Wall Street Knows It

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August 18, 2011 8:08 a.m.

I’m really just flagging what David noted in the post below. But it’s worth two posts or more. Wall Street is telling us (now noting Morgan Stanley’s explanation of its growth outlook downgrade) that two key factors in the increasingly gloomy outlook for the economy are Washington’s high-wire antics (i.e., Republican hostage taking on the budget) and the prospect of fiscal tightening in the USA.To quote Morgan Stanley (emphasis added)…

There are three main reasons for our downgrade. First, the recent incoming data, especially in the US and the euro area, have been disappointing, suggesting less momentum into 2H11 and pushing down full-year 2011 estimates. Second, recent policy errors – especially Europe’s slow and insufficient response to the sovereign crisis and the drama around lifting the US debt ceiling – have weighed down on financial markets and eroded business and consumer confidence. A negative feedback loop between weak growth and soggy asset markets now appears to be in the making in Europe and the US. This should be aggravated by the prospect of fiscal tightening in the US and Europe.

Personally, I don’t have any doubt who’s to blame at a policy level. But at a certain point you just step back and grimace as you see the ship approaching the waterfall with calls of “full speed ahead!”

It really is a downturn made in Washington. Mind-numbing to behold. But then, who hires Washington?

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