Tuesday, June 7, 2011

Uncertainty and default -- another "if you don't post it someone else will"

I'd been meaning to post something about the uncertainty caused by Dodd-Frank and Clinton Era taxes compared with the uncertainty cause by the debt limit showdown, but David Frum beat me to it with a very good post:

Personally, I’m not very convinced of the “business confidence” theory of the weak recovery.

I would myself lay much more emphasis on economic factors like: (i) the continuing destruction of American consumer wealth as housing prices deflate; (ii) the burden of rising oil prices; (iii) the collective decision of American consumers to increase their saving by 6 points of personal income – a laudable decision, but one that subtracts a lot of demand from the economy.

But if I were a believer in the business confidence theory, here’s the counter-question I’d put to Michael Barone:

Which is more likely to subtract from business confidence: a lame speech by the president – or a highly credible and sustained threat by the majority party in the House of Representatives to force a default on the debts, contracts, and other obligations of the United States?

Stan Collender and James Kwak are also on the case.

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