The simple fact is that this is trade war by another name, an eruption designed to put a smile on Uncle Sam’s face, but no one else’s
On either side of the Atlantic they had their spanners out last week, but going in opposite directions. Both developments are important for the future direction of the ongoing crisis, and your and my future as well.
In Washington a bearded man climbed into his helicopter and started to spray it everywhere. Dosh that is, Dollars, $600.0 billion of it, 600.0 billion new little one-dollar bills he spawned in just one ejection – from his chopper. What was he up to? Destroying the dollar, curbing imports, encouraging exports, propping up the banks, funding the federal deficit, trying to get the banks lending again, propping up the property markets, and screwing the Chinese who won’t get their sticky fingers off the dollar?
Yes, all of that, and above all he was desperately seeking super-inflation. INFLATION? Yes, Inflation, masses of the lovely stuff, enough to destroy the value of all those debts you cannot ever see being repaid in the normal manner.
Everyone was up in arms at the antics of the perverted one with the beard. Schauble, the German Finance Minister, choked on his sauerkraut; the Chinese sought to fend off the tidal flow of dollars coming in their direction; the English merely sneered at the antics of a former colonial, but wondered how to profit from it themselves.
The simple fact is that this is trade war by another name, an eruption designed to put a smile on Uncle Sam’s face, but no one else’s. As they say in the classics, a sadist is someone who won’t give a masochist a good turn and, boy, this was sadism in the economic sense writ large. And the trouble is that the perverted one can easily do more of this, virtually on his own sole authority, as he doubles (last year) and triples (this year) America’s monetary base with impunity.
On the other side of the Atlantic, the spanner went the other way, and this spanner was German, where they still have spanners and know how to use them. Any idea that Germany had gone soft and would bail out Club O’Med from their debt crisis was put to the death by Chancellor Merkel’s new euro-manoeuvrings last week.
Merkel stuck the euro-PIGS where it hurts all right, right in their bank accounts: any country in the eurozone getting into trouble will be put into an orderly but enforced bankruptcy, where their bond-holders will share the pain. It was time the German tax-payer struck back, time for Germany to say that rescues come at a cost, and time that Germany served notice that it is not prepared to import inflation from the losers.
The UK found itself sitting smugly pretty for once amidst all these shenanigans: she is not in the eurozone, so doesn’t need to bail out Nick the Greek and his friend Siesta on the beach; has cut back on public expenditure, unlike Obama’s America; has an improving industrial output and stabilising house prices; and so can briefly enjoy the illusion of the recovery without having to engage in QE, for this quarter at least. The next cloud, however, is already on the horizon: inflation, and it’s heading our way, led by the bow-waves of Bernanke’s helicopter fanning the inflationary breezes.