The Tortoise and the Hare

The age old tale of the Tortoise and the Hare can be used as a metaphor for the dueling economic factions of Austerity and Monetization.  The Tortoise represents Austerity and the Hare represents Monetization.  As we all know the race is won by the Tortoise as the Hare, knowing that he is faster spends time bragging about his ability to win and even more time sleeping.  All this time the Tortoise slowly plods towards the finish line and even with a mad dash at the end it is too late and the Tortoise wins.  The picture above is even a better representation of the outcome of the economic factions not that I remember the Hare crashing over a cliff in the original story!

It appears that the austerity measures being taken across the pond in England are starting to reap some rewards.  GDP growth has returned and other metrics such as average housing prices, which reached a record high in June, seem to point to continued growth ahead.  At the same time government spending has been sharply curtailed which should result in a balanced budget and possibly a surplus in the not too distant future.  Of course all of this is based on continued buoyancy in exports and as those are tied mainly to the Euro zone this growth could be curtailed, but at least it appears that the pain taken early was relatively short and the result should be a healthy economy for an extended period regardless of exogenous shocks.

Europe, while still a basket case (particularly Spain, Greece and the other usual suspects), has continued down a path of relative austerity.  The pain felt there however was far more severe than in Britain but even so it does appear that barring some major financial crisis (read another mess exported from the United States, which is not a low probability event) that they will resolve their issues slowly and painfully but successfully.  Once again this all comes under the huge umbrella that they can somehow become a more cohesive economic union (which is seriously doubtful) but it does once again appear that recovery will be achieved and in a far more controlled way than that being conspired in Japan and America.

These two nations have tried time and again to take the "easy" route, bragging along the way that the tough decisions made in Europe and Britain are recipes for disaster and that the only way out is to print.  Similar to the Hare whose constant bragging about his speed led to the challenge and ultimately eating humble pie.  I have said all along that the methodology followed in the United States is a short term finger in the dyke solution based on the massive ego of the Federal Reserve and their ability to "mop up" excess liquidity when inflation rears its head.  They have never managed this in the past and have never printed so much money in the past.  Their track record does not speak to confidence in winning the race so hopefully they will take note of the green shoots in England and will reign in their speed before they reach the point of no return as the Hare has in the picture above.