Intentions are good but wrong medicine

For the umpteenth time today we’ll get another round of monetary and fiscal stimulus policy prescriptions from our US Gov’t (Bernanke at 1pm, Obama at 7pm) that will again focus on short term electric shocks to the economy. The goal is to encourage borrowing by taking advantage of low interest rates and to spur spending with temporary tax cuts. We’ll also get some newly paved roads but for those who’ve traveled on the LIE over the past 10 yrs know that road construction is a part of life. The economic disease that the US economy suffers from though is that of too much debt, too much reliance on consumer spending and an uncompetitive tax and regulatory structure. Thus, while the intentions are good, the policy medicine doesn’t fit the sickness and the negative side effects are apparent. In Asia, a day after a news story that said China would lighten up on tightening policy, a different news service said they may raise interest rates soon. Indonesia, South Korea, Philippines and Malaysia all left interest rates unchanged. Australia lost jobs in Aug unexpectedly and their unemployment rate rose to 5.3%, the highest since Oct ’10. The BoE and ECB left rates unchanged and today’s Trichet press conference will be a highlight of the day in light of the goings on over there. Greek bonds are mixed as the pressure on them grows more immense. In Germany, even before the Aug market upheaval, exports unexpectedly fell by 1.8%.

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