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John Taylor On Why "Gridlock" Will Lead To A Slowing US Economy, A Drop In Equities And Commodities, And A Spike In The Dollar
Gridlock or Trench Warfare?
January 6, 2011
By John R. Taylor, Jr.
Chief Investment Officer, FX Concepts
It seems almost impossible to compose a rational outlook for the world markets in this New Year without analyzing the political situation in Washington, but so many others seem to have sidestepped this elephant – appropriately the symbol of the Republican Party – that is taking up so much of the room. That’s a big mistake, as we believe that both the growth rate of the US economy and the course of global equity prices and other risk assets are hugely dependent upon the course of US politics in the next few months. The general nonchalance regarding Washington’s knotty political situation seems to derive from the historical fact that things tend to go rather well when the power in Washington is so diffuse that no one party has the power to move things in any direction at all. With gridlock, there will be no change, no new policies or programs that will upset the operation of the country, the real world, so we worker-bees can just ignore those news-hounds down there and keep the economy running. Gridlock has also been very helpful elsewhere, keeping many countries operating successfully over the years. Some examples that pop quickly to mind include Belgium – which hardly ever has a government at all – Italy – where the administrators are the only ones at work – and Japan – much like the Italians, but the politicians are probably less important and the administrators more competent. Unfortunately, caretaker governments and gridlock are far more successful when general economic conditions are good; when things turn nasty and decisions are needed, avoiding them or being so sclerotic that making them is impossible can be a very bad idea. We disagree with those who think that gridlock will be a good thing. From our point of view, even if the economy does chug along at 4%, gridlock is very dangerous.
For the next two years, trench warfare could be more likely than gridlock. I wish that we were like the British and could have another election quickly – like a few months from now, after we see how these guys work together – to roll the dice again. Back in 1950, when Labour was just barely holding on to power in London with a majority of five and decisions were difficult to make, they were gone by 1951, and the country went Conservative and off on a new tack. I choose that point in time to broadly compare the changes made by the Attlee Labour government, elected in 1945, with those of Obama. The Labour social and economic changes verged on the revolutionary, including the establishment of the National Health Service. Although the Obama administration’s health care overhaul was minor compared to Attlee’s universal creation, the American reaction appears to be more negative than the British one. The Labour expansion of government also dwarfed that under Obama, and despite much posturing, the Conservatives left most of the Labour directives alone. The 112th Congress just began today, but House Republicans have already laid out plans that are aimed at rolling back or not funding as many of the Obama programs as they can. As the Democrats control the Senate and the President has the veto as well, the programs are likely to survive the House challenges. However, these divisive tactics assure that pleasantries will be hard to come by in the Congress during the next year. Even the Fed looks like it will be dragged into this mud. If some decisions are necessary – the financial crises in state and municipal financing comes to mind – who is going to make the compromises to get the job done? God help the US if it goes into a recession and some real economic decisions, benefiting the workers or supplying capital or spending money, need to be made. It will be almost impossible to get a decision. Trench warfare is what we see and a deep recession is what we fear. Even growth below 2.5% would be very problematic and a big disappointment for the markets. Although we see equities down significantly, the dollar should rally and commodities decline as the US economy slows.
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UK & USA both are going to be in trouble as both economies are Ponzi and living on fraud FED + BOE
John, in regards to your comments concerning the drop in PM values, your another chump who does not know what real money is. All I can say is, go to hell and take Bernanke and Obama with you.
agree...and he can take his cherrie 2.5 to 4% growth and stick it where all the other imaginary statistics reside. No way pal, not unless the made up numbers get goosed better than they are already.
Wasn't John Taylor the bass player in Duran Duran? He should stick to his day job. Is he dating Blythe or someone at The JP Morgue?
Reading these patently absurd and intellectually insulting, pro-bankster koolaid-drinking comments were enough to let me know that I can safely dismiss any further ramblings of John Taylor as just more Establishment propaganda. When you decide to make some observations about the real world, John, do let us know.
Yep, I smell gridlock. But the Fed has shown they are in charge even if they're in a corner. I would not be surprised to see the Fed get help from the TBTF big banks. Another 1000 point mid-day drop on the DOW ought to show everybody who is in charge.
A spike in the dollar can be remedied with the vaunted QE III, methinks. The Bernank sure seems pot committed to a weaker dollar, and Volcker just walked, so 15% interest rates and stronger dollar must be off the table.
The little light at the end of the tunnel is still a train.
Do you think Ron Paul will have any teeth in his new role?
Few
he may, and they most likely are shiney like proof eagles
lol. good one.
Volcker walking...yep the only one in the whole pack with 100 cents to the dollar. Bringing him into the administration was a big show. No sooner than he got there then 'they' handed him a bag of peanuts and told him to go feed the pigeons in Farragut Square across the street and hoped he would never make it thru the traffic.
Some of you may not like him, but HE is about the only man with any intelligency who knows business and economics.
Volcker was decent at The Rothschild's Bank er.. the Fed when Reagan was around. He then went to The other Rothschild Bank - The World Bank. Volcker is a major Obama lover.
