We’ve yet to see anyone whose response to Obama’s latest stimulus moves is: Yes, this is exactly what America needs to get the economy back on track!
At best, people are saying: A decent step, but way too small.
That’s the view of Simon Johnson in a piece up at the NYT.
But he acknowledges Obama’s need to tread “gingerly” given the enormous budget deficit. And though our interest rates are super-low now (suggesting that the debt isn’t a problem) this can’t be counted on:
If some subset of Europe, for example, becomes more creditworthy over the next 12 to 24 months, this will tend to reduce the relative appeal of United States government debt to investors (both in the United States and elsewhere). That change would be likely to push up our long-term interest rates, deterring private-sector investment and making it more expensive to finance the budget deficit.
There’s no doubt that when things have gotten hairiest in Europe, there’s been a knee-jerk flight to US Treasuries, though on the other hand, Treasuries are in a multi-decade bull market, with yields trending lower and lower, and Europe’s recent woes have nothing to do with that. And when you consider the Japan experience (echoed in our own demographics-led push into fixed-income) the idea that a robust Europe will necessarily push yields higher does not seem so certain.