NEW YORK (
) -- Are China and Europe worried about overheating already? This rally's been based on the two pillars of Europe and China getting better, along with the U.S. muddling along in a way that's neither good enough to get revenue going nor bad enough to cause tightening.
But last night the Chinese let the money-market rate jump while at the same time the European Central Bank said it would offer some much more difficult bank stress tests.
I understand both moves. The Chinese economy's gotten hot again, and the Communist Party wants a long, sustained increase in gross domestic product, not one brought along by speculation. The European banks were, frankly, never fixed. If you look at their ratios vs. those of the U.S., they are pretty insanely undercapitalized. That's particularly true of the Italian banks, all of which would have been shuttered by former Treasury Secretary Tim Geithner a long time ago if they'd been U.S. banks. If Europe does a real test, there would have to be an awful amount of equity raised -- and the markets, which have been red-hot, could stumble.
Plus, if you are a European businessperson, you have to be aghast at the strength of the euro. Not only is the currency not going lower every day, but it now feels as if the euro is becoming the world's reserve currency. That's courtesy of the rejectionists in the U.S. Congress, who were willing to throw away our nation's full faith and credit rather than just try to win a national election or take over Congress themselves.
I still do not think anyone in Washington is really aware of the damage the rejectionists have done. You know why? Because people are still acting as if it was "everyone's fault," and not just those who were willing to walk away from our obligations. Remember, I favor pushing back Social Security and putting through real cuts in Medicare, including negotiated drug benefits, and I favor lower taxes to jump-start growth and I favor less regulation. That's because, as a small businessman, I know how insane it is out there. We have outcomes management numbers for medical care that we don't even use. There is so much out-of-control spending by the government in Medicare that it is ridiculous.