Aggressive budget cuts and steps toward austerity are sweeping the UK and Europe. So far North America has failed to follow suit on a federal level. On the local level however, US States and Municipalities are all in slash mode as they are required to run balanced budgets. The foreclosure crisis is causing another wave of serious revenue hits for local governments as homes without owners/inhabitants tend to not remit property taxes.
Economist Nouriel Roubini is warning that Europe's monetary policy is now stiffling the chances of economic recovery in the region and that the US and European slowdown will curtail growth in emerging markets:
Roubini said currency tensions have reached a boiling point. Overspending countries need to reduce domestic demand to deleverage, while over-saving countries refuse to reduce their reliance on net exports, he said.
“This zero-sum game in currencies and net exports means one country’s gain is some other country’s loss, and a competitive devaluation war has ensued,” Roubini said.
If China, emerging markets and other surplus countries keep their currencies from appreciating via intervention—preventing a rise in domestic inflation—the only way deficit countries can achieve depreciation is via a persistent deflation that will lead to a double-dip recession, Roubini said.
With governments intervening across a broad spectrum of markets, artificial prices are a grave concern for capital invested. Regression to the mean can be swift and devastating in these conditions. See this next segment “Currency wars complicate investing” for further insight: