And Generalissimo Francisco Franco is still dead (with apologies to the under 35 set).
Since in the U.S. we are currently embarking upon a program of reducing fiscal stimulus, it seems useful to examine whether this action would result in rapid economic growth as some have predicted. The UK is at the forefront of conducting this fiscal experiment.
On Friday, Standard & Poor’s, one of the three main credit rating agencies, downgraded U.S. Treasury debt from AAA to AA+, citing doubts about the effectiveness, stability, and predictability of American policymaking and political institutions in being able to deal with the rising debt burden by the middle of the decade. It’s been a wild ride for equity and commodity markets ever since.
And dispensing with childish things, such as the belief that our economic future can be secured by spending cuts alone. From “The Downgrading of a Debtor Nation”, by me and Jeffry Frieden, in today’s New York Times:
THE Treasury can cry foul all it wants, but the decision by Standard & Poor’s to downgrade America’s credit rating by one notch last Friday, and the subsequent plunge in the stock market, are serious symptoms of a loss of confidence — an assessment that is fundamentally political, not economic.
Joe Gagnon (formerly associate director of Monetary Affairs, and of International Finance, Divisions at the Fed) of the Peterson Institute for International Affairs has had enough with the policy paralysis . From Stop Sticking Our Heads in the Sand! A Plan for Action on Jobs:
…our leaders have been in denial about the true nature and magnitude of the problem. The ongoing stock market anxiety surely must wake them up.
There has been a lot of growth over the last decade in funds that take long positions in commodity futures contracts in order to offer investors an asset that follows raw commodity prices. I’ve been looking into some of the data that have been used to measure the size of those positions.
There is plenty of commentary on the S&P decision, including S&P’s difficulties with math, but I do find of salience this part of the release:
Professor Scott Sumner says “No more jobs mystery. Period. End of story.”. I’m not so certain.
From the post:
If I hear one more discussion of the mysterious lack of jobs I’ll explode. The new GDP numbers are the final nail in the coffin. For years I’ve been saying there is no jobs mystery. That any deviation from Okun’s Law was minor compared to the scale of the output collapse. With the new RGDP figures we now know I was right, there isn’t and never was any mystery as to why there are so few jobs. RGDP is very low. Period. End of story.
Here are interviews I did earlier this week on the debt deal:
I have been wondering why so many seem to be indifferent to the plight of the unemployed. Sometimes, the attitude is not so much indifference, but rather irritation that the poor are exempted from the burdens of society (see e.g., [0]).
Here is a plot of the unemployment rate and the alternative unemployment rate including marginally attached and part-time workers.
We finally get our debt-ceiling deal, only to watch the S&P500 fall 3.7% from Thursday’s close. What gives?