China and the Fed will tame Obama spending

From Timesonline.co.uk

No, Republicans in Congress have not produced a coherent alternative to the president’s deficit spending programmes, or his plan to move the boundary between the public and private sectors to the left. And no, the economic data do not suggest that the president’s stimulus package has failed.

Indeed, the housing market is showing signs of bottoming out. Pending house sales (deals signed but not yet completed) rose 6.7% in April, the biggest jump in more than seven years. Consumer confidence, personal disposable income and construction spending are all up, and monthly job losses have halved. Builders are more active. The index of manufacturing activity is rising. As Federal Reserve Board chairman Ben Bernanke told Congress last week: “We continue to expect overall economic activity to bottom out, and then to turn up later this year.” Finally, the banks are raising new capital ($85 billion in the past month alone) so they can repay the government bail-out loans.

So if it is indeed, “the economy, stupid”, as Bill Clinton’s adviser James Carville once contended, the president’s popularity ratings should remain stratospheric, at least in the near term. The long-term challenge to the president (leave aside a possible fiasco in Afghanistan) comes from two related places: the bond markets and China.