Not good news in stock markets — but you really have to look at the bond markets to get the full awfulness of the situation.Well... nothing is going to be done in the US. First, Congress is on a 5 week holiday. Second, Congress is convinced that deficit cutting is the right medicine for an ailing economy, so when they get back they will probably administer some more "medicine". Third, Obama continues to tout the success of all his initiatives, so it is hard to understand how he might back up and admit that he is an utter failure as a "recession fighter" and finally undertake some positive measures. The omens are not good. This second dip will make the 2008-9 Little Depression become the 2008-2013 Almost Great Depression.
The US 10-year bond rate is now down to 2.5%. So much for those bond vigilantes. What this rate is saying is that markets are pricing in terrible economic performance, quite possibly a double dip. And it also says that Washington’s deficit obsession has been utterly, totally wrong-headed.
Meanwhile, Italy’s spread against German bonds is soaring even further. What are markets pricing in here? Default as a real possibility; maybe even euro breakup. The latter certainly sounds a lot more plausible now than it did a few months ago.
So things are falling apart all over. Maybe someone should do something?
To understand how bad Obama is in dealing with the recession, here is another post by Paul Krugman on his NY Times blog:
Hope Is Not A PlanIf you had told me in December 2008 when I had so much hope for Obama that he would botch the economy this badly (and not deliver on any of his campaign promises) I would have thought you were crazy. Sadly, I now recognize that I was out of touch with reality. I had -- yet again -- been tricked by a seasoned politician who says one thing and does another, who takes reality and twists it into something you can't recognize, who sells you pie in the sky instead of doing the hard work of making the world a better place.
Nor is it good politics. So what the heck are they thinking?President Barack Obama’s spokesman is discounting talk that the economy may be headed back into recession, despite recent concerns of economists.Of course there’s a threat. Larry Summers puts the odds at one in three; I might be slightly more optimistic, but the risk is very real. Who, exactly, is at the White House who knows better?
Spokesman Jay Carney says there is no question that economic growth and job creation have slowed over the past half year.
But, Carney told a White House briefing, “We do not believe that there is a threat of a double-dip recession.”
And think about the politics here. For two years the White House has been determinedly cheerful, always declaring that the recovery was on track, that its policies were working fine. And all it did was squander its credibility. Maybe admitting the truth, saying that in fact we hadn’t done nearly enough, would not have helped get useful legislation through Congress. But at least it would have conveyed the message that the WH was living in the same reality as ordinary workers.
Now they’re doing it again. To what purpose? Do they think the markets will be reassured? Do they think consumers will be reassured? At this point, after the “summer of recovery” came and went a whole year ago?
Spin is part of politics. But sometimes you have to know when to stop.