"With gridlock, there will be no change, no new policies or programs......"
With or without gridlock, there will be no change, period.
The players may have changed, but the agenda stays the same.
LMAO
in our case stay the same = oh chit!
So long fraud FED's POMO's are alive, minor corrections but no big plunge. There will be some drama at Capitol Hill but eventually after under the table dealings, things will be sorted out.
The bottom line is exchange of briefcases behind the scenes. The more you do the drama, bigger is the deal.
"God help the US if it goes into a recession and some real economic decisions, benefiting the workers or supplying capital or spending money, need to be made. It will be almost impossible to get a decision."
Yeah...cause that whole one party government thingy worked so much better.
obviously Mr. John Taylor does not know we have been in one for 3 years. So much for living in the ivory tower and not in the real world.
Oil will be the great equalizer in this equation, grid lock or trench warfare or whatever.
We are, clearly, in a Force Majure period globally, in terms of unsettled climate. Most commodities are either grown on the ground or extracted from it.
Between record cold, record flooding and record droughts in various parts of the world, in the end commodities have only one direction to go and it's not down. Funny thought, do bear's suffer from DOWn syndrome?
Anyways, I think we are beginning to see the beginning of systemic "control" problems. models tend to break down when data trends become un-forcastable.
One more major weather whammy and we might see one of two things: clampdown (fascist goal) or chaos (anarchist goal).
Neither is pretty and both are likely.
What a time to be alive, eh?
ORI
http://aadivaahan.wordpress.com/2011/01/05/stairwell-sigtar/
You forgot 'record high temps'.
http://picasaweb.google.com/lh/photo/o-z64ki5MB03YtSkvG75WQ?feat=embedwe...
Yep, an incredible 3% of scientists agree: a new Ice Age must be upon us. (Erm, without the ice, though):
http://picasaweb.google.com/lh/photo/SoPPzly22WSiojSCDZMtSQ?feat=embedwebsite
Retitle post: "What markets are telling us so far this new year."
Except the drop in stock prices. Stock prices haven't closed significantly down since the end of August. Weird....
from canadian press: Mantega meet mr Taylor..
"Brazil has sounded a new note of warning in the international "currency war" by pledging not to allow the United States to "melt the dollar". Guido Mantega, Brazil's finance minister, raised the prospect of introducing greater controls on short-term flows of speculative capital into his country. There is widespread concern about the effects of a weaker dollar on the competitiveness of emerging markets, many of which have seen foreign investment send their currencies soaring. "We're not going to allow our American friends to melt the dollar," said Mr Mantega"
"We're not going to allow our American friends to melt the dollar," said Mr Mantega"
....is he going to corner the supply of ink and paper????
...nope, 1's and 0's.
What Gridlock? Gridlock supposes that there are TWO parties with different agendas. This is nonsense in and of itself. One Party - the Plutonomy Party.
There are two versions of the Plutonomy -the Plutocrats and the Plutocans, kind of like two flavors of kool aid.
They will raise the debt ceiling, there will be QE3, they will continue to inflate.
After 30+ years of spend, spend, spend, someone has finally seen the light? Large Deficits scare the politico? Puh- LEASE!
another ZH contributer to cross off the reading list.
less to read
We are saved..
http://www.telegraph.co.uk/finance/currency/8241635/Brazil-pledges-to-st...
SAO PAULO, Brazil -- Brazil has sounded a new note of warning in the international "currency war" by pledging not to allow the United States to "melt the dollar."
How, exactly, will the new and ineffectual government be any different from the previous governments under Bill W. Obama?
How much congressional agreement do you need to suck the collective dicks of every major banker in the Western world?
Taylor is one of the RICH! Right now, the RICH have never had it so good and they don't want the party to end. I hope Ron Paul has Bernanke's ass sitting in a hearing room every day of the week for about the next six months.
Taylor is one of the RICH! Right now, the RICH have never had it so good and they don't want the party to end. I hope Ron Paul has Bernanke's ass sitting in a hearing room every day of the week for about the next six months.
Yay! More MAD scaremongering! Just what we needed.
Continuing on the course we are on is disastorous. But putting up a fight to stop it? Well that'll be the end of us all...
Shit's gotta hit the fan sometime. Might as well be sooner, rather than later. The more time its got to build up, the more there will be in the fan.
if the debt ceiling gets raised, then the inflation trade is back on full speed
Gridlock is bad because someone might have to make a decision?
Can someone give us an example of an economic decision that was made in the last two years when we didn't have gridlock (BTW - "kicking the can down the road" again and again is not a decision)?
Normally I find Taylor's writing to be thought provoking even when I disagree, but this week's writeup seems like he wrote it in 30 seconds in the men's room just before sending it out. hopefully that means he had a fun New Years
When has congress ever actually delivered on it's promises of reducing spending?
I think Mr. Taylor is being a bit naive on this one. The government will continue to spendand run up massive debt. Inflation will continue, and all the while the fed/government will be claiming that there is no inflation.