Deglobalization and austerity appear to be the dominant extremes of our world today, and I suspect will define much of what goes on over the next decade. I do adhere to the premise that political administrations are held within a box, no matter how loud or soft they speak. Administrations can deal head on with the issues of today or not, and that tends to be the difference in perception at times, but the macro extremes, are the macro extremes, no matter.
As we search for alternatives to the US markets we need to better understand the risks that are inherent within systems. The event that nobody sees is still the most damaging. Similarly to risk of the Fed's balance sheet growing to extremes without an end in sight, until now. We also see the same occurring overseas but without fiscal unity. Unlimited QE in the US has been regressive, it has altered the risk environment both politically and within investment markets, is has hurt banks, and has created a divide with the elite class and everyone else. Addressing the Fed's balance sheet potentially removes the politicalizing of the Fed, and shifts politics back to, the errrr.... politicians.
The ECB on the other hand, per the authors notes, is the only viable mechanism to bail-out the Union when times get tough. The value in reading about the Euro is to understand how central banks fall into the trap of being forced into the realm of the political. John Cochrane, Luis Garicano, and Klaus Masuch do an excellent job of gently laying out how the ECB became politicized and solutions to how to get out. The European Union is not the US system, but there are similar places where they rhyme in approach and I believe that rhyme will be helpful in understanding this next phase in reducing the Fed's balance sheet here in the US.
Worth a read, not for the casual reader. For more from John Cochrane click here.
No comments:
Post a Comment