If governments stop spending at the same time that consumers do, the economy can enter a vicious cycle, as it did in Hoover’s day.
The prospect of that cycle is one reason an impasse on the debt ceiling, and a government default, could do so much damage. Global investors may be the only major constituency that has been feeling sanguine about the American economy. If Washington unnerves them, and sends interest rates rising, the effect really could be calamitous.
But the debt-ceiling debate doesn’t have to be yet another problem for the economy. The right kind of agreement could help soften the consumer bust and also speed the transition to a different kind of economy.
What might that agreement look like? MORE...
Sunday, July 17, 2011
David Leonhardt (NY Times):