One country is cutting back on stimulus. One country has pretty much settled into a regime that says, "We've done enough, let's cut back." That country is the United States.
When I listened to what European Central Bank President Mario Draghi said this morning in order to get European lending going, I was shocked at how aggressive he was being. Draghi and his team seem to fear deflation as much as they do inflation, because deflation was part of the equation that brought about social unrest in Germany that led to the totalitarian regime, and this will always color all financial decisions.
I think this time it will work, and I have tremendous faith that there will be more lending in Europe. But, no matter what Draghi does, he can't change the structural problems, mainly workplace problems, that make Europe such a hard place in which to invest.
Our country is well ahead of Europe in coming out of the Great Recession. In part this is because we started ours earlier, and in part it's because our policymakers, while totally blindsided, switched directions radically and started pumping our economy. Draghi's predecessor, Jean Claude Trichet, took the exact opposite tact to that of former Fed chief Ben Bernanke: Namely, Trichet raised interest rates twice because he thought the continent was coming back strong. That may go down as the biggest bonehead decision in central-bank history, and I think Europe is still paying for those two rate boosts.
Perhaps just as important, our Treasury Secretary, Tim Geithner, forced a recapitalization upon U.S. banks that cleaned up the balance sheets and made banks more capable of making loans once the economy rebounded. Europe did not follow suit, and its banks remain incapable of lending at the pace that they should be doing in order to meet or at least help stimulate demand. They didn't clear the decks like our banks did, so theirs seem more like the zombie banks of Japan than growth banks such as Wells Fargo (WFC) or U.S. Bancorp (USB).
Why does any of this matter? First, the average U.S.-headquartered multinational that I deal with has about 20% of its business in Europe. The European operations stopped hurting them about six to 12 months ago. But, as far as helping the bottom line, that's only happening to a handful. Draghi's forceful "by any means necessary" actions have turned the ECB into a combination Fannie Mae (FNMA), Export Import Bank, auto and subprime lender of, perhaps, first resort.
It's hard to believe, even with the difficult, overpaid bloated work forces, that something good won't happen to the European consumer economy. Draghi is a remarkable man, and he has singlehandedly saved Europe from a lost decade -- and yet he's still not finished his job.
He's being helped by stimulus all over the world, including in China, Japan and India.
But he is not being helped by the U.S. with its do-nothing, loggerheaded administration and the current Congress. I contend that, when you take into account regulation, Congress has done nothing to create jobs at all, and that it has probably been responsible for a lot of joblessness by focusing on terrible trade deals that hurt our workers. Our Federal Reserve has done all it can to keep interest rates low, and it doesn't even need to keep that ploy going, as rates have taken on a mind of their own. Unless you think permanent unemployment is a good thing, you can't be proud of our government's actions.
Draghi is a godsend to Europe. I just wish we had a godsend in this country.