The low, low turnout in the French regional elections should be a warning light that flashes for both the Dems and the GOP (at least still as a traditional political party). If government exists to solve the myriad problems left to the public part of the economy, massive apathy about voting is bad news indeed. Even the far-right leader Marine Le Pen called the French vote a civic disaster.
Interestingly, this vote and the collapse today of the Swedish government both had a housing theme, especially the availability of affordable rental housing. Around the US, the housing market has seen disruption from the Covid Recession. The upper-middle class has struggled fo find places out of town, slum lords have dumped their investments, a whole lot of people owe back rent, and financial markets are cynical. The last thing the Biden administration needs is less political engagement, yet Manchin seems to be doing his darndest to make sure 2022 is a civic disaster as well.
Brad De Long, writing about the bond market, a forward-looking space, recognizes that something is coming.
Back in March 2009, the University of Chicago’s Robert Lucas confidently predicted that within three years the U.S. economy would be back to normal. A normal U.S. economy has a short-term nominal interest rate of 4%. Since the 10-Year U.S. Treasury bond rate tends to be one percentage point more than the average of expected future short-term interest rates over the next decade, even five expected years of a deeply depressed economy with essentially zero short-term interest rates should not push the 10-Year Treasury rate below 3%. (And, indeed, the Treasury rate fluctuated around 3 to 3.5% for the most part from late 2008 through mid 2011.) But in July of 2011 the 10-Year U.S. Treasury bond rate crashed to 2%, and at the start of June it was below 1.5%. The normal rules of thumb would say that the market is now expecting 8 3/4 years of near-zero short-term interest rates before things return to normal. And similar calculations for the 30-Year Treasury bond show even longer and more anomalous expectations of continued depression.
The possible conclusions are stark: either those investing in financial markets expect economic policy to be so dysfunctional that current global depressed economy to endure in more-or-less its current state for perhaps a decade, perhaps more; or–even now, more than three years after the end of the financial crisis–the ability of financial markets to do their job and sensibly price relative risks and returns at a rational level has been broken at a deep and severe level, a level that makes them incapable of doing their proper job of bearing and managing risk and channeling savings to risky and entrepreneurial ventures.