• With: Mary Anastasia O'Grady, Steve Moore, Dan, Henninger, Dorothy Rabinowitz, Collin Levy

    This is a rush transcript from "Journal Editorial Report," August 13, 2011. This copy may not be in its final form and may be updated.

    PAUL GIGOT, HOST: This week on the "Journal Editorial Report," Wall Street's wild ride continues as markets here and abroad react to the credit downgrade and escalating debt problem. Is it 2008 all over again?

    And is Obama losing the left. Conservative criticism of the president is nothing new. But now liberal elites are piling on.

    Plus, big labor spends millions in Wisconsin's recall elections and comes up short. What the Republican victories means for other states attempting union reform.

    Welcome to the "Journal Editorial Report." I am Paul Gigot.

    First up this week, is it 2008 again? Many are asking that question after this week's market mayhem in the U.S. and across the globe. So what's different now and what is the same?

    Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; columnist, Mary Anastasia O'Grady; and senior economics writer, Steve Moore.

    Mary, the big question people want to know the answer to is, are we headed for another recession?

    MARY ANASTASIA O'GRADY, COLUMNIST: Paul, I wish I knew.

    (LAUGHTER)

    O'GRADY: You know --

    GIGOT: That's what we pay you, Mary, to know.

    (LAUGHTER)

    O'GRADY: On the one side, you have a lot of talk about what great shape corporate balance sheets are in.

    GIGOT: Right.

    O'GRADY: But let me give you another statistic. The National Federation of Independent Businesses this week --

    GIGOT: That is the small businesses lobby.

    O'GRADY: Yes, they released their small business optimism index, which declined for the fifth month in a row. And 10 percent of the small business owners said that only 10 percent said they expected to increase employment. And 11 percent said they expected to have fewer workers over the next three months. Small business is such a key to the health of the economy that, if the small business sector is so negative, it is not a good sign about the health of the recovery.

    GIGOT: Steve, the comparisons with 2008 are all over the place. What makes -- are we better or worse off than we were going into the recession?

    STEVE MOORE, SENIOR ECONOMICS WRITER: Look, I don't think it is 2008 again. I believe what is happening now with the U.S. economy is a kind of repudiation of Obama-nomics. Virtually everything that Obama has done with the respect to the economy has been, in my opinion, negative and as actually and led to more unemployment. This is also a repudiation of the Keynesian economic model, Paul, where we have thrown amazing amounts of money, trillions of dollars of spending at this. And in addition to that, we have seen pedal-to-the-metal money creation as well --

    GIGOT: OK.

    MOORE: -- from the Fed, and I believe --

    GIGOT: But, Steve --

    MOORE: -- it hasn't worked.

    GIGOT: OK, it hasn't worked, but then, why is it better than 2008?

    MOORE: Well, because balance sheets are a little better off than they were back in 2008 --

    (CROSSTALK)

    GIGOT: Corporate balance sheets?

    MOORE: Corporate -- and even household balance sheets have improved, some what. But the problem is government balance sheet is what looks really rotten. And I do think what has really sparked this market sell off and a kind of fear of recession was the debt deal, where people said, wait a minute, this is not good enough given the size of this enormous debt.

    GIGOT: Dan, how do you see it?

    DAN HENNINGER, DEPUTY EDITOR & COLUMNIST: Well, I think there are some similarities to 2008. They may not be economically technical similarities. But here, in 2008, what happened is Sunday evening in September 2008, Lehman Brothers goes down and suddenly we are into a financial crisis. That was the bursting of the housing bubble, the famous housing bubble. Prices had gone up to unsupportable levels. We had editorialized about it for at least two years. And then suddenly it goes like this.

    What we are seeing now is the bursting of the federal spending bubble. And all we needed was S&P to sort of flip the switch and suddenly everyone realizes that what we have been doing 25 years is no longer supportable. So the question is, is the political market place going to put in the place the right policies to react to them as they did not do to the housing bubble and --

    GIGOT: Housing prices have no fallen by 20 to 30 percent in an awful lot of markets. They can't fall that much.

    (CROSSTALK)

    HENNINGER: With the government doing all it can to thwart that repricing mechanism in the housing.

    (CROSSTALK)

    GIGOT: Sure, I agree with that. But how much further can they fall?

    O'GRADY: I think there is another similarity there to 2008, and that is that markets are nervous about what is going on in Europe, and in particular what the nervousness is about is that U.S. money markets are holding a lot of exposure to the European banks which have exposure to European sovereign debt.

    GIGOT: Especially, money market investment funds.