Worse Than Worst
by digby
As Krugman and others have been saying for a while, David Leonhardt in the NY Times explains why the Fed (and the rest of the Austerity Pushers) are insistent on pulling back even in the face of high unemployment and weakness in the economy:
In effect, Mr. Bernanke and his colleagues have decided to accept an all-but-certain downside — high unemployment, for years to come — rather than risk an even worse situation — a market panic, a spike in long-term interest rates and yet higher unemployment.
Meanwhile, back on planet earth:
The market’s losses piled up after new Commerce Department data showed that new-home sales hit a record low in May, down nearly 33% from April to a seasonally adjusted annual rate of 300,000 homes, as buyers faced a lackluster job market without a housing tax credit. Economists expected 20.6% drop to 400,000.
The total was the lowest since the government began compiling this data in 1963 and comes on the heels of a big drop in existing-home sales reported Tuesday.
Traders are also awaiting word from the Fed. Participants widely expect officials to keep their key rate target near zero, but there has been some trepidation lately about the pace of recovery in the U.S. and other major economies and whether the Fed will change its outlook. The policy statement, due at 2:15 p.m. EDT, will be the central bank’s first opportunity to weigh in on the growth picture since a disappointing payrolls report on June 4 caused many traders to reassess their own bets that the U.S. will enjoy a steady recovery through year end.
I guess we’re all supposed to believe that the markets will panic over government spending but the worst housing data since 1963 (nearly two years after the meltdown!) and a 10% unemployment rate is just business as usual. Ok. I guess this high finance stuff is just too complicated for little old me.
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