Consequences of the Debt Ceiling Negotiations

Consequences of the Debt Ceiling Negotiations

The Iranian hostage crisis, Iraq’s invasion of Kuwait, 9/11, Hurricane Katrina, Lehman Brother’s collapse and the recessions that defined the 1980, 1992 and the 2008 presidential campaigns … these are the signal events that changed and then defined the last 30 years of American politics.

They are joined now by another signal event:  The debt ceiling negotiation and its consequences.

Consumer confidence has dropped 15.8 points in two months and is now at its fourth lowest level since the survey began in 1952.

SEE THE ENTIRE SLIDE DECK WITH ANALYSIS AND CHARTS HERE

BOTTOM LINE:

As August comes to a close, the debt ceiling negotiation and its aftermath can now be put into an emerging context.

The debt ceiling negotiation is an extremely significant event that is profoundly and sharply reshaping views of the economy and the federal government. It has led to a scary erosion in confidence in both, at a time when this steep drop in confidence can be least afforded.

KEY POINTS:

1.      It is important to recognize how fragile economic perceptions were headed into the final stretch of the debt ceiling negotiation. Along with Hart Research, we have been doing economic tracking roughly every quarter from 2007 through today for CNBC. Workers’ perceptions of their likelihood to get a raise, Americans’ confidence in the stock market, and homeowners’ perceptions of their home value were as weak or weaker in June 2011 than they have been at any point during this four year period.

2.      Americans’ attitudes about the debt ceiling are not only based on the actual outcome, but are primarily derived from the manner in which this issue was debated and resolved. Their views about this process are clear,and are overwhelmingly negative.

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3.      The perception of how Washington handled the debt ceiling negotiation led to an immediate collapse of confidence in government and all the major players, including President Obama and Republicans in Congress.

4.      The collapse of confidence in government has substantially eroded already weak consumer confidence. Today’s consumer confidence rating is the fourth lowest since 1952. Make no mistake: This collapse of economic confidence is not an independent event driven only by economic reality. This sharp a drop in consumer confidence is a direct consequence of the lack of confidence in our political system and its leaders.

5.      As our firm conducted focus groups over the last two weeks, the change in tone in the wake of the debt ceiling negotiation was striking. We are entering a new phase of the American political dialogue that has been irrevocably shifted in a way that will prove difficult to predict. Historically, though, this type of deep voter anger, unease, and economic pessimism leads to unstable and unpredictable political outcomes.