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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

State of the Union

Posted by WARREN MOSLER on January 25th, 2011

Some of the risks listed at year end seem to be coming on line, including slower growth out of China, euro austerity keeping a lid on demand in the euro zone, and US fiscal balance too tight for anything more than very modest top line growth, given current credit conditions and the negative income effects of near 0 interest rate policy and QE.

With crude oil continuing to soften, and Brent looking to close the gap with WTI by falling more than WTI, the dollar continues to gain fundamental support as it becomes ‘harder to get’ overseas.

And falling gold and silver prices, along with most other commodities, are showing a world that is sensitive to those indicators that QE2 doesn’t look to have been at all inflationary, leaving many people with positions they otherwise would not have taken (long gold, silver, commodity currencies, and other implied ‘short dollar’ positions).

The risk here is that the dollar gets very strong, and commodities very weak, which can lead to a US equity correction as well as a strong bond rally, all contributing to a deflationary malaise, as the theme remains:

Because we believe we can be the next Greece, we continue to work to turn ourselves into the next Japan

Which includes a misguided national effort to export our way to prosperity, which is likely to be featured by the President tonight.

5 Responses to “State of the Union”

  1. Ivan Says:

    The Tea Party Republicans are slamming Paul Ryan for supporting TARP. Apparently they preferred a run on the banking system and a complete collapse of the economy. It’ll be interesting to hear his thoughts tonight and if he runs from his earlier positions. He’s a very bright guy and someone that you need to find a way to meet before he become unreachable.

    Reply

    Tom Hickey Reply:

    The GOP has its hands full dealing with the base that wants to adopt fiscal policy that will blow up the economy and the big donors that the party serves. It’s a double-bind, damned if you do and damned if you don’t situation for them. The Dems are just going to sit back and watch the fireworks.

    Reply

    Ivan Reply:

    The Dems will jump right in (as Obama will tonight)to the deficit cutting pool if they believe it will win them votes. Since that is the public mood, and nobody out there is educating the public what this truly means, that is what they will follow. If the “people” want the thrift paradox, that’s exactly what they’ll get. Japan…here we come.

    Reply

    Tom Hickey Reply:

    “A White House official says President Barack Obama will call for a five-year freeze in non-security, discretionary spending during his State of the Union address.”

    I guess we had better starting learning Japanese. :(

  2. Dan F Says:

    Because we believe we can be the next Greece, we continue to work to turn ourselves into the next Japan.

    Great comment, sums it up in one sentence – although there are a few tards that still believe we can be the next Zimbabwe.

    Reply

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