A different take on our economic woes

The wild fluctuations of the stock market last week seem to be a reaction to the national deficit and the downgrading of American bonds.  But, as financial analyst Liaquat Ahamed, points out, investors were dumping stocks and investing in government bonds, despite the downgrade and despite record low interest rates.

So, if financial markets aren’t worried about the full faith and credit of the United States, why is the stock market falling? An alternative view, most prominently expressed by New York Times columnist Paul Krugman, is that the markets have concluded, given the struggling economy, that budget cuts are precisely the wrong medicine for what ails us. The Obama administration was backed into a corner by the S&P downgrade and must now focus on cutting the budget deficit to the exclusion of all other policy objectives. Such austerity — whether achieved through spending cuts or tax increases — at this moment in the business cycle would only exacerbate a slowdown. In this reading, the stock market is preparing itself for the coming double-dip.

If this is the market’s message, what should we do? Instead of instituting deeper budget cuts and other austerity measures, the government should pursue the opposite: It should take advantage of the fact that it can essentially borrow for free to finance badly needed infrastructure investments. After all, our airports, roads and bridges are in need of urgent repair, and the extra investment would provide job opportunities and inject money into the economy.

via What is the stock market telling us? – The Washington Post.

Expect that to be the Democrats’ position, that we should stop worrying about the deficit and spend even more money to create jobs and get the economy going.  Mr. Ahamed says, however, that this isn’t politically possible.  Mainly because ordinary Americans saw the government bailing out big banks and corporations, but doing nothing to bail them out.  He proposes a different kind of government activism aimed specifically at consumers and homeowners, which, I suspect, may also become Democratic proposals:

A large-scale government program to restructure residential mortgages and help households refinance underwater mortgages would reduce the debt overhang and support consumer demand. Most important, by channeling public money to help individual families, rather than Wall Street, this initiative could alter the political dynamics that currently doom any government efforts to jump-start the economy.

Can you answer this take on the economic problems and what government might do about them?

The Super Committee

Congressional leaders have appointed the “Super Committee” tasked by the debt reduction deal to recommend spending cuts and bring the federal budget under control.  There have been other such committees, of course, whose recommendations have been ignored, but this one has some clout:  Its recommendations will be voted on with an up or down vote–rather than death by a thousand amendments–and if they get voted down, automatic cuts click in.

What do you know of these folks?  Do you think they can solve the debt problem?

Rep. Jeb Hensarling of Texas;

Rep. Dave Camp of Michigan;

Rep. Fred Upton, also from Michigan;

Sen. Jon Kyl of Arizona

Sen. Rob Portman of Ohio;

Sen. Patrick J. Toomey of Pennsylvania

Sen. Patty Murray of Washington

Sen. Max Baucus of Montana

Sen. John F. Kerry of Massachusetts

Rep. James Clyburn of South Carolina

Rep. Xavier Becerra of California

Rep. Chris Van Hollen of Maryland

via Deficit ‘super committee’ reflects party leadership – latimes.com.

Wisconsin recalls in favor of GOP

It looks like the unions lost and Republicans won in Wisconsin, as recall elections sparked by Gov. Scott Walker’s stand against collective bargaining for state employee unions retained the GOP majority in the state legislature:

Republicans held onto control of the Wisconsin Senate on Tuesday, beating back four Democratic challengers in a recall election despite an intense political backlash against GOP support for Gov. Scott Walker’s effort to curb public employees’ union rights.

Fueled by millions of dollars from national labor groups, the attempt to remove GOP incumbents served as both a referendum on Walker’s conservative revolution and could provide a new gauge of the public mood less than a year after Republicans made sweeping gains in this state and many others.

Two Democratic incumbents face recalls next week, but even if Democrats win those they will still be in the minority.

via GOP maintains control of Senate – TODAY’S TMJ4.

Barackalypse Now

As the stock market dives 634 more points over the United States government getting downgraded by Standard & Poors, President Obama is looking more vulnerable than ever.  Even some of his African American supporters—who are suffering most from unemployment—are getting disillusioned with him.  In addition to our economic woes are our foreign policy failures, including setbacks in the continuing wars in Afghanistan and Libya.  People are speaking of Barackalypse or Obamageddon.

I thought he was a shoo-in for re-election, but now I’m thinking he is assuming the mantle of Jimmy Carter.  And yet this time there is no Ronald Reagan in the wings.  I’m still not confident that any of the current candidates come across as presidential enough to beat him.

It looks like Texas governor Rick Perry is going to get in the race.  He has scheduled a big speech this weekend and then he is booked to go to New Hampshire and Iowa.  (Why else would he go to New Hampshire and Iowa unless he is going to run?)  He seems to come across well in the presidential gravitas department and could probably unite both tea party activists and establishment Republicans.

Both Republicans and Democrats need to remember that it is not enough to vote for a candidate just on the basis of his or her ideology.   Another consideration is, can this person govern?  If Republicans select a light-weight ideologue who is incapable of effectively addressing the nation’s problems, they will face their own Armageddon.  They will also drag the country down with them.

America’s credit score

Standard & Poor’s downrated US bonds from AAA to AA+, the first time we have been rated so low. That is a purely financial assessment. But factors include our impotent government, our inability to raise revenue, and our vast and increasing national debt. How humiliating. Just how doomed are we? How can we become a first world nation again?

Another economic collapse?

The stock market has nosedived 500 points and the economic indicators appear to be disastrous.

This, right after the debt ceiling agreement that supposedly allows the government to stay solvent by borrowing money while also cutting more than $2 trillion in government spending.

Could it be that Keynesian economics is right, that the government keeps the economy going through its spending and that cutting expenditures during a recession is exactly the wrong way to produce economic growth?  Or are the free marketers right and that the trillions in new debt will mean less money for productive investment?  Or, in the worst of all possible worlds, are both right?

Are there any policies the government should take that would actually help?  Or do we just need to let the cycle play out, even at the cost of another recession, or worse?


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