The U.S. of AA+: How we got here

Unwillingness on the part of politicians to use their political capital to force tighter regulations on certain practices by financial institutions will emerge as a missed opportunity when the management of the early 2000’s twin downturns are picked apart years from now.

Princeton economist Paul Krugman’s column in today’s New York Times helps trace the path that led to a downgrade in U.S. debt, and reaches the inescapable conclusion that recent mistakes mean the U.S. is no longer the world’s “old reliable.” [Krugman also expertly dissected the 2008 crisis in 2009.]

On his blog today, firebrand Wall Street lawyer Bill Singer went so far as to call for an economic plebiscite to let voters decide how economic policy should proceed. Certainly, mistrust over how the last parcels of stimulus funds were deployed has contributed to the current state of political gridlock. John Harwood’s New York Times column today strikes some similar chords.

Whether the debt showdown contributed to the current crisis, or was merely a sideshow, will be debated for some time. The story of its origins, though, certainly provide some food for thought.

Finally, Harvard economist Ken Rogoff has expressed frustration with pundits who keep calling the current happenings the start of a double dip recession. A recession, he points out, is a function of a business cycle and can be managed or eased using stimulus funds. A financial crisis is an entirely different animal, and requires a multi-pronged fix that includes political concessions.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.