WASHINGTON -- The massive drop in the stock market Thursday afternoon provides an ominous, albeit politically inviting, backdrop for the Republican debate later in the night. A GOP field that has bashed the president for his economic stewardship has, as its freshest data point, a 390-point loss in the Dow Jones Industrial Average.
But the market volatility can cut both ways. In an interview with The Huffington Post just hours before the GOP candidates took center stage, Rep. Debbie Wasserman Schultz, chairwoman of the Democratic National Committee, made the argument that the stock market fall exposed the political hazards of the Republican presidential field's broad call to privatize Social Security.
"What would my constituent's Social Security account look like if that were the law of the land after a day like today," asked the Florida representative. "That would have caused a lot of people that I represent to fall through the floor because there would be no safety net."
The wide appeal of Social Security rests largely on the perception that it is a stable social safety net. And Democrats in the past (most notably when President George W. Bush tried to privatize the program in 2005) have been successful in using the unpredictability of markets to undermine efforts to change Social Security.
This year's Republican presidential field is unique, however, in that one of its primary fault lines is whether a successful candidate needs to be restrained in his tone on entitlement reform. Mitt Romney, in particular, has gone so far as to call Rick Perry unelectable for insisting that Social Security is a "Ponzi scheme" based on a "monstrous lie."
"Mitt Romney is a wolf in sheep's clothing," Wasserman Schultz said when asked about the former Massachusetts governor's more moderate pitch. "He is trying to mask his true beliefs, which he has repeatedly said over the years, which is he believes in private accounts for Social Security. He believes in letting people invest their Social Security in the stock market."
Romney has, indeed, argued as much in the books he has written.
As for that unstable stock market, the DNC chairwoman did her best to downplay the stain it might leave on perceptions of the president's economic record.
"The backdrop is obviously unfortunate, but it is a day-to-day proposition," Wasserman Schultz said. "When it comes to the work we are doing under President Obama to continue to create jobs and get the economy turned around and pick up the pace of recovery, there are ups and downs. But my job is to, I think, show people where we have been and where we are now thanks to President Obama's policies. And if you look at that, it stacks up pretty well."
Stocks Close Sharply Down Amid Recession Fears
The Dow Jones industrial average fell as much as 527 points, the second consecutive plunge since the Federal Reserve announced a change in strategy for fighting the economic slowdown.
At the close of trading, the Dow was down 391.01 points, or 3.5 percent, at 10,733.83. The Standard & Poor's 500 index fell 37.18, or 3.2 percent, to 1,129.58. The Nasdaq composite fell 82.52, or 3.3 percent, to 2,455.67.
Nineteen stocks fell for every one that rose. Trading volume was high on the New York Stock Exchange, at 6.9 billion.
Oil and metals prices, which rely on economic demand, sank. Traders sought the safety of Treasury bonds.
One financial indicator after another shows that investors are losing hope that the economy can keep growing. Thursday's plunge comes a day after the Federal Reserve announced a change in strategy for fighting the economic slowdown but warned that it saw "significant downside risks to the economic outlook."
"Markets rely on confidence and certainty. Right now there is neither," said John Canally, an economic strategist at LPL Financial, an investment firm in Boston.
Economic news was bad around the world. A closely watched survey in Europe indicated a recession could be on the way there, and a manufacturing survey suggested a slowdown in China, which has been one of the hottest economies.
"The probability of going back into recession is higher now than at any point in the recovery," said Tim Quinlan, an economist at Wells Fargo. He put his odds of a recession at 35 percent, the highest yet.
Christine Lagarde, the head of the International Monetary Fund, said the world economy was "entering a dangerous phase." She told an annual meeting of the IMF and World Bank that nations need credible plans to get their debt under control.
On Thursday, investors looking for a safe place to put their money bought American government debt, which they see as less risky than stocks even as the nation wrestles with its long-term budget.
NPR's John Ydstie tells Melissa Block, host of All Things Considered, the market's reaction may be a judgment that the Fed's action isn't enough to ensure the U.S. doesn't slide back into recession.
"But the Fed's announcement to both buy longer-term U.S. debt and to buy U.S.-backed mortgage securities did certainly help to push long-term U.S. interest rates lower today," he said.
The interest rate on the 10-year bond, a benchmark for many mortgages, is 1.71 percent, a level last seen in the 1940s. Rates on the 30-year bond are now below 3 percent. Yields fall as investors buy bonds and send their prices higher.
The Fed, adopting a new strategy to try to get the U.S. economy going, announced Wednesday that it would shuffle $400 billion of its own holdings in hopes of reducing interest rates on long-term loans.
The central bank hopes that allowing people and businesses to borrow money more cheaply will encourage them to spend it throughout the economy, providing a lift that could turn it around.
The Fed statement troubled investors. It offered a bleak assessment of the future of the U.S. economy, saying it sees "significant downside risks to the economic outlook," including volatility in overseas markets.
"In financial markets, the thinking seems to be: If the Fed is worried, the rest of us ought to be really worried," said Brian Gendreau, senior investment strategist at Cetera Financial Group.
Economists say the Fed action may help, but probably not much. The only thing that will help is for people and businesses to start spending more money, said Uri Landesman, president of Platinum Partners, a hedge fund.
"Counting on the Fed to get us out of this is a mistake," he said.
Earlier Thursday, the Conference Board said its index of leading economic indicators rose 0.3 percent in August, the fourth consecutive increase. Still, the improvement in August wasn't broad-based and mostly stemmed from an improvement in financial conditions, such as low interest rates.
And the number of people applying for unemployment benefits fell last week, but the four-week average rose for the fifth straight week, the Labor Department said.
Weekly applications dropped by 9,000 to a seasonally adjusted 423,000. The four-week average, a less volatile figure, rose slightly to 421,000.
Applications typically need to fall below 375,000 to significantly lower the unemployment rate. They haven't been that low since February.
http://www.npr.org/2011/09/22/140713662/stocks-in-deep-slide-amid-recession-fears?sc=nl&cc=brk-20110922-1609
No comments:
Post a Comment