“Oh what a night!” September 14, 2012 could go down as a crucial time in the post-global financial crisis era. I know there will be many who think I’m being a tad dramatic, but they are those who underestimate the importance of what Keynes called “animal spirits”.
In fact, this is what he said in his famous book, ‘The General Theory of Employment, Interest and Money’:
“Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”
Animal spirits are effectively measured by confidence – consumer, business and investor – and this why the US Federal Reserve’s Ben Bernanke has to make tonight an oh-what-a-night event, because it can make or break what I have called a snowball of improving confidence.
This has been the missing ingredient since the GFC hit in late 2007, becoming worse when Lehman Brothers failed and then even more dramatically threatening by inept, stupid and pathetic politicians who mishandled the repair job process, especially in Europe.
Last year it was the Europeans, helped by the morons in the US Congress, that got in the way of the improvement process for the global economy and stock markets worldwide.
However, Europe has lifted its game and it has helped the snowball of confidence to get rolling. It started with Draghi and his “whatever it takes” pledge, then Angela Merkel showed some German compromise and the Chinese said they would stimulate their economy. The European Central Bank then delivered a plan to buy bonds and lower borrowing costs and the German Court gave the bailout fund a tick. And so now the US needs a QE3 shot in the arm – that is, a third quantitative easing stimulus package.
Now, sure the doubters who hate Obama and Bernanke say the first two lots of QEs haven’t worked – that’s crap! Jobs have come but not enough, however the Dow is at highs not seen since December 2007 and the all-time high of 14,164.53 is not too far away.
If Europe had played its part, China wouldn’t have slowed by so much and the US would be growing at a faster clip and the Dow would be higher. Consumer, business and investor confidence would have been higher and the more aggressive animal spirits would have pushed both economic growth worldwide and stocks higher.
So how are my spirits?
By the way last night European Commission President, Jose Manuel Barroso, “called for a full fiscal union and criticised EU nations that don’t fully support measures taken to combat the debt crisis,” CNBC reported.
That’s great progress!
Ahead, my animal spirits are a bit restrained because I fear the upcoming US election and what that might mean for the so-called ‘fiscal cliff’. An obstructionist Congress could hamper US economic growth by failing to agree to tax and spending changes.
My gut feelings tell me that the Yanks won’t be dopes, but they have been before. Once this is beaten and China is growing with Europe showing some positive signs of economic growth, stocks could really spike and that will be because animal spirits will have been let loose.
I look forward to that time, but for now we need Ben Bernanke to be pro-animal tonight!
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