We can’t help but get a little nervous when a Wall Street research arm starts using military metaphors to describe the state of the economy.
“Conditions in Washington, DC are not improving, we see nascent signs of financial stress, and jitters are on the rise,” wrote Morgan Stanley’s Vincent Reinhart and Ellen Zentner. “In week two of the government shutdown and debt ceiling standoff, we have raised our assessment to level 3 Econ DEFCON.”
When the assessment level is raised, the number is actually falling, which means things are getting more worrisome.
Here’s more from Reinhart and Zentner:
For this exercise, we have chosen to use a 1-to-5 point scale. It seemed appropriate to borrow from another arbitrary risk assessment of cataclysm – NORAD’s DEFCON. In our Econ DEFCON, a reading of 5 suggests everyone remains complacent about the outlook as there will be no meaningful fall-out from the stand-off. The warning level then ratchets up to 1, which signals our expectation of a significant disruption to the US economy.
“Financial markets, businesses, and households remain on high alert as reflected in opinion polls, Internet searches, and yield moves at the front end of the Treasury curve,” they added.