As we head into December and the market anxiously awaits an FOMC decision which, if the Fed were truly ‘data dependent’, should tell us something about what the PhD economist cabal thinks about the state of the US economy, the market is bracing for a significant monetary policy divergence between the US and the rest of the developed world.
According to the standard and oft-repeated narrative, the US is the so-called ‘cleanest dirty shirt.’ Growth is abysmal, especially in a historical context, but at least America didn’t just enter its fifth recession in as many years (like Japan).
Similarly, inflation expectations may not be where Janet Yellen wants them to be (understated rent inflation and $170 million Modiglianis notwithstanding), but hey, at least the US isn’t sinking into deflation (like Japan and Europe).
Of course it’s not just about the US vs. Europe and Japan. The world’s emerging economies are at another point in the cycle entirely and are in many cases (e.g. Brazil and China) facing an outright meltdown.
For those looking to make sense of it all, SocGen is out with an updated ‘leverage clock’ which shows where the world’s economies are in the ‘deleveraging-no bubble-leverage-bubble burst’ cycle.
This post was published at Zero Hedge on 11/24/2015.