September 30, 2013 Patrick Oliver-Kelley

The US economy is progressing nicely, except that politicians ignore the catastrophe a government shutdown will bring. You cannot have the world’s reserve currency held to ransom on ideological grounds without creating uncertainty in the minds of the rest of the world. The whole system will be disrupted. Gross domestic product rose 2.5 percent annualized rate, after expanding 1.1 percent in the first quarter. Our current episode of deleveraging will eventually end, which will inevitably force interest rates higher. Once upon a time, demand was supported by a growing burden of private debt, which we do not expect to resume; as a result, demand is going to be lower even once the crisis fades. Fiscal austerity will intensify, narrowing the deficit further. Additional sequestration is already on the books for next year. Further cuts will be made to avert the impending debt limit confrontation. Market participants, perversely are forcing rates higher.

Russia’s leader “is deeply skeptical that the United States — or anyone else — can fix a country’s internal problems.” Most basically, Putin has a cold-war view that goes beyond America-versus-Russia hatred: “Putin sees himself as the necessary balance to America’s global power.” So despite the recent U.S.-Russia deal to disarm Syria of its chemical weapons, Putin is still worried about America’s global influence. He will try to counter it at every turn.

Eurozone

Germany went to the polls and elected ‘Mutti’ Angela Merkel. This is good news for Germany and more importantly, good news for Europe. She will continue to be a steady hand on the tiller. She exhibits all the solid traits and political good sense to lead Germany and Europe toward a brightening horizon. She is a centrist and she is flexible.

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