Friday, May 19, 2006
How many times can it be said before the collapse?
Paul Krugman says it again in clear and compelling statements, the US can not sustain continued growth of debt.
Um, wasn't the stock market supposed to bounce back after Wednesday's big drop? We shouldn't read too much into a couple of days' movements in stock prices. But it seems that investors are suddenly feeling uneasy about the state of the economy. They should be; the puzzle is why they haven't been uneasy all along.Let's ask the Republicans what to do. They are the party of fiscal responsibility.
The rise in stock prices that began last fall was essentially based on the belief that the U.S. economy can defy gravity -- that both individuals and the nation as a whole can spend more than their income, not on a temporary basis, but more or less indefinitely.
To be fair, for a while the data seemed to confirm that belief. In 2005, the trade deficit passed $700 billion, yet the dollar actually rose against the euro and the yen. Housing prices soared, yet houses kept selling. The price of gasoline neared $3 a gallon, yet consumers kept buying both gas and other items, even though they had to borrow to keep spending (the personal savings rate went negative for the first time since the 1930's).
Over the last few weeks, however, gravity seems to have started reasserting itself.
The dollar began falling about a month ago. So far it's down less than 10 percent against the euro and the yen, but there's a definite sense that foreign governments, in particular, are becoming less willing to keep the dollar strong by buying lots of U.S. debt.
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