Dow Falls More Than 600 Points as Obama Defends US Credit

Monday, August 08, 2011

U.S stocks followed the trend of global markets Monday and plummeted on the first day markets opened since Standard & Poor's downgraded the U.S. credit rating.

On a day when the Dow Jones industrial average fell 634.76 points in afternoon trading, President Barack Obama said the U.S. remains a AAA country despite its credit rating down grade last Friday.

Obama said financial markets "still believe our credit is AAA. I and the world's investors agree."

Every stock in the Standard & Poor's 500 index declined. It was the sixth worst point decline for the Dow in the last 112 years and worst one-day drop since December 2008.

S&P cut the long-term debt rating from AAA to AA+ late Friday amid growing concern about economic stability by nervous investors rattled by the weak U.S. economy, growing European debt troubles and Japan's recovery from its earthquake in March.

"With the U.S. Treasury losing its AAA, what that means is that in the future that more downgrade to the U.S. Treasury are likely because once a rating moves down a notch, it  is more likely to move down again," said Matt Fabian of independent research group Municipal Markets Advisors.

S&P also downgraded the credit rating of Fannie Mae and Freddie Mac and other agencies linked to long-term U.S. debt on Monday as experts weighed the likelihood of additional downgrades.

The sell-off began the moment the opening bell was rung at the New York Stock Exchange on Monday.

"I realized that we were going to have a rather horrendous opening," said Arthur Cashin, director of floor operations for UBS Financial Services.

Cashin said U.S. traders began the day Monday spooked by sharp drops in global stock markets, including a 7 percent decline in the Tel Aviv Stock Exchange’s benchmark index of 25 stocks.

But S&P's decision to announce the downgrade of U.S. debt after the close of trading on Friday may have insulated the market from a greater pullback.

"We've had 48 hours to digest it. Most traders looked at it and said, 'You can't sugarcoat it; it's bad, but it's not traumatic,'" said Alan Valdez, DME Securities' head of floor trading.

Valdez said in a conference call Sunday night, most of his clients expressed a cautious attitude, but not panic.

"A lot of them, the guys that are in the market aren't selling. They're gonna watch it. They're just staying on the sidelines," Valdez said, noting the trading volumes were low Monday morning.

A bigger worry than the U.S. credit downgrade may be the ongoing European debt crisis. Over the weekend the European Central Bank said it would start buying Italian and Spanish bonds, in an effort to stave off crises in two of the Eurozone’s bigger member states.

"These are problems that are too big to fail, and the fact is, they're just kicking the can down the road," Valdez said.

In an attempt to avert panic, financial ministers and central bankers of the Group of 20 industrial and developing nations issued a joint statement Monday saying they were committed to taking all necessary measures to support global financial stability.

"We will remain in close contact throughout the coming weeks and cooperate as appropriate, ready to take action to ensure financial stability and liquidity in financial markets," they said.

Concern about U.S. economic recovery has been increasing since the government said economic growth was far weaker in the first half of 2011 than predicted.

Job growth last month was better than economists expected but the 117,000 jobs added remains below the average of 215,000 that employers added between February and April.

With the Associated Press


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Comments [7]

peter mcclean from Connexticut

Listening to your program it is self evident that those participating (media, academics and the person for NYT with the exception of the economist from Stanford) are participating in self-delusion. There is a major problem and it is the lack of effective governance. The problem has been there for years and the players on both sides of the aisle have denied reality. It is apparent that the only path to a solution is a major crisis forcing the meek administration and the inept in Congress to be forced to deal with reality!
Stop trying to blame S&P.

Aug. 08 2011 03:03 PM
Hail from The US of A

The tea party are essentially anarchists. They believe freedom means every man for himself. They confuse social contract for socialism.

Aug. 08 2011 02:23 PM
Barbara from New York City

Leaders led by the lobbyists who do not want regulations, clean air and water, banks that can steal and steal and never be accountable, while ordinary joe and jill should get paid less and less and hopefully die before their Social Security is chained down to zero and no physician can afford to care for a Medicare recipient.
Then, of course, these individuals and corporations who no end to their takein of others toil will celebrate the end of government as we know it, and democracy will be dead for sure along with the spirit and words of our great Constitution. Celebration of ALEC.

Aug. 08 2011 01:59 PM
Davis Straub from Oklahoma City, OK

Kindness of neighbors? Oh, Please. Chinese buys US Treasuries not out of kindness, but because it is in the interest of its exporters to keep its currency low. China really has nothing to say to us.

Aug. 08 2011 12:43 PM

Compromise is the only way to get the budget balanced. There must be spending cuts for sure, but there must also be increases in revenues. No one -- not the Democrats, Obama, the Republicans or the Tea Party -- can stand there ground unwavering. The refusal to genuinely come to the table is unforgiveable and should lead to a people's backlash against all incumbents!

Aug. 08 2011 11:13 AM
dan k from Chelsea

doesn't anyone see that it's in the Tea Party's best interest to see a downgrade or even a default? if you want the government out of the people's lives, prevent it from borrowing to pay it's debts and therefore bankrupt it!

Aug. 08 2011 10:46 AM
Joyce from Manhattan

I blame the Tea Party and the Republicans for not having the spine to stand up to them. The Tea Party is made up of short-sighted, unthinking, ignorant sheep. They are the living examples of the Emperors New Clothes, believing foolish, empty promises and flattery from greedy, misleading "leaders".

Aug. 08 2011 10:43 AM

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