Even as the stock market has gyrated wildly in recent days, bringing inevitable comparisons to the financial crisis of 2008, economists say a repeat of that episode is unlikely: Bank balance sheets are much stronger this time, the upside of a recent reluctance to lend to all but the most credit-worthy borrowers.
But in some respects, the broader economy is more vulnerable to a shock now than it was during the financial crisis, economists add, citing the marked weakness in the United States and in Europe, where grave concerns about a debt crisis persist.
"The markets are nervous because the level of uncertainty has increased," said Francisco Torralba, an economist with Morningstar Investment Management. "We are facing certain risks that we have seldom seen before."
After a late rally, the Dow Jones industrial average closed Tuesday up 430 points, one day after plunging 634 points on fears of a new global recession.
The closing market surge on Tuesday came after the Federal Reserve said short-term interest rates would remain close to zero through mid-2013, while painting a dark portrait of the overall economy.
Though the Federal Reserve did not announce any new measures, economists looked for meaning in its statement, which said the Federal Open Market Committee "discussed the range of policy tools available to promote a stronger economic recovery" and "is prepared to employ these tools as appropriate."
"It appears they've set the stage for further action," said Thomas Simons, a money market economist with Jefferies & Co.
That action, some economists say, may involve pumping more money into the economy with another round of what economists call "quantitative easing," or injecting vast sums of money into the economy to stimulate growth.
But while that may ease some short-term market anxiety, other threats to the global economy loom in Europe, where authorities on Monday started buying Spanish and Italian bonds in an effort to rescue those countries from financial disaster.
"There's a great deal of fear that the European Central Bank doesn't have the firepower to stop this problem," said Constance Hunter, chief economist at Aladdin Capital Management.
The market volatility began late Friday when Standard & Poor's downgraded the federal debt, triggering the worst sell-off on Wall Street in more than two years. Many investors fretted that a double-dip recession was appearing likelier, and some wondered if the great plunges in the stock market might be laying the groundwork for a repeat of the financial crisis, particularly as major banks such as Bank of America and Citibank saw their values cut down sharply.
But many economists say a repeat of 2008 would be hard to imagine. While economic growth has slowed and unemployment remains high, banks are much healthier now and companies are flush with cash. And even if the economy declined, it would unravel much more slowly than it did three years ago because households and banks have borrowed less.
"The underlying fundamentals, while not great, are not at a level that would warrant a deep financial panic," said Raghuram G. Rajan, an economist at the University of Chicago.
Yet a high level of anxiety still permeates the American economy. And with governments around the world engaged in massive austerity measures, there is no clear spark to trigger a recovery, economists say.
"The government has basically run out of bullets in terms of stimulus," Rajan said.
Many economists still assume that a recovery is unfolding, though a disappointingly weak recovery, further restrained in coming months by nervous consumers holding tight to their ever-shrinking wallets.
"When the dust settles we're going to see an environment where consumers will continue to spend money -- but not a lot," Simons said. "The economy is going to grow, but it's going to grow slowly."
Our 2024 Coverage Needs You
It's Another Trump-Biden Showdown — And We Need Your Help
The Future Of Democracy Is At Stake
Our 2024 Coverage Needs You
Your Loyalty Means The World To Us
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
The 2024 election is heating up, and women's rights, health care, voting rights, and the very future of democracy are all at stake. Donald Trump will face Joe Biden in the most consequential vote of our time. And HuffPost will be there, covering every twist and turn. America's future hangs in the balance. Would you consider contributing to support our journalism and keep it free for all during this critical season?
HuffPost believes news should be accessible to everyone, regardless of their ability to pay for it. We rely on readers like you to help fund our work. Any contribution you can make — even as little as $2 — goes directly toward supporting the impactful journalism that we will continue to produce this year. Thank you for being part of our story.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
It's official: Donald Trump will face Joe Biden this fall in the presidential election. As we face the most consequential presidential election of our time, HuffPost is committed to bringing you up-to-date, accurate news about the 2024 race. While other outlets have retreated behind paywalls, you can trust our news will stay free.
But we can't do it without your help. Reader funding is one of the key ways we support our newsroom. Would you consider making a donation to help fund our news during this critical time? Your contributions are vital to supporting a free press.
Contribute as little as $2 to keep our journalism free and accessible to all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. Would you consider becoming a regular HuffPost contributor?
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. If circumstances have changed since you last contributed, we hope you'll consider contributing to HuffPost once more.
Support HuffPostAlready contributed? Log in to hide these messages.