Global QE at the end of June? (May 19th 2012)

From May 19th 2012

Sentiment appears to be on the move.

Let’s look at some dates, the first being the 2012 FOMC meeting calendar:

We have meetings scheduled for June 19th and June 20th. The one after that is right at the end of July/beginning of August. In other words it’s just before the the silly season prelude to the November 6th U.S. presidential election:,_2012

Meanwhile, over in Europe we have June 17th Greek election, possibly the most watched election of the 21st Century, looming.

Over in the U.S. the economic indicators, while still positive, are showing some signs of weakening. And of course U.S. U3 headline unemployment at 8.1% is masking a U6 of 14.5%, itself flattered by years of calculation changes:

Shadowstats still place real U.S. unemployment on a consistently calculated basis in the low 20%’s.

So we have a convergence of drivers emerging which appear to be focusing on late June:

1) In the U.S. the economic indicators are faltering, unemployment remains at politically unacceptable levels and a U.S. election is rapidly coming down stream. The FED will not want to attract political criticism by announcing measures during an election campaign. The window of opportunity is therefore shrinking fast.

We also have the ongoing trillion USD deficits and the need to fund them, given that China now prefers gold to U.S. treasuries. Around that time Operation Twist also ends, and the market expects something on that basis alone.

2) Meanwhile in Europe the markets shiver with fear at the prospect of the losses the banking sector will face as a Greek exit catalyses another default. The Greeks still look like they are prepared to play the Mexican stand-off game and vote-in anti-austerity political groups. By June 18th the markets could move into complete panic as soon as the uncertainty of the vote outcome is replaced with a conviction that the only outcome will be a new Drachma.

We therefore have that June 18th to June 20th period when the markets are in turmoil, coinciding with an FOMC meeting, and almost certainly with currently unscheduled but inevitable ECB, Eurocrat and Hollande/Merket summits.

The FED will have its drivers and the Euopeans will have theirs. There will be a convergence of interests, and probably ‘solutions’.

A pan-global nuclear level injection of liquidity into the global financial system, associated with global QE at levels we have not see before. All major central banks will participate. No one will want to be the currency that remains too strong in a sea of printing. China especially will not want to compound its already faltering growth with an even stronger exchange rate.

Whether Greece stays in or ultimately leaves, the markets will not wait. The fear factor will have to be addressed with something or Europe will be left with all the market effects of a Greece exit, but without the actual catalyst.

Whatever happens the action will need to be large enough to dissuade the markets from transferring their attention to Spain, Portugal, Ireland, or even Italy.

Doing nothing, either in the U.S. or Europe does not look like a viable option.

And time is rapidly running out.

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