Posted by WARREN MOSLER on July 29th, 2010
It’s off to the races for a while in the euro zone as the adjustment that began when the ECB started buying member nation debt continues, and the still large budget deficits support incomes and growth while the still low euro supports exports.
Fears of solvency risks for govts and the banking system are fading fast.
The euro meanwhile will continue to adjust/appreciate with a small lag in response to rising net exports and ultimately keep a lid on them.
If US jobless claims are up it’s good for US stocks, as unemployment is perceived to keep labor costs and interest rates down.
If claims are down it’s good for stocks as it’s evidence of a bit more top line growth, which trumps any fears of damage from interest rate hikes.
China weakness serves to keep a lid on resource costs which is good for stocks.
Earnings season has confirmed that business has figured out how to make money in the current environment, supported by 8%+ federal deficits that is also supporting 4% personal income growth as well as nominal and real GDP growth.
Unemployment working its way lower in tiny increments unfortunately causes politicians and mainstream economists to think their measures are ‘working,’ including revised down deficit projections from the automatic stabilizers, and that it all just need lots of time due to the severity of the downturn.
This is very good for stocks which further supports the political desire to prove themselves right. And it is very bad for people forced to wait years before their lives can begin to recover, as with modest improvement in GDP a fiscal adjustment that could drastically accelerate the move back to full employment is highly unlikely.
At age 60, it’s not looking like I’ll get to experience how good this economy could be for everyone if we understood monetary operations and reserve accounting.
Europe Economic Confidence Rises as Exports Improve
ECB Puts Bigger Discounts on Low-Quality Collateral
German Unemployment Fell for 13th as Exports Boom
Lagarde Predicts Significant Pickup in World Growth
Berlusconi Survives Confidence Vote to Pass Deficit Reductions
Italian Business Confidence Rises to Two-Year High on Exports
Inflation in Spain at highest point in 18 months