Chillin' out till it needs to be funded
With all the talk of a renewed stimulus and a busy August with more ups and downs, most investors were still pleasantly surprised when the month ended with a near perfect policy pronouncement from both sides of the pond. US came out with a 1.6% GDP performance ahead of a 1.4% expectation while UK was also not so hot but not so cold 1.2%. China’s banks have already sprung few surprises with 20% + profit growth and ICBC alone growing its loan book by 10% to over USD 80 billion The scare of bad debts is still out there but not much more than that. However the specter of Chinese domination may be haunting American policy speak from here even in tight conditions where just the lower expectations helped Bernanke skip a few national concerns ( see this amazingly lucid piece at FTAlphaville ) with simpler deliberate hand down of future fiscal approach from the Fed to the slowness of consumer demand and the fact that we will have to live with lower expectations a while longer.
I for one am quite sure that the US is approaching each decision in terms of global and structural realignments but it seems to me that the Fed is back to its regular role of a mere absorber of excess liquidity and supplier of renewed stimulus. In between both those , banks and industry have to reactivate the economy on their own and battle Brazil and Chinese competition on the way. To be fair however Bernanke has delivered on his promises and has underlined that further monetary accommodation in buying MBS and treasuries is well nigh possible if things become tough for the US. It also knows its further quantitative easing options, but I would have preferred that policy also marry higher inflation as it would kick start growth. Inflation is rather a benign symptom and if encouraged at a reasonable pace may become reason for your continued global success as history has shown between the US and the UK as well.