Outsourced to Paul Krugman:
Fairy Tales: One repeated gripe I’ve had about news coverage in the Lesser Depression is the way deficit-hawk myths about markets are often reported as facts. Again and again, slight upticks in interest rates have been attributed — in news stories, not opinion pieces — to debt fears, despite the complete absence of any actual evidence to that effect.
Bloomberg today has an interesting twist: U.S. Futures Decline on Concern Supercommittee Won’t Agree on Budget Cuts. In reality, US rates are down, suggesting no increase in debt concerns whatsoever.
But if you read the Bloomberg piece carefully, what it actually says is that market players fear that the absence of a debt deal means no stimulus. So the actual fear is not that spending won’t be cut enough, it is that it will be cut too much — which actually makes sense, and is consistent with the action in stock and bond markets.
But how many readers will get that? The way it’s presented reinforces the false notion that the deficit is the problem.
In other news, markets have greeted Spain’s new government with a surge in borrowing costs; Spain and Italy are once again at near parity.