Because She Said So: Lagarde Speaks and then Fed and then ECB: danger! more stimulus needed!
No sooner does former top Chicago labor/anti-trust lawyer, now IMF head Christine Lagarde instruct “the US and Europe to abandon fiscal austerity and switch to stimulus measures” than European Central Bank President Jean-Claude Trichet echoes her, saying
…threats to the euro region have worsened and inflation risks have eased, giving officials the option to take further action should the debt crisis worsen…
We paraphrase ourselves because the eggheads at these central banks have been paraphrasing Christine Lagarde since she issued the marching orders to the world’s two economic powerhouses from Jackson Hole. Falling right in behind, Chicago Fed president Evans has sounded the “amen” for the US and Jean-Claude Trichet for the ECB.
We don’t necessarily fault the premise: things are looking awful, even if we don’t agree on the reasons why (we say central banks and regulators are ultimately at fault); and “stimulus” would help (we say balance budgets, cut taxes, get rid of obamacare, reign in Basel III, stop paying banks to buy treasuries, and get rid of Barack Obama and his band of thugs). But we do marvel the suddenness of the clarion call and the clarion caller. As a sidebar, we note the active moving of the chess pieces to bring Ms. Lagarde and her unique resume to helm of the International Monetary Fund at such a time as this: Lagarde recently replaced Dominique Strauss-Khan as head of the global monetary authority after he was dismissed when falsely accused of sexually assaulting a NYC hotel maid. At Jackson Hole, the former labor and antitrust lawyer from Chicago was apparently a last minute switch at the podium, as she acknowledges:
And let me also recognize my friend John Lipsky who, after five years of distinguished service as First Deputy Managing Director of the IMF, will be stepping down—and who has been so generous in giving up his speaking slot to me today.
Returning to the Lagarde Dictum, we’ve lost count of the QE’s, but whatever they call it, you can bet on more “stimulus measures.” “Aggressive” ones, to be sure, but we look for novel ones, desperate ones, unheard of ones (we’ve speculated on some here).
Why? Because she said so, that’s why.