The president of the World Bank on Saturday warned the United States was just “days away” from causing a global economic disaster unless politicians come up with a plan to raise the nation’s debt limit and avoid default.
Perhaps the dire warnings, such as the one above, will have a dramatic effect on the market over the next three days, but I suspect the market is betting on a last-minute deal to emerge. And, why wouldn’t it? If recent history is a guide, the blustering does come to an end after all the hot air is dispelled before the clock finally runs out.
So, again, if you are a gambler, bet on the politicos pulling the rabbit out of the hat at the last minute. It is what they do; it is what they have to do. Simply, politicians are built this way.
Now, aside from the theatrics in Washington D.C., news from China is that exports fell below expectations and inflation rose to 3.1%. Funny, but in the US, the Fed would like to see a mild increase in inflation to 3.1% and any rise in exports is seen as a good thing, but in China, the media reports an inflationary rise as bad, as is the drop in exports. In fact, China has no issue with a drop in exports, as long as a rise in domestic spending is on the other side and a rise in inflation is just about 3%. Currently, China’s economic growth is not in trouble.
Across the pond, in Europe, another economic story is developing, one that began last December. The continent is rising from the ashes of its own debt and the calamitous financial collapse, although there are those who see potential danger in the latter.
- Eurozone countries will consider on Monday how to pay for the repair of their broken banks after health checks next year that are expected to uncover problems that have festered since the financial crisis. Nobody knows the true scale of potential losses at Europe’s banks, but the International Monetary Fund hinted at the enormity of the problem this month, saying that Spanish and Italian banks face 230 billion euros ($310 billion) of losses alone on credit to companies in the next two years.
The above is worthy of consideration and we should all keep an eye on the situation, but we should also keep in mind what can happen to banks when an economy, especially one the size of the Eurozone, begins to turn around.
- Factories in the Eurozone beat forecasts in August, as official figures for industrial output show the strongest growth for two years.
- German luxury car maker BMW said it is set to sell another record number of cars in China this year.
The former point above goes to my point about what will help banks recover financially and the latter goes all the way back to the issue of China. If a rise in domestic spending is what the economic planners want, i.e., a rise in imports, then buying cars is certainly one way to do it.
Hang on for the next three days. Keep your powder dry and get ready to fire when the ill wind blows through.
Trade in the day; Invest in your life …
