I spent about 20 minutes today going back-and-forth with the girlfriend as to what Geithner and the President could be talking about when they speak of restoring confidence to the markets. We’re more or less stumped.
I’m sure someone out there can explain the “real” answer to me, because — as Krugman and Konczal and Yglesias and Baker and all sorts of dirty commie pinko economists are fond of screeching until their keyboards break from fatigue — by most conventional criteria, the market appears to be rather confident that the United States is not at risk of imminent financial collapse. I seriously doubt that people at 1600 and at Treasury haven’t come across these arguments previously; but, for whatever reason, they’re not biting.
So how, exactly, will reaching a Grand Bargain result in raised confidence and, more importantly, how will the consequences of higher confidence manifest themselves? How does a deal to raise the retirement age to 70 in 2020, say, lead to the credit market loosening up? Is this obvious to everyone else besides me?