When Politics and Economics Collide

Tuesday, July 21, 2009

What is going on with the markets these days? On one hand you get a sign that all is well – the Dollar dips on Risk Appetite and the stock markets rise. On the other hand, you get a report that undermines the recovery notion and the Dollar rises again sharply.

With all this back and forth, Forex traders are getting vertigo. And this contradiction is not only coming from different numbers of different sectors, it’s coming from the policy makers as well.

Only last week, European Central Bank President Jean-Claude Trichet gave an optimistic outlook, just two weeks after giving a dire outlook. Today, Ben Bernanke, the Federal Reserve Chairman in the US, is expected to give a glowing outlook for the economy, just one month after talking about how slow things are moving in the direction of recovery.

What is this all about? Well, today, I read an article from the ‘Washington Post’ which kind of spelled it out – at least partly.

The article was focused on how the Obama administration has been holding back economic data reports from Congress that they are obligated to provide. With Obama out on an ambitious journey to change the American system of healthcare and unemployment, the numbers apparently will alarm many and perhaps cause a delay or even rejection of his spending plans.

Trichet is also vying for something other than the full disclosure – he is looking to be reappointed to his post. With EU elections over, he is seeking to maintain his post amidst a hostile group who views him as too pessimistic – kind of like the way Alan Greenspan was viewed in the late 90’s. So by changing tone, he hopes to convince the decision makers that he is not the man they think he is.

The problem is, the real state of the economy will come out – and then what? Does the market tank? Does the Dollar collapse? Probably not, but it will go a long way to the trust issue.

IF Obama’s team is purposely holding back info, and Bernanke is a party to that – what effect will they have in convincing Forex Online traders and investors that what they are telling them is the truth? Historically, Fed Chairmen and Central Bank heads have been non-partisan – saying it like it is even at the expense of the current administrations popularity.

This cannot change – but I fear it is. If an obscure article in a key Washington daily gets plastered all around – if the American people get wind of the fact that the government is purposefully holding back information in order to advance their agenda.

If the EU re-ups Trichet and he goes back to his truthful but dire ways, what will the markets do? I figure they will punish the Dollar and Euro I the short term and not reward them moving forward when there is actually good news to report. We just might see the beginning of a new trading pattern in which good news is not met with an upswing, but rather no swing.


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