Jobs and deficit crisis will lead to double dip and more downgrades

Former Fed nominee and Nobel Laureate Peter Diamond spoke to Bloomberg News about how he sees the economic difficulties the United States faces. His view is that America faces a jobs crisis in the here and now and that deficit reduction is a longer-term problem

All back to square one

The S&P 500 completes its worst run in a long time returning to levels not last seen since March, when we thought we had to write off the entire Japanese economy as a nuclear wasteland. So, is it all back to square one for the already weak recovery

USA Debt Crisis: Is There Any Truth?

Last week the NY Times covered the division within the economic community over the way out of the USA’s overspending / balance budgeting.

“Reasonable people can sit down and, apart from any political or policy motivations, come up with different answers,” said Robert S. Chirinko, a finance professor at the University of Illinois at Chicago who studies corporate taxation.

No doubt this is true. The economic community’s solutions range from more deficit spending stimulus (on the theory that boosting the economy will boost tax revenues to balance the budget) to out-and-out cutting spending (on the theory that re-balancing, while causing short-term pain, will spur long-term growth). Both extremes have some basis in main stream economic studies

Deficit Deal Could Derail Growth

Comstock Partners argues that while the stock market seems ready cheer any agreement that increases the debt ceiling and avoids a default, such cheering may be extremely short-lived as the economy sinks further under the burden of additional near-term cuts in spending. This conclusion is based not on any particular political ideology or economic theory, but on the historical record

Americans oppose increasing the debt ceiling. Here’s why

The sense that America’s spending is out of control is visceral. It will be cut. Looking for a job, running a business or Investing in a world of austerity is a lot different from getting along in normal times. I advise everyone to think about how this impacts them because the cuts are definitely coming

The dénouement of deficit fatigue

I flagged the inevitability of deficit fatigue as early as November 2008. I am sympathetic to the view that these deficits are an attempt to prop up excess credit growth and thus retard full recovery. But I also fear the consequences of a world without any policy stimulus. That is certainly why I advised a more aggressive policy response early both on stimulus and recognition of bad debt. A more aggressive response on these two fronts would have dealt with both structural and cyclical causes of recession. At this point however my sense is that we are being set up for a severe economic shock unless someone pulls a rabbit out of their hat soon

The Big Interview with Barton Biggs

In this week’s Big Interview, Barton Biggs has a lot to say. What stands out and what the WSJ has stressed is his support for public works programs

Money and Trading 101

When we tighten our belts, it means that we are trying to build up our savings. We do this by spending less. But spending drives our economy. Sales create jobs. So unless Obama has a secret plan to reverse three decades of current account deficits, the Government needs to loosen its belt when we tighten ours. If it doesn’t, then millions of us will lose our shirts

Roach: Return of the Living Dead

Rather than adding stimulus with the aim of goosing demand to help the economy reach escape velocity, I would say that the central objective of economic policy is to help the economy reach full employment. Doing so will increase demand, increase output, and cut budget deficits tremendously. Policy makers should do this while aiding the economy in reallocating scarce resources to areas that will sustain longer-term productivity growth. In America, that means less resources in finance and housing and perhaps more in technology and infrastructure

The jobs crisis is not just about demand

If the US wants job growth, it will need to reduce private sector debt levels – and that takes time. The government can act a a counterweight to the demand drag but I am very sceptical of claims like Summers’ that doing so would solve a jobs crisis borne out of a debt crisis

Gundlach: “It’s very difficult to move forward with a debt-based economic scheme”

Jeffrey Gundlach spoke with Joe Weisenthal of Business Insider in an exclusive interview which they recently carried on their site. Gundlach believes that the economy is “a low-performance mode” that makes the unemployment overhang difficult to solve. In his view, there is “deflation risk in the economy at times when the government isn’t stimulating.”

QE3 will only become a reality after the economy deteriorates

As Jon Hilsenrath pointed out in Thursday’s Wall Street Journal Bernanke has already indicated that the hurdle to more quantitative easing is very high. This is not to say that QE3 is off the table forever. But QE3 will only become a reality after the economy deteriorates to a point where deflation again becomes a clear threat and most opposition to the program fades away. The problem is that, by that time, most portfolio managers will have thrown in the towel and the market will be far lower