The importance of fiscal policy once again was made clear when Japan released its Q2 GDP results – a negative 7% annualized rate! The impact of the sales tax increase made a clear impact on economic growth and was a counter-balance to the increase in confidence spurred by rising asset prices. Like all economic machines, liquidity might be the grease to let the machine function but you still need the pistons (consumers and business) to make the motion. To add grease but then cause the rest of the engine to seize up means that the precious time bought was not used productively. Monetary policy must be aligned with fiscal (both on the stimulus and the structural side) to get the car chugging along. Let’s hope Europe takes note.
Sanction was once again the word of the week as both the EU and the US stepped up their rhetoric. At this point, Putin continues to move forward undeterred but noting to the media that Russia does not intend an isolationist policy. So far, the “penalties” are directed at the upper echelons of Russian business and political leaders and not the broader economy. Putin’s ego is committed at this point so, other than the rest of the world just letting the aggression pass, perhaps the only way to deter him would be the broader upheaval of the “mob” (rest of the population). But winter is coming, so Russia’s political power over Europe will grow as the temperature drops.