Mind Over Market

Congressional Budget Director Doug Elmendorf writes on the Director's Blog at the CBO web site: Federal Debt and the Risk of a Financial Crisis In fiscal crises in a number of countries around the world, investors have lost confidence in governments’ abilities to manage their budgets, and those governments have lost their ability to borrow at affordable rates. With U.S. government debt already at a level that is high by historical standards, and the prospect that, under current policies, federal debt would continue to grow, it is possible that interest rates might rise gradually as investors’ confidence in the U.S. government’s finances declined, giving legislators sufficient time to make policy choices that could avert a crisis. It is also possible, however, that investors would lose confidence abruptly and interest rates on government debt would rise sharply, as evidenced by the experiences of other countries. Unfortunately, there is no way to predict with any confidence whether ...

Speaking on CNBC, Las Vegas hotel owner Steve Wynn excoriates the lack of common sense in Washington and blast politicans for insane spending, regulatory policies and legislative initiatives. He says Washington has created a terrible environment of uncertainty for business in America -- worse than in China, which is more stable. "The shocking unexpected government is in Washington," he says. "Everything is cuckoo and God knows what's coming next." In particular, he attacks FHA for backing $20 billion a month in subprime lending. He blasts Obamacare and says it will drive up costs and faults Washington for failing to do anything about frivolous lawsuits that drive up the cost of liability insurance for doctors.

Government – not the market – played the dominant role in creating the systemic risk we now face, and the government poses a greater systemic risk in the future. “Reining in this risk should be the highest priority, higher than creating a new systemic risk regulator,” says economist John Taylor. By Robert Stowe England May 13, 2009 In the ongoing debate about whether the market or the government played a larger role in the ongoing financial crisis, Stanford University economist John B. Taylor places the greater share of blame on the government. Taylor, a Treasury undersecretary from 2001 to 2005, laid out his case last night (May 12) in a dinner keynote speech at the Federal Reserve Bank of Atlanta’s Conference on Financial Innovation and Crises at Jekyll Island, Georgia. Taylor cites a number of government mistakes. At the top of the list is the Federal Reserve’s decision to keep interest rates too low too long in the period from 2002 to 2005. Taylor faults policy makers for a misdiag...