A year ago this week marked the beginning of arguably the worst period for American markets since the darkest days of the financial crisis. The depths of the European mess were just becoming known, our economy was demonstrably slowing, and a shameful debt-ceiling debate threatened to shut down the government.
The selling parade started on Friday July 29, 2011 when the Commerce Department announced that second-quarter GDP came in at a disappointing 1.3%.
The following Sunday, July 31st, Congress reached a complex deal designed to bring an end to the humiliating debt ceiling showdown.
We may not have forgotten what happened a year ago, but we seem all but condemned to repeat it. The flimsy deal President Obama announced last July was contingent on a compromise being reached between both parties in a Super Committee. Failure of this committee led to mandatory spending cuts to be imposed at the beginning of 2013. In effect, the debt ceiling debate was pushed into 2013, and has since been re-dubbed the Fiscal Cliff.
To Lee Munson, author of Rigged Money, the appeal of U.S. debt transcends ratings agencies.
"Even though we're a bit tarnished because of the amount of spending going on in Washington, we do have the best brand," Munson says.
The illusion of a Fiscal Cliff isn't going to wreck us now.
The solution, when it comes, is going to hurt everyone as Munson sees it. For all the howls to the contrary, nothing currently on the table is likely to destroy the republic.
"I would not expect the same type of gridlock that we've had for the last several years to continue," concludes Munson. "Quite frankly the American public is just not going to stand for it."
Neither will the markets. If we're having the same conversation this time next year, stocks will be far below anything we saw in August of 2011.
Did politicians learn from last year's credit rating downgrade?
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