I think what we can say is that the market is as nervous as a long-tailed cat in a room full of rocking chairs. And no wonder. Greeks are rioting again, casting serious doubts on the viability of this austerity plan. European leaders are still muttering about "wolfpacks" in the markets, which is usually the last refuge of desperate finance ministers taking unrealistic positions. The euro has "relapsed", falling back towards $1.20. Jobless claims in the US rose unexpectedly last week, dampening the sense of forward momentum in the economy. Mortgage applications are down, which means the housing market may retreat from any tentative gains now that the tax credit has expired. Financial reform is moving towards passage "with all the consistency and predictability of an old pickup with a busted clutch." And we seem to be hovering on the brink of deflation.
All of this raises the possibility of the dread "double dip" recession. Worse, that recession was expected to come (if it did) when fiscal and monetary stimulus were withdrawn--not when a peripheral member of the eurozone ran out of borrowed money. The parallels to the Great Depression are not perfect . . . but they're certainly uncomfortable. And if we do double-dip now, there's a good possibility that we'll eventually triple-dip, because all that extra money does have to be mopped off at some point.
Which of these factors is driving the markets down so sharply? Frankly, any of them would be enough to trigger at least a little selloff. At the moment, we seem to be in the middle of a highly imperfect storm.
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