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from MacroScope:

It’s the Summer of L-U-V

Stella Dawson

Jul 3, 2009 17:54 UTC

It's starting to look like the Summer of Love. Two reasons: The recovery is taking on a L-U-V shape globally, and it's going to require huge amounts of love and nurturing to keep growth alive.

L stands for Europe, where slowness to confront deep damage and write down the remaining $500 billion odd in bad bank debt, mean rebuilding will be protracted and painful. The United States sports a U, bouncing along bottom right. But its financial giants swallowed harsh medicine early and the U.S. has the flexibility to stage an impressive rebound, if not undone by a fast-rising jobless rate at 9.5 percent and heavily indebted consumers. V stands for Asia (ex Japan), the surprise region showing resiliency, thanks to its rapid Q4/Q1 inventory workdown and huge infrastructure spend by China.

Like the Summer of Love 41 years ago, it is a drug-fueled affair. G20 governments are peddling $820 billion in stimulus this year, equivalent to 2 percent of GDP. Central bankers are spending even more. The Fed has doubled its balance sheet to $2.04 trillion the past 12 months.

These actions might have cushioned a severe cyclical downturn but the structural adjustment to a world of costlier credit is only just beginning.

Will politicians and central bankers have the wisdom or the stomach to keep the drug supply going long enough to prevent L-U-V from turning into an ugly W?