Four years ago, the signs of an imminent recession came barreling over the horizon. Having seen them once, are we about to enter the same situation again? In the closing months of 2007, it was a combination of high-risk mortgages, derivative insurance, and major financial institutions overextending themselves that led to the U.S. economy crumbling into recession.
In retrospect, it’s easy to see how market deregulation and the smoke-and-mirrors derivative market could only lead to financial ruin.
All of which is why right now, given the clear and present danger the country’s financial situation is in, we may be staring down the barrel of yet another recession.
Consider these significant signs:
- The debt ceiling deal was stalled until the 11th hour, at which point both parties agreed to a deal neither completely believed was beneficial for the country.
- The ever-widening divide between political parties has never been more apparent or substantial. Even minor bills wind up in limbo for months, as both sides of the aisle vote strictly based upon party lines. It feels more like the Jets and the Sharks than Washington politics.
- As a result of that divide, the country’s credit rating has dropped below AAA for the first time in history. Standard & Poor’s, the lone institution that downgraded the U.S., provided this explanation: “the gulf between the political parties has reduced our confidence in the government’s ability to manage its finances.”
- Like falling dominoes, now Fannie Mae, Freddie Mac and all U.S. backed debt has been downgraded by Standard & Poor’s as well.
- Meanwhile, gas prices are rising to unprecedented rates, unemployment continues to linger around 9%, the housing market still hasn’t recovered from the first recession, and 82% of Americans now disapprove of the job the U.S. government is doing.
Could this crisis of leadership send us spiraling straight into a second recession? All of the elements for such a storm are in place.
The question is: Can the government learn from past mistakes and pick up the pieces before it’s too late?
