The main rumour in financial markets is the US is going to announce QE3. This time however the money will be targeted on ‘mortgage-backed securities’.
If true, this will be the turning point for the US and you will see a very rapid upturn in their economy. The problem is the housing market; fix that and the jobs follow.
In Europe we await the decision of the court about the legality of the ECB’s money shuffling. If that goes through OK, then the recent plan put forward by Draghi will work.
His plan includes the notion of ‘sterilising’ the bond purchases, that is, not straight-out money printing. This is a fiction actually and I am sure everybody knows it. ‘Sterilised’ means in practise offsetting a purchase by selling something else. So Draghi is really proposing to buy the bonds of the distressed countries and to pay for it by selling mainly German bonds. His position is ‘unlimited’ buying – so eventually he will run out of German bonds. The end result is Germany will own all of Europe’s bad debts. There must come the point when real money printing takes over, which will start inflation for sure. That is the real point of the proposal – the only way out for Europe is to inflate the debt away and Draghi hopes to do this in a controlled way.
I am not known for my optimism, but today I am. If it turns out that these decisions are made, then, basically the financial crisis is over.
The next problem will be stopping an attack on Iran. If Israel [or the US] attacks Iran the whole thing will rapidly escalate and spread all over the place. If we can keep the peace and not be worrying about money so much, perhaps then we will address global warming in a realistic manner.
It is not often the ‘fog’ clears but the next couple of days will determine things.
Maybe the reason that our market did not participate in the European euphoria about bond buying is that we are the only country that can see the wood from the trees.
Fair dinkum, do they all seriously believe that printing money to pay people’s debt will last long? None of the euro countries will go on austerity; it is not their nature.
Your publication is excellent, however I would like to see a calendar of future events and if possible expectations of directions for the agenda for same.
Editor’s response: For events in the wider business community, we have quite a comprehensive calendar here (http://www.eurekareport.com.au/er/corporate-calendar). For future events organised by Eureka Report, we will endeavour to keep you posted well in advance.