The dog days of summer are being accompanied by howls of pain today from investors. Decisively contradicting predictions that the end of the tragic-comic debt ceiling “debate” in Washington would lead to a market revival, all major U.S. indexes, indeed indexes around the world, began a series of heart-, if not market-stopping drops. Why the markets reacted as they did speaks to investors’ ability to peer beyond the day’s rhetorical surge in support of deficit-reduction to ten years of austerity glooming ahead. They apparently did not like the perspective just as a funeral procession of economic reports indicated that the U.S. economy had stopped dead in its tracks: Consumer spending is down; unemployment remains persistent; private sector job creation negligible and the public sector job force primed for decimation. The beleaguered U.S. middle class, unable now to sustain its standard of living on credit or through cashing in home equity, can expect no structural relief from Congress. In fact, quite the opposite seems more likely even as tax-payers residing within America’s Olympian brackets continue to stuff excess income under cushy mattresses.
For months Keynesian economists still brave enough to raise their heads in the Austrian-enriched cultural fray have worried that federal budget-builders were on the verge of repeating the mistakes of 1937 when premature attention to spending restraint revived what had been a defeated Great Depression. But these worrywarts may be in error. Increasingly the nation seems poised on the edge, not of 1937, but, say, 1930 when a brief recovery from the crash of 1929 served only as a deceptive prelude to a deeper national economic fall. The Tea Party’s dutiful dead-enders in Washington got what they wanted out of the epic debt ceiling struggle of 2011. The nation has elected a path toward austerity at precisely the worst possible time. Wall Street sees it; does anyone in Washington?