One feature of the current political and investment climate is the politicization of economic facts. Here are three contradictory statements contained in one Bloomberg News article:
U.S. stocks tumbled, following the biggest weekly drop in the Standard & Poor’s 500 Index since 2008, amid concern that a downgrade of the nation’s credit rating by S&P may worsen an economic slowdown. Right. But the market was already slowing for other reasons. The downgrade itself is a warning but won’t immediately result in interest hikes. In fact…
Treasuries rose today. Despite the downgrade, investors flocked to US treasuries as the safest haven for their money in uncertain times (!)Stocks have slumped for two straight weeks as manufacturing and consumer spending data showed the world’s largest economy is slowing. Yes. And that’s why the danger of a double-dip recession is the key threat to American pocketbooks today, not the debt crisis. If business and consumer demand is down, the only thing left to lift the economy is government spending. But the Republicans have raged against government stimulus with as much fury as Elmer Gantry raging against sin.
The U.S. Treasury no longer has, according to S&P, a gold star,” Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, said in a telephone interview. His firm oversees more than $38 billion. “Still, if you’re an investor and you say — I’m worried about what’s going on in the world, I’m worried about liquidity and safety, you basically have no place to go other than the Treasury market. Ditto second statement above. Where else do you go?
The downgrade may spook investors, causing sentiment to grow more bearish in the short term, but corporate fundamentals, including balance sheets with more cash than debt and earnings growth, will continue to push the S&P 500 higher by the end of the year, strategists at Barclays Plc, Citigroup Inc. and JPMorgan Chase & Co. said Right, but companies are still not hiring. They’re just making current employees work harder. Again, that’s the immediate threat to the economy.
What does all this mean? Maybe the economy is seldom as bad or good as we’re lead to believe. That can change rapidly. More to the point, economic currents are hard to interpret as they play out. That’s why doctrinaire stances against budget cuts, tax increases, debt ceilings and budget balancing based on political convictions or ideology are corrosive.
The Bush tax cuts were given an expiration date of ten years from enactment. Maybe some wanted them to be permanent. But, this bi-partisan compromise at least allowed George W. Bush to put his ideas to work (even while kicking important budget decisions down the road). And so they should sunset in 2012 as (after an extension) promised.
This is another time and another President who now confronts a possible double-dip recession. Congress should allow him all tools necessary to get us out of this mess.