Fiscal retrenchment in the face of what’s looking more and more like a slip back into recession is a very, very bad combination.
Just remembering back now the international financial institution folks back in 2009/2010 saying it was important to rein in spending since the global economy was already coming back and the risk was inflation and indebtedness. 1937 anyone?
From Krugman …
Not good news in stock markets — but you really have to look at the bond markets to get the full awfulness of the situation.
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.
Really makes me wonder what the President’s plan is for the economy. And that’s not a dig. I’m really curious.
