The Great Debate UK
By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Thursday's market plunge reflects, as much as anything, an ugly political paralysis. This phenomenon, rather than any particular headline, seems to have freaked out investors, sending U.S. stocks down around 4 percent at one point, Treasury yields below 2.5 percent, oil under $90 a barrel and even gold off 0.5 percent. Politicians' brinksmanship in Europe and the United States makes for great theater, but it has done little to resolve what most troubles the global economy: too much debt and no clear plan to pay it off.
Take Uncle Sam. Some lawmakers seemed willing to risk a self-inflicted catastrophic default. Yet the last minute agreement did nothing to address the long-term healthcare and Social Security burden -- by far the biggest danger to the nation's finances longer-term. The $2.4 trillion in hoped-for but nebulous spending cuts falls short of the $4 trillion needed to stabilize the U.S. debt-to-GDP ratio. And the deal ensures that the clearly slowing pace of economic growth can't be tackled with fiscal stimulus.
Europe, meanwhile, still looks lost in the weeds of its much more real and immediate debt crisis. The region has been trying to set things right for nearly two years since Greece's oversized debt load first appeared in the market's crosshairs. A series of EU-wide rescue packages may have been political achievements of sorts, but their failure to address the problem fully has left peripheral nations vulnerable to bond market sharks, with Italy the latest to feel their bite. Calls for a bigger European rescue fund and the European Central Bank's decision to intervene in markets again show the political classes floundering.
- Jane Foley is research director at Forex.com. The opinions expressed are her own. -
Whether the financial markets will view the outcome of the UK general election as a positive or negative depends almost entirely on one issue: the budget deficit.
Birthdays are a good time to look back. The first anniversary of the global stock market rally -- the lows were hit on March 9, 2009 -- certainly brings back memories. It's easy to see why the MSCI World Index is 71 percent higher now than then.
Then there was a steep recession, now there is GDP growth. Then it was realistic to worry about such horrors as rapid deflation, serial banking crises and a competitive protectionism. All of those menaces have now receded. And stock market investors can be cheered to see companies sufficiently in control of their short-term destiny for most of them to meet or beat analyst expectations of reported profits.
from The Great Debate:
What is more remarkable, that the premier of America's largest creditor publicly raised concerns about U.S. creditworthiness or that the market took the news so easily in its stride?
"We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets," Chinese premier Wen Jiabao said on Friday at a news conference to close the annual session of parliament.