One thing every major currency has in common is democracy and in a globalized world, politics move in the same direction everywhere.
In the current era politicians don’t lead, they pander and that makes popular ideas more powerful than ever. Right now there is a idea that’s gathering momentum and I don’t think it will slow down. 1) Austerity isn’t working and 2) Larger deficits don’t matter anyway.
A more frank discussion about deficits began around September and has slowly gained clout but the tipping point came last week with the expose of Reinhart and Rogoff. The timing of the Rogoff/Reinhart bombshell couldn’t have been more perfect; growth is languishing and bond yields are extraordinarily low. At the same time, the public is drowning in austerity and the life raft is the idea that deficits don’t matter.
Today’s editorial in The Guardian attacks high debt rhetoric, saying it doesn’t “fit with history.” Bill Gross, who wields more power in the bond market than anyone attacked austerity today.
“I think, fiscally, that governments everywhere have erred in terms of their policy for one way or another and they certainly haven’t induced investment as a percentage of GDP, which, we all know, is ultimately the way to prosperity,” Gross told the FT.
Where the public leads, the politicians will follow, especially when the idea is to spend more money.
The idea is still in its infancy and it will take until 2014 to hit markets but if you want to know where currencies are headed, envisions a world where austerity is less of a priority.