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.
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