Obama's Mission for the Global Economy
President-elect Obama now has the immediate and extraordinarily difficult mission
of fixing the national economy, and be rewarded with a legacy if he can
do it. One key is to rally global cooperation from the central banks
and develop unified credit market strategies for both countries and
banks. The world's reaction to the Obama presidency has been positive
and hopefully, Obama can help stitch together a global consortium that
will instill investor confidence (not all investors are American...).
The most stubborn global players have been the European central banks,
who have had internal conflicts on strategy, and they have been
reluctant to lower interest rates despite the fact inflationary
pressures have eased.Despite all the warnings from pundits that interest rate cuts are at best inconsequential, and at worst hyperinflationary, globally low interest rates will help the housing markets recover. It worked in 2002-03 to spark the housing boom after the tech bubble bust and 9/11. There should be no worries about recreating Bubble 2, the lessons have been learned and the Democratic administration will ensure regulation.
So tomorrow, the European Central Bank and the Bank of England are set to cut interest rates 50 and 75 basis points, respectively. If they trust a new American administration will be easier to work with, they may follow up this cuts with "dovish" language - we'll do what it takes - to instill market confidence. I believe one of the reasons why today's market dropped so sharply may be traders' warning that they won't tolerate measly action by the ECB and Bank of England. (Note- markets pessimistically tend to drop the day before important rate cut decisions). They are telling Europe to be aggressive rate cutters.
UPDATE: Wish I could embed this Financial Times video commentary on the recent history of ECB/Bank of England rates. FT should promote their content through blogs.
UPDATE (11/6; 6:00am PDT - Bank of England drops interest rate a whopping 150 bp. ECB cuts only 50bp as expected; it's more difficult for the ECB to reach consensus within the Eurozone. The global markets always seem to follow the US lead. I'm expecting a stabilizing day today as investors gain confidence in the unified global response.
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I comment Obama on his attempt, but I honestly think he is set up to fail as this is a horrible economy in which everything has been built on credit.
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I think that this administration will really have their hands full, and I'm sure that a number of candidates courted for VP likely turned to opportunity down. That said, I think there is a real sense of optimism here in the states with respect to our president-elect. I certainly don;t think that we could have continued for long under the current regime!
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This article starts off with a rediculous statement "President-elect Obama now has the immediate and extraordinarily difficult mission of fixing the national economy, and be rewarded with a legacy if he can do it." This economy will be fixed because we're in the throws of a cycle. Cycle means it's going to come back around. This lucky guy will be awarded the lagacy and none of it will be his doing... in fact... he and his blue cohorts have run us into the economic mess that we're in... don't beleive me? Look at http://www.nakedemperornews.com/
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