|
 |
 |
|
Markets plummet as administration pushes back against S&P downgrade
Washington’s law- and policymakers anxiously watched financial markets in Asia, Europe and New York on Monday to determine the impact of the nation losing its AAA credit rating.
The downgrade of the nation's credit rating seemed to be taking its toll in trading Monday, as all three major stock indexes plummeted.
The Dow Jones Industrial Average fell 634 points, approximately 5.5 percent, dropping below 11,000. The S&P and Nasdaq were down over 6 percent.
The weekend gave investors and policymakers time to assess the downgrade — and politicians a chance to point fingers.
They watched with trepidation as Israel’s stock market, one of the few open on Sunday, dropped 7 percent in the wake of Friday’s announcement.
“The only test we have at the moment is the Israeli market, which is open today — and it has tanked,” former Federal Reserve Chairman Alan Greenspan said Sunday morning on NBC’s “Meet the Press.”
Greenspan said he expected more turmoil on Wall Street.
“Considering the momentum in which the market went down over the last week, it's very unlikely — if history is any guide — that this isn't going to take a while to bottom out. So the initial reaction, in my judgment, is going to be negative,” Greenspan said of S&P’s downgrade.
Treasury Secretary Timothy Geithner tried to reassure investors in a Sunday night interview, but conceded he could not predict the reaction.
“It’s hard to know what’ll happen in this context,” Geithner said on CNBC. “But, again, I think that everyone can be confident, both here and around the world, that treasuries are the most — these days — the most liquid — the strongest place to put your money at a time like this.”
He said S&P “has shown really terrible judgment” and “a stunning lack of knowledge about basic U.S. fiscal budget math.”
More news from The Hill:
♦ Geithner stays at Treasury, says Congress ‘owns credit rating’
♦ With debt deal, Dems made jobs agenda tougher
♦ Ex-Clinton aides: Obama lacked clear message in debt talks
♦ Hacker group Anonymous hits rural police websites
♦ After debt debate, healthcare is the topic for GOP lawmakers
♦ Montana senators float pipeline safety proposal
Bill Miller, the chairman and CIO of Legg Mason Capital Management, said on “Fox News Sunday” the downgrade “injects further uncertainty into the markets.”
“The markets hate uncertainty,” he said. “Wall Street had a bad week last week. There was a lot of panic overall on the markets. So I’d expect a lot of volatility. And again, it’s all uncertainty.”
Larry Summers, former Treasury secretary and former director of the National Economic Council, predicted higher interest rates and suggested a drag on economic growth.
“The House majority played chicken with America's creditworthiness, and America's families are going to be the losers — losers in terms of higher interest rates on their mortgages, losers in terms of what this is going to mean for employment,” Summers said on CNN’s “State of the Union.”
JPMorgan Chase & Co. estimated last month a downgrade would increase Treasury yields by 60 to 70 basis points, costing the federal government $100 billion a year in higher borrowing rates.
David Axelrod, President Obama’s senior political adviser, held out hope the fallout would be minimal.
“First of all, let's see how the markets react, because I think there's a broad consensus that this is still the safest place to put your money,” he said of the U.S. stock and bond markets on CBS’s “Face the Nation.”
Democratic political strategists say Obama’s reelection will depend on job creation and the growth of the country’s gross domestic product in the months before Election Day.
Charles Gasparino, a stock market analyst for Fox News, said how the markets react to the downgrade is "a huge political story" that will continue to play out in the 2012 elections.
Some strategists think Democrats can improve their political standing by blaming Republican obstructionism in Washington for stalling economic growth.
Democrats sought to do that over the weekend.
Axelrod and Austan Goolsbee, who recently stepped down as chairman of the White House’s Council of Economic Advisers, blamed Tea Party Republicans in the House for causing the downgrade by threatening to force a national default.
Sen. John Kerry (D-Mass.), appearing on NBC’s “Meet the Press," said: “This is the Tea Party downgrade, because a minority of people in the House of Representatives countered even the will of many Republicans in the United States Senate who were prepared to do a bigger deal.”
Kerry believes Senate Republicans would have gone along with a broad deficit-reduction plan to reshape entitlement programs and raise new revenues through tax reform.
Sen. John McCain (R-Ariz.), appearing on the same program, blamed Obama for failing to put forth a specific, detailed plan to reduce deficits.
S&P cited staunch political opposition to raising taxes as a reason for pessimism that Congress would get the nation’s deficit problem under control.
There is some talk among Republicans about reconvening the House of Representatives to advance additional deficit-cutting legislation to reassure the markets.
“This confirms my belief that the debt-ceiling increase signed into law this week does not go far enough to change the nation's fiscal trajectory,” said Rep. Jack Kingston (R-Ga.) in a statement. “Congress should immediately reconvene to take up the fundamental reforms necessary to right the ship and lay the groundwork for a more stable and secure future for our children and grandchildren.”
Rep. Allen West (R-Fla.) sent a letter to House Majority Leader Eric Cantor (R-Va.) on Saturday requesting that the House reconvene to “resolve our deficit and spending issues," according to a post on West’s Twitter account.
— Peter Schroeder contributed to this post.
This story was posted on Aug. 7 at 11:20 a.m. and has been updated.
Most Viewed RSS Feed »
