This ought to have been a good week for the American economy. The country’s leaders at last ended a ludicrously irresponsible bout of fiscal brinkmanship, removing the threat of global financial Armageddon by agreeing to raise the federal debt ceiling. Yet far from heaving a sigh of relief, investors are nervous. Stockmarkets around the world have tumbled like anything.
It is not all to do with America: the Euro zone is a mess and manufacturing everywhere seems to be slowing. But America’s prospects have suddenly darkened. Statistical revisions and some grim new figures have revealed a weaker-than-assumed recovery that has all but ground to a halt. America’s recovery from a balance-sheet recession was always bound to be sluggish and fragile. If America does manage to avoid recession and slowly begins to pull out of this mire, it will be testimony to its underlying strengths.
Temporary factors have played some role in this. Soaring oil prices crimped consumer spending. The Japanese earthquake disturbed supply chains. In some industries, notably car production, a rebound is plainly under way. But the overall economy is now so weak that it would take a lot to get growth up to a reasonable rate. And there are some signs that the temporary shocks may have left a more lasting dent on the psyche of firms and shoppers.
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