President of the European Central Bank Mario Draghi may have learned a hard lesson this week, the school of hard knocks on a global scale.
Draghi said July 26 the ECB would do "whatever it takes to preserve the euro" and markets jumped markedly on three continents. The turn of phrase has been touted as possibly the seven most influential words uttered since anyone can remember. Markets added billions of dollars in value in the next two days.
Now Draghi has to deliver. If he doesn't, there could be a whiplash so fast and furious it would derail investor confidence for a long time – perhaps for as long as Draghi keeps his job. Distrust of a central bank is not anything any bank governor wants, no sir. The governors are supposed to stand as bastions of independence and trust and, as it happens, are masters of not saying much beyond some coded hints about policy before any changes are formally decided.
Federal Reserve Chairman Ben Bernanke has made transparency a new standard at the U.S. central bank, but he still keeps as mum as a magician about what he may have up his sleeve. He may spell out some options to reassure investors that the bank has not used up all of its leverage. But even his tone of voice is hard to read.
Now what if Draghi does persuade ECB policy makers to take action? Whoops, again. The two day upswing has already accounted for as much optimism as Draghi might squeeze out of any potential new program. This means the day a new policy is announced stock markets could very likely not even flinch, because the optimism is already priced into the market. When it occurs, the announcement, whatever it might be, will already be old news. The bank might then look pretty ineffective when the announcement is made.
If forecasts are correct, the rest of the week hasn't much good news coming around the corner. Consumer spending for June is expected to be flat, while home prices on the S&P/Case-Shiller report are expected to be down 1.5 percent in June. A consumer confidence index is expected to show a decline, while Automatic Data Processing Inc., in Wednesday's monthly job report is expected to include 120,000 new jobs, just a pinch or two above ridiculous. At least, as far as Democrats are concerned, 120,000 is not a total dud. But it is almost small enough for Republicans to call it one, so they will doing so the minute the report is issued.
The more inclusive Labor Department report due Friday, which includes public and private jobs, is expected to show an increase of 97,000 jobs added to the economy in July, which Democrats will tout is better than June's dismal 80,000 jobs added, but small enough for Republicans to correctly label insufficient. The unemployment rate, meanwhile, is expected to remain unchanged at 8.2 percent.
At that point, Mitt Romney, the presumptive Republican nominee for president, will say the president's policies are not working. President Barack Obama will respond by saying, "Guess why."
The president, in his campaign speeches, routinely accused congressional Republicans of being responsible for a stalemate in Washington that he says is holding back progress on the economy.
ANTHONY HALL || United Press International