The Markets Don't Lie
STELZER, IRWIN M.
The Markets Don't Lie by Irwin M. Stelzer Standard & Poor s credit raters, who should know better, told us that if rich, asset-laden America delayed paying a bit of interest even for a brief time...
...If there was any real danger of default, Rubin would have been issuing reassuring bulletins...
...Gingrich's reckon 2.3 percent...
...If the president wavers, it will be up to the Republicans to hold the line...
...So, if it takes a temporary default in order to lock the president into his promise to balance the budget, so be it...
...The markets' responses to Rubin's fib, S&P's financial naivet?, and Clinton's attempt to panic the Republicans into submission were simple and direct...
...He's sacrificed some credibility in order to stay on the Clinton team...
...The president has agreed to balance the budget in seven years-unless, of course, he decides he doesn't really want to...
...There's more: "The upside potential of the U.S...
...The most important thing is to balance the budget in the long term...
...Theodore Roosevelt once said that William McKinley had "a chocolate eclair backbone...
...Whether Bill Clinton is similarly afflicted we won't know until we learn whether he caves in to the big spenders who still dominate his party, or honors the budget-balancing pledge that the Republican Congress has wrested from him...
...This positive transformation has not gone entirely unnoticed in the stock and bond markets...
...As American Enterprise Institute economist John Makin points out in his latest appraisal of the state of the economy, "During the third quarter the U.S...
...So when he said we would, everyone on Wall Street knew we wouldn't," says Bear Stearns senior managing director Robert Pirie...
...Number 3, and most important: We markets think the economy is in good shape, and getting better...
...Fortunately, the markets knew a few things...
...Irwin M. Stelzer is director of regulatory policy studies at the American Enterprise Institute...
...bonds, stocks, and the dollar...
...The Markets Don't Lie by Irwin M. Stelzer Standard & Poor s credit raters, who should know better, told us that if rich, asset-laden America delayed paying a bit of interest even for a brief time while it got its financial house in order, all hell would break loose in financial markets...
...The gap between Makin's optimism and Veneroso's pessimism is so common in the economic forecasting business that wags are inclined to point out that economic forecasters were invented to make weather forecasters look good...
...Both forecasting teams had the good sense not to carry their computations to several decimal places...
...That bears out what still another shrewd Wall Street hand told me: "Rubin is the most political secretary we've had in decades-perhaps ever...
...Treasury Secretary Bob Rubin, who does know better, warned that America would default on its debt if those narrow-minded Republican revolutionaries didn't abandon their efforts to prevent his president from issuing a few trillion more IOUs...
...Number 2: If you are so crazed by a desire to score political points that you do fail to meet interest payments that are falling due, we don't care...
...So the markets stayed calm...
...And the bond market refused to obey the administration, which was hoping that a panicked sell-off would so rattle Gingrich's crew that it would see the error of its budget-balancing ways and give the president back his blank checks and his no-limit credit cards...
...It shouldn't take the economist equivalent of King Solomon to figure out a workable compromise...
...Clinton's seers say the economy will grow at an annual rate of 2.5 percent over the next seven years...
...The thought of the Ragin' Cajun converted into an entity as rational as the bond market is so delicious that one almost hopes Shirley MacLaine is right when she contends that we all have multiple lives in store for us...
...We markets know that getting a firm commitment from Bill Clinton is as difficult as nailing a custard pie to a wall...
...And the thought of an American president powerful enough to incinerate the world at the touch of a button, but powerless to sell his version of his country's financial condition to a bunch of bond traders, surely must warm the hearts of those who rejoice at any sign that government is irrelevant to our lives...
...Meanwhile, the markets watch...
...Nay, they rejoiced, with the stock market so enthused at the prospect of the government remaining at least partially closed that the Dow Jones almost broke the 5000 barrier...
...The government might be temporarily short of cash, but there never was any question of its ability to meet its obligations to creditors once the food-throwing tantrum in Washington was brought to an end by a disgusted public...
...buy power...
...economy during the 1990s is considerably greater than it was in the 1960s...
...if honest, both should concede that the other side has as much chance of being right as they do-and that is somewhere between zero and nil...
...economy grew at seven times the underlying inflation rate...
...Number 1: We don't believe you...
...And to remember that the markets have shown that they don't take the administration's threats of default seriously, and are likely to respond to a credible plan to balance the budget by proving Makin right when he predicts that "as markets tire of watching the budget farce, we shall see strong rallies of U.S...
...Many economists see the recent weakness in retail sales and the slowdown in industrial production reported last month as the harbinger of a recession to come, and the soaring stock market as "institutionalized mania," to use the words of market-watcher Frank Veneroso...
...First, they knew that Rubin was being economical with the truth, to borrow a phrase from our British friends...
...Or, as Rubin might have directed in his glory days at Goldman Sachs, "Sell credibility...
...There is no reason to default, and you wouldn't dare to do it...
...The United States economy in the mid-1990s is closer to the resilient pre-Great Society condition it enjoyed during the 1950s and early 1960s than it has been at any time during the thirty years since 1965...
...Needless to say, this cheery view has its dissenters...
...Second, everyone worth his or her salt in the financial community knew that S&P was confusing possible temporary illiquidity with insolvency, as James Higgins pointed out in last week's Weekly Standard...
...James Carville, Clinton's populist public relations adviser and the proud author of that elegant political rallying cry, "the economy, stupid," once said that if there is anything to reincarnation, he wants to come back as the all-powerful bond market...
...This tells us something about the dispute between Gingrich and Clinton over whose forecaster can beat whose...
Vol. 1 • December 1995 • No. 12
