The Lull Before the Storm: What’s Coming in 2011
by Gonzalo Lira
Wed, 29 Dec 2010
This week—what with Christmas on one end and the new year’s celebration on the other, and everthing in between covered in snow—nothing much is gonna happen: It’s a week that’s about as dead as Dillinger. So I figured I should take stock of where we are—and more importantly, where we’re going.
To me, the biggest macro-economic story of 2010 was Europe: It’s falling apart, and there doesn’t seem to be anything that’s going to stop this collapse.
The second biggest macro-economic story of the year—though not by much—was the successful monetization of 75% of the U.S. Federal government deficit by Ben Bernanke and the Federal Reserve. I use the word “successful” in a morality-free, completely pragmatic sense: Bernanke achieved monetization with minimal market disruption. In fact, a lot of people would argue that QE-lite and QE-2 were not policies of debt monetization—that is how successful Bernanke has been. (Talk about “reality distortion field”! Steve Jobs ain’t got nuthin’ on Benny!)
This “success” has allowed the U.S. Federal government to continue to avoid making necessary, critical budgetary decisions—paradoxically accelerating the U.S.’s deteriorating fiscal situation.