The past few weeks (or months, years, depending on how you look at it) have taken quite a toll on the average U.S. consumer. Fears of a national default through the debt ceiling crisis, and credit downgrades are the latest in a series of economic events that have weakened resolve and confidence, resulting in a tumultuous few days on Wall Street.
Craig Alexander, SVP and Chief Economist with TD Bank writes that “Accordingly, the market reaction yesterday can only be interpreted as a crisis in confidence. It was a vote of non-confidence in the ability of governments to deal with their fiscal problems. It was also a vote of non-confidence in the sustainability of the economic recovery. This was the worst possible outcome at the worst possible time.”
He continues:
“The bottom lines is that the rout in financial markets has materially increased the risks of a renewed US economic downturn, which would have global ramifications. The sad truth is that it doesn’t have to be this way. The current environment harkens back to FDR’s speech in the 1930s that, “the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance”. The US government is not insolvent. There is time to deal with the fiscal challenges. And, the message from S&P and financial markets that greater fiscal progress is required will not be lost on policymakers. Given today’s Federal Reserve decision, the immediate question is whether Bernanke can restore some of the lost confidence. The main message to investors, consumers and businesses is don’t panic, try to have a bit of faith, and remember that you can be your own worst enemy.”
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