Financial community to politicians: ‘Your deal stinks.’

Did the politicians ever talk to the financial “experts” before coming up with the “solution” to the debt crisis?

It wouldn’t seem so. For a second day, the financial community is weighing in on the debt solution signed into law by President Obama today. Financial community to politicians: “Your deal stinks.”

The Dow, at last check , is down almost 300 points. The S&P 500 has turned negative for the year, and those aren’t even the indicators that matter to the experts. For the Dow, it’s been the longest losing streak — 8 days — since the fall of 2008, which was also the fall of the American economy.

Economist Ed Yardeni, quoted in the Wall Street Journal, said “One especially negative PM told me: ‘This is the 1930s on Prozac!’ That’s a very clever turn of phrase. In other words, we are in a depression, but thanks to very stimulative monetary and fiscal policies, it hasn’t been another Great Depression so far.”

Mohamed El-Erian, chief executive officer and co-CIO of Pacific Investment Management Co., says the politicians not only didn’t make the future any better, they made it worse.

“We’re out of the woods in the sense that we will avert this real threat of the technical default,” Mr. El-Erian says. “However if you judge it in terms of the broader objectives, which is to put the country on the path of medium-term growth and medium-term fiscal viability, we may have made things worse rather than better,” he said.

That’s just the kind of pick-me-up the financial markets need.

U.S. Treasuries — that is the indicator people in the know pay attention to — rose for a fourth straight day today. They’re considered a safe-haven when the economy tanks.

Or, as Neil Irwin, the economics reporter for the Washington Post put it…

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In his subsequent article, Irwin describes the problem faced by the Fed.


The basic challenge for the Fed is this: It is charged by Congress with maintaining stable prices and maximum employment. But when those goals are in conflict with each other, the options are difficult to decide. That’s the circumstance the nation faces now: It’s adding jobs too slowly to reduce unemployment. Yet prices are rising at about the 2 percent or so annual pace that the Fed considers to be stable. Anything Fed leaders do to try to address the dire job market could push inflation above their comfort level.

Many politicians playing chicken with the economy last week said they didn’t believe the tales of woe about the economy would happen if the debt crisis persisted.

It’s happening, presumably because the solution is no solution.