Policy (or Lack Thereof) Is Engendering Fear - 09/23/11

• Rising fear of policy errors could put the world's economies into recession.

Before I get to the matters of the day, I wanted to reflect on what probably has likely been the catalyst to the market schmeissing over the last few days.

One consistent economic concern I, and others, have had over the last few years (since the 2008-09 financial crisis) was that the worldwide economic recovery was so fragile that it was exposed to exogenous events (like the Japanese nuclear disaster in early 2011) and/or to policy errors that could shift us into recession.

I would say the recent weakness in equities is a direct result of that rising fear of policy errors that could put the world's economies into recession.

Unfortunately, nothing emanating out of the central bankers and political leaders in the eurozone has done anything to engender the necessary confidence that policy is well directed in stopping the sovereign debt contagion.

Over here, the continued divide within Washington (and the policy inertia that has resulted) coupled wit this week's Operation Twist, which I criticized yesterday in my opening missive, Low Interest Rates Don’t Hold the Answer, also holds little incremental economic benefit and severely penalizes the savers class.

The next few weeks probably hold the keys to the market direction for the next twelve months.