I mentioned this in my last post (which was also on my backlog of posts, so… yeah, sorry) and hope to answer it here.
First and foremost, this time, it isn’t a(n immediate) US problem, so expecting an immediate, forceful, US solution is out of the question. In fact, the President’s actions in waiting a few more weeks to put a budget on the table reeks of picking low-hanging fruit when he utterly failed to use such a plan to apply pressure publically during the time it mattered. This also looks set to make the political deadlock worse. I’d say he needs to stick it to the Republicans and play it hard on hard: that way they can tout whatever compromises they get as actual victories, and still appeal to their home base by painting the President as someone that needs replacing. Furthermore, the super committee (or super comical) suggestions will shake the bee-hive again come Thanksgiving. Yay, honey! Speaking of which, don’t expect stimulus when there’s no one that wants to ready the money to pay for it.
Second, (and now hold on to your seat) that means that the solution has to come from where the problem is – Europe! The light at the end of the tunnel isn’t an exit, it isn’t even a train, it’s hellfire! It also looks like we’re in a pit rather than a tunnel. We can now surrender all ideas of getting a solution in the foreseeable future, and instead rejoice in the likely assertion that the unforeseeable future is closer than we may think. If some more credit lines are tapped, some more bond divergence appears in the euro zone, and some bit of currency swings, we could have another crisis plan, say, within one or two months? This all depends on the severity of the bond divergences and how long the ECB can still sterilize bond purchases for. What speaks against this is political posturing or unwillingness to take the fall now (lose one election, save the euro, and rule forever after, anyone?) and China’s massive buying of Euro. It must be like applying the business end of a snow blower to cotton candy to snap up a future reserve currency at these prices relative the world’s current reserve currency…
Yeah, the euro zone needs to get its act together. If they think France came under attack before, think again, and another market move on Italy, Spain or Portugal must be in the move once the ECB can’t sterilize their purchases anymore. What would be the harm of ensuring growth and create the world’s biggest bond market, stamp issuance “Bundesbank of Europe” and go for it? Be reminded, Germany, you’re flirting with recession and high public debt yourself, by the time your maturity doesn’t look as appealing, a few swift moves these days can be a saving grace. At least expand the EFSF to show you mean business.