Got home yesterday and told my kid I'd had a busy day because the stock market dropped a lot. Her response: "Oh... is that bad?"
The downgrade certainly played into the massive sell-off, so yet again, S&P's fingerprints are all over a market crash. Could somebody please downgrade them?!
But the larger issues behind the crash are well-known at this point. At center-stage, we have weak growth prospects that continue to lag expectations -- everybody thinks things are about to get better, and when they don't, everybody has their economic hearts broken all over again.
The typical forecaster predicts improvement in the next quarter or so, then a week later, moves that improved scenario another few quarters ahead.
Note the magical thinking here. "Things will get better, I just know it." Yet, both here and in Europe, policy makers essentially fumble around, unwilling to identify and go after the real culprit: weak aggregate demand here and insolvency (or near-insolvency) there.
I'm not saying these are easy problems to diagnose or fix (well, the US demand problem is very clear -- Europe's is more complicated, because some countries (Italy) could likely resolve their debt burdens with strong liquidity injections, others (Greece), probably not).
But what was the biggest, most time- and media- and attention-consuming economic debate in this country in recent months? Was it which are the best jobs measures to get America back to work? Was it how many more rounds of easing should the Fed undertake?
No. It was whether to raise the debt ceiling or default.
Enough already.
Yes, there are many policy makers who either don't understand these dynamics or are purely politically motivated. Some are cynically and solely driven to make the president look bad, with no regard for collateral damage. Others are acting on the belief that smaller government, and thus cuts and further austerity will allow growth to flourish, despite daily evidence that this is backwards.
If you are Ben or Barack, in my honest opinion, you need to ignore them from here on in.
Bernanke and the Fed can help, but they face two other constraints. First, the monetary version of premature fiscal austerity is the phantom menace of inflation. But to the contrary, one way to help both households and governments reduce the real level of their debt burdens is to print money and buy more long-term bonds -- QE3, 4, etc. There's little threat of core inflation accelerating with so much spare capacity in the economy, so helping these sectors to lower the liabilities on their balance sheets will help.
But it might not help much. Constraint number two for the Fed is that interest rates are already low, both at the short and long end of the yield curve. And we know firms are highly profitable and sitting on trillions in cash reserves. So monetary policy faces a pushing-on-a-string problem.
The real action is with the president right now. I liked his comments yesterday -- they didn't go far enough on the jobs front in a way I'll suggest in a moment, but I liked the setup. He essentially said, "OK, I worked with the opposition -- who recklessly used default as a bargaining chip -- to do some deficit reduction. S&P didn't like it -- so what? They're not exactly a beacon of light these days. But I think I've bought myself some running room on jobs... so that's where I'm headed."
He then talked about renewing the payroll tax holiday, extending unemployment benefits, and infrastructure -- specifically roads and bridges.
The first two are already in the system -- they should be renewed but let's be clear: they don't provide new stimulus. It's keeping your foot on the accelerator, which is helpful, but not as helpful as pushing down further. The third -- infrastructure -- is great, but I'm worried "roads and bridges" don't get it. They're necessary, but a) they've become more capital intensive so you don't create enough jobs (I think this is true, but need more research to be sure), and b) they don't capture the imagination.
I like FAST! and recommend he runs with that, or some other idea that meets these criteria: it can be stood up quickly, it's labor intensive with a decent bang-for-buck re jobs, people get it and feel good abut it right off the bat (so, as much as I like the infrastructure bank idea, I'm not sure it works here).
"But wait!," you shout. We're out of bullets -- there's no more money for such things -- and Congress will refuse to add any of this to the deficit. How can you advise the president to block everything else out and call for measures Congress will refuse to consider?!
That's the kind of second guessing, negotiating-with-yourself that has us stuck in the mud. The president needs to decide what this economy needs, make sure it meets the above criteria, especially the one about the solution being easy to understand and feeling good, and fight for it nonstop from here until the unemployment rate starts to steadily decline.
If the merchants of negativity and obstruction block him, then he has to tell the American people precisely who is standing between them and their jobs, their opportunities, their living standards. Tell them that their own and their children's well-being is actively undermined by those who refuse to work with him to get America back to work.
It's that simple.
This post originally appeared at Jared Bernstein's On The Economy blog.
I've never done drugs, by the way, and I've been clean (out of debt) for over 10 years now.
the main reason the market dropped was that is was in a long tern ascending wedge formation that broke with the breaking of the 200 day moving average. when that happens you look to a move to the base of the wedege, or the appropriate channel. ba
The math is simple, unbalanced trade shifts the productive industry to China and elsewhere in Asia. Roads, bridges transport people to the jobs that aren't there. Schools prepare them for the same missing jobs. What's the point? The schools better start preparing the students for welfare and food stamps - now 45 million and growing. The school program could be lite and cheap, we can save good money.
