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August 9, 2011 in Nation/World
Plunge pressures Fed
Little left in arsenal to salve stalled economy, plummeting markets
WASHINGTON – All eyes will be on the Federal Reserve today as it meets to weigh what else it can possibly do to reverse Monday’s 600-plus point decline in the Dow and boost investor sentiment amid fears of Recession 2.0.
Along with central banks in Europe and Asia, the Fed had signaled over the weekend that it would intervene behind the scenes in currency markets if events warranted. But Monday’s global rout in financial markets – the worst since the economic crash of 2008 – appears to call for more dramatic action.
“After today, it’s a lot harder. They’re probably going to feel like they need to do something, but I don’t think they feel they’ve prepared markets to do much more,” said Vincent Reinhart, a former top economist at the Fed who is now a scholar at the American Enterprise Institute.
After steep sell-offs in Asia and Europe, the Dow Jones industrial average closed down 634.76 points – or 5.6 percent – at 10,809.85. Since July 21, the Dow has plunged 1,915 points, or 15 percent. The S&P 500 shed 79.92 points, almost 6.7 percent, to finish at 1,119.46. The Nasdaq plummeted 174.72 points, or 6.9 percent, to 2,357.69.
The dramatic declines, in the wake of Standard & Poor’s downgrade of its rating on U.S. credit, heightened pressure on President Barack Obama and politically polarized congressional leaders to take action to prevent a double-dip recession.
Stocks already were tumbling when Obama took to the airwaves Monday afternoon in a bid to calm markets, noting that investors “continue to believe our credit status is AAA.”
It was a reference to the fact that investors were piling into Treasury bonds as a haven amid the sell-off. But the president’s words appeared only to hasten the downturn. The Dow dived below 11,000 as he spoke and closed below that.
The global plunge was triggered not only by the S&P downgrade after markets closed Friday but also by signals from European leaders about addressing their mounting debt crises.
In one bright spot, even if it was also a vote of no confidence in the U.S. economy, crude oil prices on the New York Mercantile Exchange fell $5.57, or 6.4 percent, to settle at $81.31 a barrel for next-month delivery, perhaps giving motorists relief from soaring gas prices. That’s a stunning drop of about $17 from the $98 a barrel just a few weeks ago in late July.
The S&P 500 index is about 18 percent off its highs for the year. Most Wall Street analysts consider a 10 percent drop in stock prices a correction, and a 20 percent drop over the period of a few months as the start of a bear market. That’s one in which traders expect prices to fall back and negative sentiment to persist, keeping stocks falling gradually for months or years.
The Fed already has thrown everything but the kitchen sink at the economy since the crisis began in 2008, and with interest rates at zero, it has few tools left in its arsenal.
In June, it ended a controversial program of $600 billion in bond purchases that was designed to force investors to take risks. Called quantitative easing, or QE2, it involved the Fed purchasing bonds to drive down their return to investors, forcing them into riskier bets on stocks and other financial assets.
Any bump from that effort has been erased by this year’s steep slide in stock prices, and it’s unlikely that the Fed will go down that path again. At minimum, the Fed is expected to signal that it will keep the zero interest-rate policy it has had in effect since December 2008 in place for a longer period of time than markets have previously thought.
Stocks plummet as outlook in Europe dims 
joedevlin21 on August 09 at 12:52 a.m.
Are we reliving history?
Think back to the 1930s.
President Roosevelt took control of a country with an economy that had been ruined.
President Roosevelt enormously increased his country’s national debt, devalued the dollar, further disrupted the economy.
The New Deal legislation of this man was spurious, and consequently the greatest error ever experienced by anyone. If his economic policies had continued indefinitely during peace time, there is no doubt that sooner or later they would have brought down this president.
Roosevelt was fully aware of the danger that his entire economic house of cards could collapse, and that therefore he absolutely had to divert attention to foreign policy.
A carbon copy of what is happening today?
Dazzeetrader11 on August 09 at 2:16 a.m.
Wait till this one hits. More Obama folly. Fed won’t and cannot support this one. And you all don’t think this is a plan..a grand plan from Obama? Cancel it.
http://dailycaller.com/2011/08/08/researchers-obamacare-cost-estimates-hide-up-to-50-billion-per-year/
drywitt99 on August 09 at 2:54 a.m.
The Daily Caller?
That’d be like me citing moveon.org!!
Spend a few more minutes and find a REAL SOURCE next time.
polistra on August 09 at 3:06 a.m.
