Writing in the Los Angeles Times, Lawrence H. Summers notes a gap between the market and the commentators:
The headlines and opinion writers focus on how the U.S. is badly bogged down in wars in Afghanistan and Iraq; on an increasingly unstable Middle East and dangerous energy dependence; on nuclear proliferation that has already occurred in North Korea and that is coming in Iran; on the potential weakness of lame-duck political leaders; on record global trade imbalances and rising protectionist pressures; on increased levels of public and private-sector borrowing combined with record low saving in the United States; and on falling home prices and middle-class economic insecurity.
At the same time, financial markets are pricing in an expectation of tranquillity as far as the eye can see. Stock prices in the U.S. are at all-time highs. The risk premiums that corporations or developing countries have to pay to borrow money are at or near historic lows. In addition, estimates of the volatility of the stock, bond and foreign exchange markets inferred from the prices of options are near record lows.
Read the entire article here.
[HT: RealClearPolitics ]