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The NYT Spreads Scare Stories About Financial Market Panic
The first sentence of a NYT article told readers that the White House and Congress are faced with: "anxiety in financial markets about the huge federal deficit and the potential for it to become an electoral liability for Democrats." There is absolutely no evidence whatsoever presented in the article to support this bold assertion.
What we know is that investors are willing to hold 10-year Treasury bonds at a 3.5 percent interest rate. This suggests that financial markets are very unconcerned about the deficit and the future prospects for the U.S. government. By comparison, they demanded interest rates of more than 5.0 percent to hold Treasury bonds in the late 90s when the government was actually running surpluses. The higher interest rate suggests a greater level of anxiety.
While the financial markets appear unconcerned about the fiscal condition of the United States, there are many wealthy people, who claim to speak for financial markets, who are expressing concern. The NYT should distinguish between the views expressed by these wealthy people (all of whom were too incompetent to see an $8 trillion housing bubble) and reality.
--Dean Baker
COMMENTS (7)
Or it could mean that in the late 1990s bonds were competing against stocks that people expected to keep rising at 10% per year but now people would be happy if they just don't lose much money in stocks in real terms over the next 5 years.
Posted by: Erik L | November 1, 2009 8:35 AM
Bonds compete with a whole array of assets at any point in time. In fact, stocks are a hell of a lot better buy today than they were in the late 90s. If investors are too dumb to recognize this fact, should we try to construct an economic policy to cater to their stupidity?
Posted by: Dean Baker | November 1, 2009 8:58 AM
And I guess the idea that I've been reading Beat the Press a lot is true, since I thought the same thing when I read that article. At least the rest of the article was good, especially these lines:
"Concerns about the deficit are building even as the White House and Congress continue to add to it with tax cuts and spending to stimulate a still-fragile economy. Yet those one-time costs do not trouble most economists and market analysts."
You almost have to wonder if there's some sort of unintentional editing problem here. I mean, did the reporters try to say something like "unfounded anxiety" or "irrational anxiety" or something else to that effect but have it taken out?
Posted by: Brian J | November 1, 2009 9:26 AM
From the article: "“It is imperative that we act,” said Senator Kent Conrad, the North Dakota Democrat who is chairman of the Senate Budget Committee".
Whenever I read one of these table-pounding claims from one of these people, I always append it with "even if it makes things worse" which they usually do.
Posted by: some guy in a cube | November 1, 2009 9:58 AM
Dean- fair enough but combine this with part of your post and one could conclude that investors are willing to hold treasuries at 3.5% due to investor stupidity.
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