The European debt crisis continues to show signs of being transformed, like various (other) cancers, from an acute to chronic stage of existence. Our financial markets in the US no longer seem to panic at every new electrocardiogram reading on Greece, Spain, Italy, Portugal, Hungary – or even France.
As this site correctly predicted just recently, the European Central Bank’s hook-slide around German orthodoxy by flooding the European banking system with enough cheap Euros (QE on the QT) has had the desired effect not only of reducing the serious risk of a bank funding crisis but also of underwriting the ability of those banks to support their countries’ sovereign debt refundings – and at a profit, no less!
As a result, the alarming rise in Italian and Spanish and French sovereign debt interest rates has been arrested. Therefore, the threatening risk to the future stability of those countries’ budgets is now in remission.
US Economy Moves from ICU to Outpatient Care
Likewise, the US Federal Reserve has, again as we predicted, underwritten another two years of reliably low interest rates for US investors and business executives.
Chairman Bernanke, the Republican’s favorite punching bag next to President Obama, seems to recognize that the US economy’s problem has now shifted from the Intensive Care Unit to Outpatient care, while not yet being “out of the woods”. The Republican’s seem to think (wrongly) that they need to keep up the sense of an apocalyptic economic collapse to make their case. (Could it be that Central Bankers really do know what they are doing, despite what virtually all the Tea Party talking heads on CNBC say day-in day-out?).
Friday’s weaker than expected 4th quarter 2011 GDP estimate on the surface seems to buttress the Fed’s case, and surely 2.8% growth is a weak turn of recovery by most historical standards.
As this blog has observed in the past, most initial estimates of GDP are wrong, by large percentage factors, because the early report includes actual data (as opposed to financial model projections) only for the first half of the quarter. In particular, 4th quarter GDP tends to understate the trend, in either direction, i.e., if the initial data shows the quarter up, then more reliable data later will show it up even more, and the same for down trends.
While this is a small comfort to those who lost money on the stock market last week, perhaps they can bide their time and recoup their losses by buying back their shares before the corrected report comes out in late February!
One things for sure – the Fed will still be underwriting the economy this February…and next February… and next February …