Actually the Fed could do one big thing that would help.
They could STOP controlling interest rates.
The first rule of REAL economics is that price control always causes shortages, hoarding and black markets. What do we have in the capital market? PRICE CONTROL by the Fed. And what’s the result? Shortages, hoarding and black markets. Perfectly predictable. Any real economist should be able to see this, but none of the quacks who currently pose as “economists” will acknowledge this obvious truth. They prefer the current situation because chaos makes it easier for them to speculate using inside knowledge.
JBlim on August 09 at 6:37 a.m.
The only shortage I see is a shortage of brains and integrity. Are the corporations hoarding all that cash because interest rates are “so high?” No, it’s due to a lack of demand, consumers are hurting. Republicans are pushing us to repeat the austerity of 1937 mistake.
“…The end of the stimulus itself is contractionary. And, with housing prices continuing to fall, GDP growth faltering, and unemployment remaining stubbornly high (one of six Americans who would like a full-time job still cannot get one), more stimulus, not austerity, is needed – for the sake of balancing the budget as well. The single most important driver of deficit growth is weak tax revenues, owing to poor economic performance; the single best remedy would be to put America back to work. The recent debt deal is a move in the wrong direction….”
Nobel Prize winning economist Joseph Stiglitz
http://www.project-syndicate.org/commentary/stiglitz141/English
leekinny on August 09 at 7:31 a.m.
FOX and hate radio lie, and so does their tea party.
joedevlin21: “Roosevelt was fully aware of the danger that his entire economic house of cards could collapse, and that therefore he absolutely had to divert attention to foreign policy.”
WHAT?!?
Then why did the people who won WWII, the greatest generation, vote him into the presidency four times?
Economically what was the war but the mother of all stimulus packages? The debt for that war decreased every year until the borrow and spend Reagan Republicans caused the debt to sore.
Top 10 New Deal Programs
http://americanhistory.about.com/od/greatdepression/tp/new_deal_programs.htm
Republican President, five star general, Eisenhower continued those policies.
johnclarke on August 09 at 7:36 a.m.
leekinny - I know right? What is it with the Con obsession with FDR? If anything, he was obstructed from greater progress by the austerity gang. I think the real issue is bitterness that he succeeded.
johnclarke on August 09 at 7:43 a.m.
http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&src=tp&smid=fb-share
Good Krugman article. That should bring out the loonies.
misjustice on August 09 at 7:43 a.m.
The Cons are obsessed with FDR because he implemented our social safety net; and the Cons hate welfare, unless it is for their corporate masters.
hawken on August 09 at 7:44 a.m.
joedevlin21
Correct. FDR’s failed policies delayed the recovery by 7 yrs.
Obama’s failed policies have delayed our recovery by two and 1/2 yrs. and growing.
Obama is doing the same thing as FDR. He too is failing.
misjustice on August 09 at 7:53 a.m.
^ see?
ChefGus/ John Olsen on August 09 at 7:53 a.m.
Well…. lets just start another war… only bigger this time… it worked for Roosevelt…. get the economy moving again…:)) j
hawken on August 09 at 7:54 a.m.
Paul Krugman is a failed Neo-Keynesian of the worst kind.
Just look at Obama’s policies since he has been in office. Paul Krugman is written all over them.
hawken on August 09 at 7:55 a.m.
Gus:
We don’t need to START another war. We need to STOP Obama.
misjustice on August 09 at 8:07 a.m.
^ see?
@ Gus, yup, the FDR deniers claim that it was only WWII that saved the nation economically; so I agree. Let’s reinstate the draft and start the invasion…and NO waivers for draftees.
leekinny on August 09 at 8:13 a.m.
“Paul Krugman is written all over them.”
NO! Not even close. If he did progressives wouldn’t be disappointed with him and the economy would be humming along.
Sadly, Senate Republicans block everything, especially if it’s good for the economy, because their only goal is the defeat of OUR president, not what’s good for OUR nation.
And the Teabaggers are working to willfully destroy our economy, not jobs.
johnclarke on August 09 at 8:13 a.m.
Big difference between Keynesian economics and supply side voodoo.
Keynesian economics, which in it’s simple form says the Government should step in when the economy falters, is backed by the majority of real economists, and oh yeah is proven to work - over and over and over again.
