"Unprecedented default could result in recession comparable to or worse than 2008 financial crisis" -Jack Lew
Scaring the market is one way to get the attention of the public, but I must confess that I have never seen public officials and lawmakers deliberately attempt to jawbone stocks lower. But yesterday the administration came out in what I think was a reckless manner of trying to force a market crash to push their agenda.
The biggest blow came from Treasury Secretary Jack Lew, as he warned of a fate worse than that of 2008 if the debt ceiling isn't raised and CR continues. Ironically, the report talks about "brinksmanship."
Well, allow me to retort!
So much of the report is disingenuous and designed to frighten people, but then again, that's a hallmark of the administration. Case in point:
Sharp declines in household wealth. Wealth is an important determinant of household consumption spending, and consumption spending accounts for about 70 percent of GDP. From the second to the third quarter of 2011, household consumption fell $2.4 trillion.
Household wealth increased in 2011. Moreover, after decreasing to $49,067 or 2.8% in 2009 from 2008 and falling to $48,109 or 2.0% in 2010 from 2009, consumer spending was up 3.0% in 2011 back to $49,705. Short term events that cause consumers to pause spending almost always result in pent-up demand that sooner rather than later creates an outsized spree back to the norm, which makes this post recession recovery so odd ... overall Americans haven't reverted back to the spending means from before the Great Recession. with the exception of buying new rides with zero down and zero percent financing.
A fall in private-sector confidence. Consumer and business confidence were falling in 2011, and as the debate about the debt limit progressed, business and household confidence fell to levels that are typically only seen during recessions. It took months before confidence recovered even though, ultimately, there was no default.