Hey everyone else got into the helicopter on Thursday except the Federal Reserve. It’s long been my contention (and the contention of Jim Rickards and a few others) that the Federal Reserve would hold off on QE III until and unless the E.C.B. and others sky-dropped a bunch of billions first. Basically, the Fed is saying, “Look, we stepped up to the plate in the Lehman fallout and are still dealing with the overhang of AIG (NYSE:AIG), Fannie and Freddie, GM (NYSE:GM) and everyone else. We’ve thrown some money into the pot to cover our banks’ exposure to Greece as well. Frankly, we’re done for a while, it’s y’all’s turn. Now call me when you’re at zero-bound Mario.”
So, this is where things stand. The E.C.B., the BoE and China all poured gasoline on the monetary fire in the hopes to keep the balloon from falling out of the sky. The fire flared briefly but it’s still dying and the balloon is beginning to sag. (Note my incredibly subtle metaphor, btw. ) It’s Sunday afternoon in the States as I write this and the Euro (AMEX:FXE) has opened weak and looks ready to test $1.22 and below that $1.20. This will continue until the point that the Fed finally decides to perk up the re-election chances of President Obama.
Given the flabby employment numbers and anemic credit growth the time should be sooner rather than later. If he decides to wait much longer, trusting his intricate and wrong models of the economy the level of intervention needed to outpace the credit death spiral will be breath taking. Not to mention currency-breaking.
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