Supply side is a bunk theory/scam conjured by some wall street hacks. Then there is the most important issue, the fact that it is a complete and total failure. Nothing stood in the way of the previous administration from implementing it fully. We have the smae tax code today. Guess what? It does not work. Reagan knew it, Greenspan knows it and each and every person in this country, excepting some loonies - knows it.
ChefGus/ John Olsen on August 09 at 8:16 a.m.
I specially like the “Draft with no Evasion” for the “Invasion” … perhaps we can start by sending our troops to England to quiet the riot… just like in the good old days…!!
My low level, but sincere actual fear is that a little “tinder” might be dropped into a city here in the U.S…. ie a “Rodney” riot…. like in 96? i think it was.. I was in vegas visiting my Black Optometrist friend and slept with a loaded ShotGun beside my bed for two nights while West Vegas burned…. so YES it can happen here too…. one spark, and hope you have your 1911 racked and loaded…. j
The_Seer on August 09 at 8:28 a.m.
I’m glad I invested in hand baskets….
Scoutster on August 09 at 8:42 a.m.
One reason for the CCC, the WPA, and other New Deal programs when the private sector failed was because there were millions of idle men with few prospects. And they were getting cranky. (The Bonus Army was a wake up call.)
The programs were designed to prevent civil unrest as well as public works.
See London, 2011. You are right on, John.
The pendulum will swing. Or, as Louis and Marie Antoinette discovered, the blade will fall.
Either way, the masses will make themselves known.
hawken on August 09 at 8:44 a.m.
Obama’s former economic adviser agrees that Keynesian Economics is a failure.
Comrade Clarke asserts the great successes of failed, Keynesian Left Economics. It’s been a historical failure for 100 yrs everywhere it has been tried.
The Federal Reserve was established in 1913 by Keynesians.
The Federal Reserve is a Keynesian curse on America and has been since it’s inception in 1913. Along with Keynesian economists and politicians.
How’s Mr. Keynesian on Steroids, Franklin D. Obama, working for you?
misjustice on August 09 at 8:48 a.m.
^ flame bait
The_Seer on August 09 at 8:56 a.m.
scoutster: I doubt the U.S. will experience dire civil unrest, regardless of conditions domestically. Most are too numbed by a diet of confusion, fast food, lethargy and reality television to move beyond thinking about their gadgets. If protests were to erupt, it would be one half of the citizenry meeting the other half of the citizenry in the streets (instead of the “authorities) pointing the finger at each other while yelling “It’s your fault!”
If the citizenry haven’t already been provided enough fodder to produce outrage I’m not sure what it will take. I still protest the Iraq/Afghanistan wars on a weekly basis, holding my well-worn sign on a prominent street corner only to receive mostly derision and scorn. Not once, in close to 10 years now, has another Spokanite offered to join me.
misjustice on August 09 at 9:07 a.m.
The revolution will not be televised.
Millions were in the streets prior to the illegal invasion of Iraq but the corporate media did not cover the protests. And if they did it was a snippet, a 10 second sound bite.
It is in the corporate interest to keep us divided and isolated; if we knew that there were other citizens that shared our concerns it might embolden the unwashed masses. And we can’t have that! The oligarchy needs submissive serfs not active revolutionaries.
johnclarke on August 09 at 9:23 a.m.
Oh misjustice Hawky Jr. is just upset that his Tea Party messed up and is rightfully getting blamed for their petty antics. In the mean time, the market is rebounding and life goes on.
misjustice on August 09 at 9:34 a.m.
” Ob -la-di, ob-la-da life goes on brah La la how the life goes on …”
All of the fake crisises are giving me a headache in my eye!
ChefGus/ John Olsen on August 09 at 9:39 a.m.
MisJ… in my prior life I was an Optometrist… and a “headache in your eye.. can be effectively treated with having your partner/spouse give you a neck massage…:)) best j…Off to my mother’s 90th birthday party now here in Seattle..(Came out of Holden Village for that).. a bientot
MrNatural on August 09 at 9:45 a.m.
Stop please!…if you say Keynesian one more time I’ll have this fifth polished off before 10:00am…(hic)
Gamble and speculation…oh what a frail economy we weave…and I’m reminded of the song they played as the intro to All in the Family “Those were the days”…and the line Archie bellowed out “we could use a man like Herbert Hoover again”…considering the source :)
Diana on August 09 at 9:48 a.m.
So true, johnclarke. The House Teabaggers got “95% of what they wanted”. TammyFaye Boehner said so.
misjustice on August 09 at 9:52 a.m.
Thanks Chef!
