August 3, 2011
One of the all-time classic news headlines was printed in the New York Daily News in 1975 when NY City was facing a serious budget crisis (note that at lower right it says "Stocks Skid, Dow Down 12" - I wish). Now we have financial markets home and abroad skidding on the news that Congress and the President have "fixed" a threatened Federal default. Stock market turmoil around the world is a clear signal of what investors think of the fix: it's a sham.
Markets are weak because investors don't believe that Washington has any intention of changing its borrow-and-spend ways. People know that you can't borrow and spend forever in your own home, and that a reckoning will come for those who eschew financial discipline. It might have been better had Washington defaulted. At least we'd know that they were grappling seriously with the nation's debts.
GTC
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