I Am No Longer Among the Most Pessimistic Economists in the Room...

Larry Summers swings to being more pessimistic about the economy than I am:

Former Top White House Economist: One-In-Three Chance Of Double-Dip Recession | TPMDC: "For the umpteenth time in the last two years Democrats are going to "pivot to jobs." This time, according to President Obama's former chief economist, they better be serious. In a Wednesday Washington Post op-ed, Larry Summers issues his most dire public warnings about the economy since leaving the White House.

With growth at less than 1 percent in the first half of this year, the economy is effectively at a stall and facing the prospects of shocks from a European financial crisis that is decidedly not under control, spikes in oil prices and declines in business and household confidence," Summers writes. "The indicators suggest that the economy has at least a 1-in-3 chance of falling back into recession if nothing new is done to raise demand and spur growth.

Democrats' legislative options are limited. But Summers suggests they should push to renew a one-year payroll tax holiday Obama signed late last year. Not doing so would amount, essentially to anti-stimulus. But Obama's been advocating a renewed payroll holiday, to no avail. Most recently, he angled to renew the holiday as part of the debt limit deal -- but the final legislation did no such thing.

And the FT:

Rush for safety sends core debt yields tumbling - FT.com: “It is hard to see any good news on the horizon at the moment,” says Jim Leaviss, head of retail fixed income at M&G, who describes current yields as “justified.” “They are saying there is a good chance of a recession,” he adds.

The reasons for the gloomy sentiment are clear. Data on Friday showed the US economy growing at just 1.3 per cent a year in the second quarter, well below expectations in a report undermined further by heavy downgrades to previous readings. This week, several manufacturing activity reports – often correlated with stock market performance – pointed to slowing growth. Attention will now turn to Friday’s US employment data

“Unless we are missing something the US is one false move away from a recession,” says Jim Reid, strategist at Deutsche Bank, who has warned the US could be approaching a “1937 moment” – when authorities removed post-Depression stimuli from still-fragile markets and triggered another recession. This risk, he says, has in fact only been magnified in the markets’ eyes by agreement on raising the US debt ceiling."...

Financial markets--surprise! surprise!--think contractionary policy is contractionary.