Light at the end of the tunnel

I have a feeling we're finally getting somewhere in europe. Draghi has said the ECb will be more interventionist if there is a closer fiscal union. The recent surges in yields for Spanish, Italian, and most alarmingly French government bonds seem to have finally scared their respective governments into caving into German demands for that closer fiscal union.

I would expect some steps in the right direction will be announced after the Dec 9 summit, which in turn will allow the ECB to up its involvement with the implicit approval of Germany, on the understanding that the changes will be implemented (major changes of course require all 27 member countries to ratify treaty amendments which can literally take years. The ECB will have to act ahead of that).

Meanwhile the market rallies of yesterday seem to be fading, and with good cause.

Only an equity investor could interpret coordinated central bank intervention in money markets, political statements that banks are facing a new credit crunch, and an easing in China in the face of slowing manufacturing and falling house prices as good news. Will they never learn?

We might be grinding towards some sort of movement in Europe, but whatever happens real growth in most of the western world is likely to be anaemic at best for years to come as the debt burden is paid off.

Some will point to recent manufacturing data from the US as evidence of a sustained recovery there which will drag the world along, but sadly it's largely an illusion created by huge and unsustainable government debt and deficits, and even if it were not, the US
is only about 25% of the world economy these days, and falling. It's still hugely important but it can no longer single handedly save the world. At some point the US will have to embrace big government cuts. The US economy is less reliant on government spending than many but the size of the cuts required to bring some sort of fiscal sanity to bear are bound to slow growth dramatically.

Low and slow will be the growth path
of the future.