On the verge of a political warfare
With Bernanke being far less vocal than his European counterpart yesterday’s rhetoric lacking any clear direction did not surprise the markets, that are now waiting for September (by which time investors will have seen two more Non-Farm Payroll figures and more manufacturing and service data) to see if the Fed will eventually act. Looking back, the QE programs implemented by the Fed in 2009 and 2010 and the ECB operations in 2011 were intended as shock treatments to set economies in a more typical post-recession mode. With southern Europe in deep recession, the UK in double-dip recession and the US on a slow recovery, it looks like the previous QE only managed to buy time against even more grueling days ahead. Back on today, we first have the BoE announcement, with Mervyn likely to do a Bernanke and wait for the ECB announcement. In a move that doesn’t have Germany’s blessing, Draghi is planning to purchase sovereign debt from Spain or Italy in order to help push down the borrowing rates. As this process is in effect isolating the only solvent country in Europe, that acts as the paymaster of the union, such a move would force Germany to take a harder look at the exit signs, making the ”unthinkable” scenario look less and less unthinkable.