The Brits are keeping their stiff upper lip rather than bemoan the loss of their AAA credit rating. Good for them. The UK can keep up its special relationship with the US as our credit ratings are downgraded together. Don't expect to hear similar expressions of resolve on this side of the pond. Americans will wail in pain as our declining credit rating forces real interest rates up. We are the world's indispensable nation, after all.
Italian voters might get their act together someday but I won't count on it. Multiple contenders in their national election today portend a muddled result. The eurozone countries in default are probably better off with Eurocrat carpetbaggers imposed on their systems but that experiment just wasn't palatable to voters who won't accept austerity. Whoever wins will have to renege on many campaign promises and handle Italy's insolvency, which I believe will require the country to leave the euro and immediately hyperinflate the new lira. I may still have relatives living in that country but I have nothing in common with them at all.
State governors know the federal sequester will tip some of their economies back into recession. I say bring it on. The states have relied on federal matching funds for too long and they need to break the addiction. Funding social services should be decided at the local level anyway, so people can see the impact of taxing and spending decisions in their own communities. I don't feel sorry for states like Maryland and Virginia that have benefited from exploding federal spending on defense and homeland security since 9/11. They could learn from California's experience in the early 1990s when defense cuts at the end of the Cold War forced many communities to diversify their economies. The sequester will probably look a lot like the fiscal cliff debate two months ago, with lots of posturing and last-minute concessions on future spending so deficit spending can go on as usual this year. The bond market gets the final say on this one.
Strong auto sales? Yeah right. Read what I blogged yesterday about the questionable underpinnings of the auto sector's revival. Look at how fleet sales make up 21% of this month's demand, then look at my paragraph just above this one about what a sequester will do to state budgets. In case you can't make the connection, the simple math is thus: Sequester risk + bond market run = end of strong government sales in automobile sector.
The European Commission expects the eurozone recession to continue in 2013. This is despite unprecedented central bank support for credit markets to stimulate demand. The Economist notes that central banks are determined to continue the substance of their experiments with finer language as a cloak. In summary, no one has learned anything, nor is anyone capable of learning anything. Stupid people are in charge of the developed world and will use their enormous power to ruin life for everyone else.
I am not stupid but I am not in charge. Someday I will be in charge of something. It would make a great Hollywood story and I'll bet I'd win an Oscar for writing it.