China is worried about both the US economy and the Dollar. Ben Bernanke is now edging towards the DD phrase, if not the D word – Depression. Looking across the US media yesterday afternoon, it was hard to avoid the growing certainty that America is heading for slump and deflation.
James Bullard, president of the St Louis Federal Reserve, said the US was “closer to a Japanese-style outcome today than at any time in recent history”.
David Bloom, head of currency strategy at HSBC said “It feels like you’re in a boxing match, it’s round number nine and they’ve softened you up for a blow”.
In the midst of this, Republicans are trying to rationalise tax cuts for the rich…and the Democrats have just pushed through a $26 billion bill to prevent teacher layoffs and help states with Medicaid payments.
I wouldn’t call either of those actions a particularly useful contribution in the light of what’s coming. Politics and business are inseparable, but Party politics and a long-term trade/deficit problem should be kept well apart. The US is about to go bang, and neither Congress nor the White House has its eye on the ball. By and large, they don’t even know what the game’s called.
The political classes in the West don’t exactly help themselves in such situations.