And to your mother, joyeux anniversaire Maman!
On another story on the SR National Page the market has rebounded from yesterday’s losses…
“The Dow Jones industrial average rose 196 points, or 1.8 percent, to 11,005 in midday trading.”
What? All the hand wringing and chest beating and wailing and gloom and doom and the end of the world and the sky is falling and whatever will we do?… And today with the market rebounding there are no comments on that story…Why?
Like I said, the fake crisises are giving me a headache in my eye.
*sigh*
johnclarke on August 09 at 10:02 a.m.
My thoughts are S&P made a 2 trillion dollar boo boo and could not walk it back in time. They were leaking this to customers before the announcement, and cattle being cattle the market ran to cover.
Meanwhile Soros probably shorted yesterday and made a zillion dollars and is buying those stocks right back today. Obama called it right by shrugging off S&P.
liberal_in_right_wing_land on August 09 at 10:33 a.m.
I find it funny that the idiot tea baggers are trying to deny what FDR did to save the country and trying to spin WHAT THE GREATEST GENERATION OF PEOPLE THIS COUNTRY HAS EVER SEEN and what they did to save this country into lies and say they actually tried to destroy America by what they did.
But of course 70+ years later stupid tea baggers who disregard history try and spin it in their favor.
Hawken, I would like you to go up to my 91 year old grandfather, a diehard christian conservative, who survived Pearl Harbor and served in WW2 and tell him what FDR did destroyed the country. At 91 years old he would knock you flat on your a@@ for saying something so truly stupid and ignorant
Maybe they are mad because their is an abundant amount of proof that liberal, democratic policies have worked throughout history, yet tea bagger policies of stripping the government into oblivion to make it as small as possible has no record of working throughout history……unless they are trying to turn America into Afghanistan, Sudan or Somalia.
misjustice on August 09 at 10:34 a.m.
JC said “Soros”, everyone drink!
; )
johnclarke on August 09 at 10:38 a.m.
*drink*
Liberal, I’d pay money to see that.
misjustice on August 09 at 10:47 a.m.
I’d pay too!
This new poll seems to suggest that respondents are not too happy with their Congress Critters:
“A lot of that anger seems directed toward the GOP. According to the survey, favorable views of the Republican party dropped eight points over the past month, to 33 percent. Fifty-nine percent say they have an unfavorable view of the Republican party, an all-time high dating back to 1992 when the question was first asked.
The poll indicates that views of the Democratic party, by contrast, have remained fairly steady, with 47 percent saying they have a favorable view of the Democrats and an equal amount saying they hold an unfavorable view.
“The Democratic party, which had a favorable rating just a couple of points higher than the GOP in July, now has a 14-point advantage over the Republican party,” adds Holland.
The same pattern holds for the parties’ leaders in Congress. House Democratic Leader Nancy Pelosi and Senate Majority Leader Harry Reid, the top Democrat in the chamber, have never had great numbers, but the public’s view of them have remained essentially unchanged in the wake of the debt ceiling debate. But House Speaker John Boehner’s favorable rating has dropped 10 points, and his unfavorable rating is up to 40 percent, a new high for him. On the Senate side, Senate Republican Leader Mitch McConnell isn’t faring much better - his unfavorable rating is 39 percent, a seven-point increase since July.”
continues…
http://politicalticker.blogs.cnn.com/2011/08/09/cnn-poll-time-to-clean-house-in-congress/?hpt=hp_t2
This could be the beginning of ‘96 all over again…
; )
reservedparking on August 09 at 11:43 a.m.
“Sadly, Senate Republicans block everything, especially if it’s good for the economy, because their only goal is the defeat of OUR president, not what’s good for OUR nation.”
Bingo.
detroitdude on August 09 at 11:48 a.m.
The Tea Party: Caring about government spending since January 20th, 2009.
mtharves on August 09 at 3:03 p.m.
I can only hope the public will hold that anger for the Reps indicated by the poll misJustice quotes. If not, unless employment gets better, Obama may still be in trouble. And the Reps are not going to help him on the jobs front.
The_Seer on August 09 at 4:38 p.m.
The Fed being formed in 1912 was “Keynesian?”
That’s a pretty delusional observation, considering Keynes’ work wasn’t widely published or his theories put into practice more than thirty years later.
I guess we do need to do a better job teaching our children history. But what to do with those who willfully ignore history as adults?
ChefGus/ John Olsen on August 09 at 10:35 p.m.
“Adults”??? J