Lynne Kiesling
Today’s global stock market correction is a humdinger, and is almost certainly the result of multiple factors — expectations of minimal impact of debt ceiling deal, tepid domestic and international manufacturing data, tepid domestic unemployment data, expectations of tepid employment data tomorrow, and what’s really the 800-pound gorilla here, the eurozone debt and currency woes.
In doing some afternoon reading I clicked through from Instapundit to Roger Simon asking whether President Obama should resign because of the fall in global markets:
The worldwide market plunge since the signing of the U.S. debt agreement tells us one thing above all: Almost no one on the planet has confidence in the leadership of Barack Obama.
With all due respect, just asking the question is silly.
Of the three categories of factors affecting global markets right now, US public debt and domestic economic weakness are two factors to which US federal policy and its leadership have contributed. But the breadth and depth and magnitude of the eurozone issues are larger, and unwinding them is what accelerated today’s cascade. One reason I make that assertion is that “US stocks tumbled to their worst one-day losses for more than two years with industrial and energy stocks leading the declines as a surge in the dollar raised fears that exporters would be hit by higher costs.” Why did the dollar surge today? Because people are fleeing the euro (and to a somewhat lesser extent the yen), and both the dollar and the Swiss franc are up relative to the euro and yen because they are the “safety currencies” in the eurozone.
The ECB will engage in some bond purchases for Ireland and Portugal, but it has essentially cut Italy and Spain loose to sink or swim on their own. Furthermore, the shares that had some of the biggest losses today in European markets were Italian companies. Ireland announced today an unemployment rate of 14.3%, higher than expected.
Here’s a counterfactual question to Roger’s quoted assertion: suppose that Congress had passed and Obama had signed a fiscally meaningful public debt deal. Would we still have seen a global equity correction today? Almost certainly, due to the confluence of European and Japanese factors, but primarily European factors and their contagion into worldwide markets, including US. Perhaps you could argue that the eurozone crisis would be smaller if the US economy were healthier, but that’s at best an indirect second-order effect; the eurozone woes are predominantly of their own making, and if we had a stronger economy to paper over their debt it would still have come home to roost.
While I concur that domestic US policy leadership has been either nonexistent or misguided, and that both the executive branch and Congress have been feckless, I think it’s an incorrect and irresponsible knee-jerk reaction to leap from a global equities market correction to a presidential resignation a year and a half before the end of the term. Such a conclusion derives from a hasty misinterpretation of the data. And Glenn, you should know better too.
