiscal problems I am all ears. Even with estimated tightening noted above from the IMF’s forecast countries such as Italy and Japan will still be running large structural deficits in 2014 (i.e WITH relative “austerity” accounted for) and this only goes to show that there is really only one end result here.
But this is also a situation of damned if you, damned if you don’t.
If governments choose to focus all their efforts on growth and let fiscal excess continue the already huge debt problem will become worse. And if they don’t, they must face growth rates that are not only low, but perhaps even negative for a long period of time. A very recent shot fired across the bow today by the S&P comes in the form of the downgrade of Japan’s sovereign debt.
I would then pose my spectators one simple question and ask to reflect on some simple issue. What is the trend growth in the OECD and her individual economies with a balanced fiscal budget? And once we have agreed on that answer the obvious next question would how the world will deal with a substantial part of its economies exhibiting negative trend growth rates for as far as the eye can see?
More than anything I think that this has probably yet to sink in to markets and policy makers alike. Indeed, after having pissed in the proverbial bunch bowl I would probably go on to talk about the necessity (although my praise for the apparent success of the Euro bond issuance) of substantial debt restructuring in the Eurozone.
Alas, at that point my microphone would have long been switched off and I would probably, to boot, have been taken out by the in-house Davos sniper tasked with the elimination of any spoilers of the good mood.
Good thing I wasn’t invited then.
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At 8:30 AM EST, the U.S. government will release its weekly Jobless Claims report. The consensus is that there were 405,000 new jobless claims last week, which would would be 1,000 more than the number released last week.
Also at 8:30 AM EST, the Durable Goods Orders report for December will be released. The consensus is that there was an increase of 1.5% from November.
At 10:00 AM EST, the value of the pending home sales index for November will be announced.
At 10:30 AM EST, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States.
At 4:30 PM EST, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy.
Also at 4:30 PM EST, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves.