US CRISIS : Mutable

“Dr. Laura D’Andrea Tyson echoed Vice President Biden’s weekend remark, observing that the US economic situation has turned out worse than what was forecast just six months ago. Interestingly, she also went further and suggested that, with hindsight, the government’s fiscal stimulus package was too small and a new one should be considered.

Tyson’s comments are sure to fuel a debate that will place policymakers in an even more challenging situation; and this becomes even more intriguing if you agree that “consensus” currently underestimates how high the US unemployment rate will go AND how long it will persist at unusually high levels.” Said Mohamed El Erian

The Tyson remarks are a vivid illustration of the extent to which the emphasis of the policy debate is shifting from the normalization of the financial markets to countering a worse-than-expected deterioration in jobs and wages. Indeed, while 2008 was about the serial unthinkables in the financial markets, this year is all about the lagged economic, political and institutional effects.