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Thursday, July 28, 2011

If at first You don't succeed

This morning, the AP is reporting that investors are becoming increasingly "frantic" about the impasse in the debt ceiling negotiations. All I can say is "What planet is the reporter on?"

Interest rates are basically steady. The dollar is up. Gold has not moved much. Those are signs of anything but frantic worry about the deficit.

On the other hand, there is a decline in the stock market. That decline, however, ought to be properly attributed to the slow down in the economy, not the debt negotiations. We have now seen four months of poor job growth, a lengthy period of slow growth in GDP, and there is no end in sight. Investors who thought we had just hit a "bump in the road" (as Obama calls it) have come to realize that instead we are likely in the midst of the new normal. Slow growth is not good for stocks, so the market is reacting.

Of course, if there is a total breakdown that delays resolution of the debt negotiations past the deadline, the markets could go crazy. But they are not there yet. Indeed, it is either stupidity from the reporters to put this forth, or they are trying to use claims of upset to put pressure on Congress to act.

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