Daily Analysis --- Easing or Austerity ??

On one hand when American's having unconventional easing policy which probably started giving fruits and bucked by them Japan came up with monster easing policy but need still learning and need to get out from austerity.

If only the "austerians" had listened. According to the latest forecasts, the US budget deficit will shrink to 4% of GDP this year.

The slide from 2009's 10.1% budget shortfall is one in the eye for the Tea party and any other advocate of "contractionary expansion".

Worse for the fans of austerity, forecasts published by the US congressional budget office expect the deficit to fall to 2.1% of GDP by 2015 as tax revenues soar.

By comparison, the UK's official forecaster, the Office for Budget Responsibility (OBR), expects a budget deficit on a Maastricht treaty basis of 7.6% this year. Not until 2017 will it fall below the Maastricht maximum of 3%.

The Obama administration was regularly battered by critics who said the deficit would balloon without massive budget cuts. The president resisted much of the rhetoric and put in place a stimulus plan. It was weaker than economists such as Paul Krugman and Joseph Stiglitz wanted, mainly because constitutionally required cuts in local state spending went ahead regardless. But it was still a stimulus plan and by last year it was helping millions of workers find jobs and this year is making serious inroads into the deficit.

Trevor Greetham, a director at Fidelity Worldwide Investment, congratulated the president on his strategy.

"The anti-austerity camp will get a boost today," he said. "It is increasingly clear that the Obama administration was right to put off fiscal tightening and focus reforms in the medium to long term. America is growing its way out of debt. The deficit is shrinking because tax revenues are coming in better than expected and a rise in house prices has seen the two government-sponsored lenders, Fannie Mae and Freddie Mac, repay some $95bn (£60bn) to the Treasury.

"The good US fiscal performance stands in stark contrast to the UK, where front-loaded spending cuts and tax rises have hurt the economy and caused a shortfall in government revenues. The OBR expects the deficit to shrink to a manageable level by 2017 but this forecast, like all of the previous ones, relies on sustained economic expansion of 2-3% a year. It is hard to believe this level of growth will be achieved especially as next month will see another year of cuts tacked on the end of what has become a rolling five-year austerity plan."

Greetham is one of the few City investors to say loudly and consistently that austerity was the wrong medicine. In 2011 he contradicted George Osborne's message that the UK was like Greece. He said then it was more like the US and should adopt the same remedy.

And Japan is moving in the same direction. Even now Tokyo is looking to boost government spending by 2% to 3% as it seeks to generate growth and reduce its almost perpetual 10% annual deficits. Alongside this plan is the expansion of the money supply by the Bank of Japan, which together with the spending boost will be the ultimate test of the Keynesian answer to a slump.

Yet many will argue the Obama administration has done enough to show that Keynesianism works and it is only ideology that has hindered growth in the UK and Europe, not the availability of an oven-ready solution

Following are trade recommendations for today,

• Sell Chf/Jpy around 106.04/20 stop above 106.85 target 105.40/105
• Sell Crude Oil at 95.20 stop above 96.00 target  94.40++

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