A Ray Of Hope In Washington's War On Fear

摘要

One of the defining features of this recession is the major role played by confidence-or rather, the lack of it. Fear of the future has sent consumers, businesses, and investors into retreat, to the great detriment of the economy. What will turn sentiment around? That's easy: signs that the worst of the recession has passed and that prospects for a recovery are improving. However, restoring confidence will be far more difficult than in past recessions because the economy's natural recuperative powersrnhave been blunted by the financial crisis. This time, it's not just a question of overcoming worries about future profits and paychecks. Faith in the system itself has been shaken.rnAs a result, Washington policy is playing an outsize role in trying to heal the economy and restore confidence. The historic size of the commitment-trillions of dollars' worth of fiscal stimulus, monetary easing, and direct bank support-would appear to guarantee eventual success. Yet doubt remains. Ultimately, for policy action to work, it will have to break the mutually reinforcing weakness between the financial markets and the economy.rnTo date, there has been little progress toward ending this vicious cycle. The economy appears to be contracting this quarter about as fastrnas its 6.2% shrinkage in the fourth quarter, with further contraction widely expected in the second quarter. The dropoff in consumer spending has slowed, but businesses are still slashing capital spending, inventories, and hiring, as seen in the 651,000 decline in February payrolls (chart). Meanwhile, some indicators of credit market stress have worsened in recent weeks, reflecting worries about the banks.