Tuesday, August 9, 2011

Belt-Tightening Blues

In the stock market sell-off's severity,
There's a White House political rarity:
While private demand
Is too soft to expand,
There's a Democrat talking austerity.

As millions of Americans fretted about S&P's Friday night downgrade of US sovereign debt, Monday's stock markets saw a tsunami of selling that began in Asia and rolled across the world, ending with the S&P 500 stock index down 6.7% for the day. However, the downgrade itself was not the catalyst, as evidenced by the fact that Treasury prices actually rose. The market was much more spooked by waning growth prospects, caused in part by government belt-tightening at a time of slack private demand. How ironic that, following a Republican President who stimulated the economy with spending and tax cuts, and his Democratic successor announces years of growth-dampening spending cuts ahead.

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