Friday, September 5, 2008

A Prediction

Allow me to venture a prediction: the European Central Bank will not adhere much longer to its policy of rigor. U.S. unemployment has hit 6.1 pct. German industrial production was off 1.8 pct. last month. The collapse of global demand is accelerating, as is the decimation of Keynes' "animal spirits" among investors. Similarly, the supposed bras de fer between Sarkozy and Fillon, between rigor and voluntarism, deficit reduction and relance, will end in stimulus, and deficits be damned. Indeed, I wouldn't be surprised to see a formal repudiation of the Stability and Growth Pact and its 3 pct. /60 pct. targets for deficit and debt. The accommodation of the past 20 years, otherwise known as la pensée unique, is over. The emergency has broken the logjam--I would like to say not a moment too soon, but I fear that the truth is rather closer to several years too late.

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