MacroScope

It’s the Summer of L-U-V

July 3, 2009

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?

Comments
2 comments so far | RSS Comments RSS

U and V are almost identical, but I doubt if the Us actually is a U, it could just as well be that L like Europe. The Us and Europe boarded the same train, destination going nowhere.

 

Stella, I was part of the Summer of Luv 41 years ago. The world seemed to be in such turmoil at the time….little did we know! Would love to have some of that time back. You are spot on in your remarks! Thanks.

 

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