Dysfunctional politics, both in Washington and in Europe, is spooking markets worldwide. While perhaps not as dangerous as the economic dysfunction of 2008, it is still a concern.
With the Dow Jones Industrial Average down about 16 percent in two months, investment analysts are worrying aloud about the risk of a new recession, or even a full-blown financial crisis.
But there are big differences between now and 2008.
The most basic one is this: Back then, investor uncertainties revolved around the health of private-sector banks and a breakdown in private channels of credit to the economy. Today, the uncertainties are largely about politics – whether governments in Europe and the US are able to act in ways that restore private-sector confidence.
After taking a 4 percent dive on Thursday, US stock prices were relatively flat in Friday trading. But the Dow index is still down about 7 percent for the week, and stock markets in Europe have fallen even more.
Many economic experts say recession can be avoided. And the worry about a possible downturn is fueled partly by concerns about consumer activity that are distinct from the political debates in Congress or the German Bundestag. But a recent flareup of political dysfunction on both sides of the Atlantic has had clear ripple effects on the confidence of consumers and businesses.
Page 1 of 4