Fear of a double-dip recession has returned to the U.S. market. Housing is weak, and looking weaker without more government support. European sovereign crisis has added to the global banking worry. China's tightening to release inflationary pressure has taken away another support for global recovery.
In other words, aggregate demand is weak. And governments are either not able or unwilling to create more aggregate demand.
All these are reflected in the U.S. bond yields. The interest rates for long bonds are heading to new lows, along with the mortgage rates.
We had expected that the private sector to start adding more jobs by now, but the reality seems to point to a discouraging picture of reluctance. Corporations are still waiting. Consumers are still reluctant. Banks claim they cannot find enough qualified borrowers. Every developed country is hoping that external demand will create enough pull for their export sectors. Aging population and pubic debt burden ... all seem awfully hard problems to solve.
It seems no news is good enough. Rallies are now short-lived.
The lack of confidence itself could aggravate the risk of the double-dip recession. The housing market appears already heading that way with the expiration of the home-buyer tax credit. Housing-related stocks have seen a steep selloff in recent months.
The risk of general deflation is much higher now than two months ago. This is the time for the Fed to renew its innovative push.
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