The issue is not if the investment is capital intensive but if it is PRODUCTIVE. The game of investing in something that produces nothing is embezzlement, similar to Potemkin villages.
We kept spending and spending, but we kept losing productive capacity - unbalanced trade sucks all investments out of the country. One can't fill a bucket with no bottom...
Only balanced trade can improve the economy - easily done by introducing import certificates (The Balanced Trade Restoration Act of 2006, by Dorgan and Feingold). If only there was corruption... or if it wasn't so complete..
After S&P downgraded U.S. credit investors rushed to buy TBills. That proves BEYOND A SHADOW OF A DOUBT that debt has nothing to do with our problems. Markets are scared the U.S. doesn't have the political will to energize its economy and they are right. Those same markets started buying stocks almost the day after the stimulus passed and now that the market can expect no more federal aid investors are fleeing.
This crisis is a failure of democracy, pure and simple. We simply cannot fix this country with the current political system we have. The house is allowed to hi jack the country and tank the stock market and people are too ig nor ant to connect the dots between conservative policies and their consequences. One of the two major political parties is openly pursuing policies that will damage the United States in hopes it will help them regain power. We need to put democracy on hold for a second and turn to someone with the guts to create a national work program that will hire the unemployed to fix our infrastructure. We can pay for this with tarifs and taxes.
Barring that the only way out of this is the way we got out before: join World War 3.
But after that it got sort of messy. It's the Republicans fault, we should have tripled the deficits and that would make us prosperous, lets massively print money to bypass congress (who cares if it takes a wheel barrel full of cash to buy a loaf of bread that can't happen?). Turn on the printing presses and drain the value out of all the savers bank accounts without having to tax them to raid their life savings. Oh, and printing massive amounts of money wont decrease it's value?
The left is frustrated. They see Obama is failing. They know that independents are fleeing him and his party. The left has a sense that they are seated on the Titanic and Captain Obama doesn't know how to lead. His partisan attacks are a double whammy. They aren't partisan enough for the hard left and are driving independents further away. Now, some of he life boats are being deployed, some democrats are distancing themselves from Obama, progressive media is starting to question his actions.
It may be too late for our good captain and his ship named TITANIC.
Create the problem and then provide the solution - classic. Therefore it is the criminals who are stepping to the plate so they can help the victims. It's really quite a bit of genius. So the infrastructure that we can't afford to pay, and the jobs we need, will now be the subject of private financing and a continued transfer of wealth from the people to the elites. Senate holding hearings now:
Building American Transportation Infrastructure Through Innovative Funding
http://commerce.senate.gov/public/index.cfm?p=Hearings&ContentRecord_id=d9c3dce8-6766-44db-8951-a298acdb84f9&ContentType_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&Group_id=b06c39af-e033-4cba-9221-de668ca1978a
"The Senate Commerce Committee today announced a full committee hearing on building American transportation infrastructure through innovative funding. This hearing will examine the means by which federal funds can be used to leverage and partner with private sector capital to supplement existing transportation funding and increase overall investment into transportation projects. In addition, the hearing will look at the effects investing in infrastructure projects can have on job creation"
exactly and if the R's work against it make it clear that he still stood for it, because otherwise he doesn't HAVE a job policy. People won't fault him for not getting it through when they can see who voted against it, but he will be faulted for not even having a policy.
As it has been pointed out by others, Obama's advisors are not recommending that he go after jobs because they are afraid he will be viewed as a big spending Democrat. The Teapublicans will attack him for that. But, as you said he has to make a very powerful and convincing case to the voters.
I am not so sure he is capable of standing up against the opposition if he were to demand Change That We Can Believe In.
But when I think of where Obama's administration has actually put money - banks, financial systems, automobile giveaways, etc. - I despair.
Yet, the GOP and the Tea Party promise even worse than what the Obama Administration has done.
Where can money be put in FAST?
Not in health care - as much as it might relieve people from burdens that prevent them from contributing better to our commonwealth. We have a completely messed up health care system, with too many apologists for the broken HMO/Insurance system.
Not on roads, bridges, water & sewers, and other like infrastructure. This would be a GOOD investment because we're left with something REAL and USABLE for decades (unlike financial institutions.) However, the permitting and review process makes it difficult to do anything fast here. It needs to be done, and we have to get started on it - bit it won't return fast results.
Education (and "pure science") would be best. We have public educational institutional organizations across the nation, and increasing our capacity for intellectual development can only be a good thing for a future world where "IP" (Intellectual Properties)