Monday, August 01, 2011

"The U.S. stock market isn't a barometer on the U.S. economy any more"

An article by Daniel Gross on the debt deal includes the text:

Is this deal good for investors? It sure seems to be a plus for global stock markets, as Asian stock markets and U.S. stock futures rose after the deal was announced. It's difficult to see why, though. The U.S. stock market isn't a barometer on the U.S. economy any more. The typical member of the S&P 500 already gets about half of its revenues (and almost all its growth) from overseas. It's a truism that equity markets hate uncertainty. And the quick positive reaction is the latest example of the risk-on/risk-off trade. When bad things happen, or when investors think bad things are going to happen, they sell stocks. When anxiety fades, they buy stocks. That's what is happening now.

There's an implicit message about proposed reforms of the US patent system. Big multinationals, who are driving reform to harmonize the US system with other countries, don't get their growth from the US. Little guys, who operate only in the US, do get their growth from the US. If one wants to foster growth of the US economy, may be one wants to help those companies that get their growth in the US.

see also
Demise of the (anti-)Doughnut campaign: a parable of patent reform?

**On the consequences of the debt deal,

But the deal doesn't just raise the debt ceiling. It also calls for $2.4 trillion in spending cuts over the next decade. And that's where the impact could be less positive. Most economists say cutting government spending when the economy is weak is likely to reduce jobs and growth by further weakening demand.
"Unemployment will be higher than it would otherwise have been," Mohamed El-Erian, the CEO of Pimco, the world's largest bond investment firm, said yesterday on ABC News. "Growth will be lower than it would be otherwise. And inequality will be worse than it would be otherwise."
By how much? It's hard to say with precision, because it'll depend on which programs get cut, and that hasn't been decided yet. But to get a rough sense, consider this: Zandi, who has worked with both Democrats and Republicans, calculated in February that the original budget passed by the House earlier this year, which cut $100 billion in spending for 2012, would cost around 700,000 jobs by the end of 2012. The deal announced last night calls for a yearly average of $240 billion in cuts over the next decade. Very roughly, that suggests the new plan would cost around 1.6 million jobs per year during that time.

from the Lookout: Debt ceiling deal: What’s the impact on the economy, ordinary Americans?


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