Liveblogging World War II: August 5, 1941
The New Forecasting Consensus for the Second Half of the Year

Mohammed El-Erian Joins the Sect of Economists More Pessimistic than I Am

MEE: >Debt deal darkens fragile US economic outlook: Those responsible for America’s multi-month debt ceiling debacle deserve, at best, an “incomplete”. They could even merit a “fail” grade if both the process and outcome inflict the type of damage to America and the global system that I suspect they will. It is discouraging that several months of disruptive political bickering and posturing failed to deliver a well-defined medium-term fiscal reform effort. Instead, the legislation signed into law by President Barack Obama on Tuesday is terribly unbalanced in design, lacks proper operational details and leaves key issues to at least one more round of political brinkmanship. This incomplete endeavour could be dismissed as business as usual in Washington except for one important consideration: it materially darkens an already fragile outlook for economic growth and job creation.... >Naturally, other countries are both stunned and worried. America’s mishaps will amplify their own policy challenges, mostly importantly in Europe where severe dislocations are again evident in financial markets. With such evidence of dysfunctional economic governance in the US, some countries are also worried about America’s ability to perform its critical role as the anchor of the global financial system. Since there is no other country to assume this role, a weaker core translates into greater fragility for the system as a whole and, therefore, a higher risk of gradual fragmentation. >Some of you may think that I am being too harsh or overly pessimistic. After all, enormous effort and time went into crafting a delicate compromise agreement that succeeded in averting a technical debt default. But effort cannot, and should not, be judged independently of outcome. Here, the analysis is unambiguous in my mind: other than eliminating default risk emanating from a self-manufactured crisis, there is nothing good about America’s debt ceiling debacle.