On Monday, August 8, the global financial markets sent a clear message: investors fled stocks and bought US bonds. Why are stocks falling? Why are investors buying bonds? Because investors see the United States hobbled by incredibly slow economic growth. We are teetering at the brink of a double dip recession. Millions are unemployed. Businesses are not growing or expanding. Investors see bonds as a safe investment in an economy going nowhere fast.
Economically speaking, our house is on fire. Worse, the Boston Globe, the leaders of both parties in Washington, and the Standard and Poor’s credit rating agency are focused on fixing our long-term debt problem, instead of today’s crisis. The sad effect is akin to pouring gasoline on the fire. (“S&P mucks up the math, but sounds a needed wake-up call” August 9, 2011).
Facts matter. Math matters. There are no numbers to back up the argument that the US cannot pay its short or medium term debts. At worse last month, there was only a short term danger of missing a few days payments because of the irresponsible hostage-taking behavior of zealots in Congress. S&P could not make its case for downgrading US debt with out a glaring and ridiculous two trillion dollar math error. When confronted with the error, S&P just scribbled over it and presented their argument again, but without math. It is a sign of how unmoored from facts our political and economic debates have become that S&P can hold its head up while offering demonstrably false mathematics as serious analysis. And S&P should already have its credibility in tatters, given its massive failure (in response to pressure and legal payola) to correctly measure the risks in the mortgage-backed securities that crashed the market and cratered the economy in 2008.
The US economy is the real problem. People are suffering. Businesses are not growing. The infrastructure — the systems for transportation, for water, sewage, and electricity, and for education — that we need for a healthy society and competitive economy for the long-term are crumbling. Reducing government investment in infrastructure is foolish, and cutting direct insurance payments to people who need them (Social Security, Medicare, Medicaid, and unemployment insurance) is worse. The Globe described the S&P report as a wake-up call. But, respectfully, if you can’t see the see the movement of the market, or the huge risk of a lost decade of economic sluggishness looming before us, you’re still sleeping.
It is not time to cut. It’s time to invest.