All you have to do to understand how the economy works is to look at the markets today. Downsville. Significant dips. The market knows that the moment the American government is disabled by anti-spenders, that's the signal that the economy will tank. Again. And again.
That doesn't mean never cut spending. It means do not cut spending in a recession.
There was some inital relief that the faux crisis -- the teapot tempest about raising the debt ceiling -- seems to be over. And then the rest of the world is faced with clear signs that Republicans do not want a recovery until and if they can get Obama out of office.
Like Obama or not, one has to admit that the assurance of continuity in 2012 (and a mysterious group slide into a limepit on the part of the tea partyers) would do great things to cheer up Wall Street, "job creators," and most Americans. Obama has the clear advantage of being a centrist, an institutionalist and a friend of Wall Street. Bankers and investors like that. They don't like largely ignorant, sometimes hypocritical, ideologues determining our immediate future.
The emerging outlines of a deal to cut spending by at least $2.4 trillion over 10 years, with a multibillion-dollar down payment later this year, would complete an about-face in the federal government’s role from outsize spending in the immediate aftermath of the recession to outsize cuts in the future.
Last week brought the disconcerting news that the economy grew no faster than the population during the first six months of the year, in part because of spending cuts by state and local governments. Now the federal government is cutting, too.
“Unemployment will be higher than it would have been otherwise,” Mohamed El-Erian, chief executive of the bond investment firm Pimco, said Sunday on ABC. “Growth will be lower than it would be otherwise. And inequality will be worse than it would be otherwise.”He added, “We have a very weak economy, so withdrawing more spending at this stage will make it even weaker.” ...NYT
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Even before negotiations went down to the wire on Sunday night, the bitterness, division and dysfunction that resounded around the world in recent weeks as the United States veered toward default did more than just fuel a perception that Washington is approaching Japan-like levels of political gridlock. Among foreign leaders and in global markets, the political histrionics have eroded America’s already diminishing aura as the world’s economic haven and the sole country with the power to lead the rest of the world out of financial crisis and recession.
It has chipped away at the global authority of President Obama, who was celebrated abroad when he came to office as a man who would end an era of American unilateralism. Now the topic of discussion in other capitals is whether the Age of Obama is giving way to an Age of Austerity, one that will inevitably reduce America’s influence internationally. ...NYT
