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The Democratic Strategist

Political Strategy for a Permanent Democratic Majority

Keynsian Markets

As you have probably noticed, stock markets have been sliding pretty steadily from the very moment it became apparent that Congress was going to enact a debt limit agreement to avoid a default and an immediate downgrading of the federal government’s credit rating.
No, the markets weren’t reacting to the deal; it’s more like they didn’t care, or had assumed it all along. What they cared about was precisely what we were told was irrelevant to the debt limit deal: weak consumer demand and slow economic growth.
Strangely enough, the financial sector seems to be buying into the idea that the United States Congress might react to the threat (or reality) of a double-dip recession by, you know, doing something about it. This is from a Bloomberg report:

Speculation of new stimulus is increasing after U.S. data this week showed manufacturing grew at the weakest pace in two years, spending unexpectedly fell and the services industries grew at the slowest pace since February 2010.

Dave Weigel’s comment on that “speculation” is spot-on:

At some point, investors are going to have to start paying attention to how Congress actually works. It’s more likely to declare National John Wayne Gacy Appreciation Day on August 5 than it is to pass more stimulus.

That’s true. If the economy tanks again, we’ll hear calls for really draconian spending cuts. I mean, nothing could help the economy more than a couple million layoffs of public sector workers, right? All those wages could be useful to job-creators.
The grand irony is that “the markets” seem to be the last redoubt of Keynsian economics

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