By Karen Petrou
Readers of this blog know well that we think U.S. economic inequality is not only a profound social-welfare and political-consensus problem, but also a scourge to financial-market stability. We have not generally wandered into fiscal-policy questions, preferring to focus on a far less well-known, but potent inequality force: U.S. monetary and regulatory policy. However, financial and fiscal policy are inextricably intertwined. If inequality increases the risk of financial crises – which it does – and financial crises pose macroeconomic risk – which of course they do – then fiscal policy must ride to the rescue to prevent prolonged recession or even depression. Could it, given how acute U.S. economic inequality has become? A new report from Moody’s says that the rating agency may well have to downgrade U.S. debt – the AAA sine qua non of global finance – due to inequality. Continue reading “Inequality Hits Fiscal Reality”