It wasn’t a meltdown in the mortgage-backed securities market that handed Barack Obama a near-landslide victory in 2008. No, it was fear. Or to put things in Wall Street lingo, it was “a lack of confidence.”
As in “a lack of confidence that ATMs would keep dispensing cash.”
As in “a lack of confidence that millions of unemployed wouldn’t soon be selling their Apples (iPod, iMacs, iPhones) on street corners.”
As in “a lack of confidence that your doomsday prepper neighbor wasn’t right all along.”
And it might be a shattering lack of confidence that sinks the fragile U.S. recovery and makes President Obama a one-term president. As the European Commission puts it, “No other economic relationship in the world is as integrated” as the U.S.-EU economies. Keep that in mind as you ponder how a Greek exit from the euro would almost certainly send the eurozone region headed back to where it was in 2008 and 2009. Confidence, investment, and spending would plunge. (A new poll of Societe Generale clients finds three-fourths think Greece is leaving, by the way. And more and more, the markets do too.)
Great Recession 2.0, EU-style. “This type of shock could produce instability at least as extensive as the aftermath of the collapse of Lehman Brothers in September 2008,” says Simon Johnson, former chief economist at the IMF. “It would lead to massive redistribution of capital and wealth, forcing some leveraged institutions into instant insolvency.”
And don’t think for a minute that big problems over there wouldn’t affect us over here. “A banking crisis in the euro area and in the EU would most likely result from an exit by Greece from the euro area. The fundamental financial and real economy linkages from the rest of the world to the euro area and the rest of the EU are strong enough to make this a global concern,” Citigroup Chief Economist Willem Buiter said in a report late last year.
Forget for a moment about the impact on U.S. exports to Europe or the impact on U.S. banks. The contagion of fear alone might be enough to push America—its economy just above sputter speed right now—back into recession. The top thing wealthy investors talk about with their reps at Schwab these days: Europe’s debt problems. And with good reason. Unemployment would head right back to 10%, and incomes would fall. We’d be right back in the ditch, and the last four years would seem like a colossal waste of time, money, and political opportunity.
The last time the U.S. suffered a recession during a presidential election with an incumbent president on the ballot was 1980. Jimmy Carter lost 44 states and won just 41% of the popular vote. Obama might not do a whole lot better.