The Markets Are Telling Us That We Are Focused On The Wrong Problem

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Krugman uses the crisis in the market for securities to make the points that he has been making for a long time. Stock market volatility is telling us that it is worried about the state of the global economy. The rising demand for US Treasuries is telling us that investors still view the US Treasuries as a safe haven, and that it is not concerned about an inflation threat. We should be focused on restoring economic growth and creating jobs. Instead attention has shifted to dealing with perceived entitlement problems that we may need to deal with in the longer term.

His explanation for the fixation on debt reduction, and the myopic stress on spending cuts that pay for tax cuts, is that others are using our current crisis to their advantage. They were unable to get the reductions in social welfare programs that they have always wanted without the large deficits that occur during a recession.