Wall Street rattles Washington

Wall Street rattles Washington
© Getty Images

The stock market closed a wild Monday with the Dow Jones industrial average down over 500 points, setting off fresh fears about the health of the global economy.

The Wall Street drama quickly spread to the 2016 campaign trail and Washington, as flashbacks to the 2008 financial crisis drew responses from the political world.

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Renewed concern about the strength of China’s economy kicked off a brutal opening, as the Dow opened down more than 1,000 points in the first minutes of trading. While the index largely erased those gains later in the day, it still ended Monday down 588 points, adding to large losses suffered the two days prior.

The turbulent day on Wall Street grabbed the attention of several presidential candidates, who cast blame far and wide. Meanwhile, the White House sought to draw a distinction between the headlines flying out of financial markets, and the underlying U.S. economy.

White House press secretary Josh Earnest emphasized Monday the “ongoing strength and resilience of the U.S. economy” amid the sell-off. The administration pointed to the steadily falling unemployment rate and solid economic data as signs that the U.S. economy was durable enough to survive “increased volatility overseas.”

The Treasury Department, through a spokesman, downplayed the drama by saying it was closely monitoring the matter but does not comment on day-to-day market developments.

There is ample evidence that, beyond the stock market hit, the U.S. economy is on solid ground. The unemployment rate has fallen to 5.3 percent, inflation remains low, and economic growth has rebounded from a disappointing first quarter to indicate the recovery is still underway.

“The underlying health of the U.S. economy hasn’t really changed over the past week,” wrote Josh Bivens, research and policy director for the left-leaning Economic Policy Institute. “The stock market is a terrible gauge of overall economy-wide health.”

But others cautioned that if the sell-off continues, bad news for financial markets could soon begin to spread to the broader economy, particularly if the American public begins to feel like the U.S. economy is ailing.

Tony Fratto, a former Treasury Department spokesman and partner at Hamilton Place Strategies, cautioned that many Americans look to the stock market for a snapshot picture of overall economic health — and if the bad news persists, their behavior could become more cautious.

“When they turn on the evening news, is it red arrows down or green arrows up? That becomes the thermometer for the economic health of the nation,” he said.

A blow to consumer confidence caused by market woes could in turn lead to reduced consumer activity and a reduction in the purchase of pricey durable goods. That would make Wall Street’s woes manifest on Main Street.

GOP candidates from Donald TrumpDonald John TrumpUPS, FedEx shut down calls to handle mail-in ballots, warn of 'significant' problems: report Controversial GOP Georgia candidate attempts to distance from QAnon Trump orders TikTok parent company to sell US assets within 90 days MORE to Mike Huckabee slammed the sell-off as proof of President Obama’s misguided economic policies.

Shortly after trading began, Trump, the GOP front-runner, said the U.S. had handed the keys to the global economy to China, leaving the U.S. helpless and in need of new leadership.

“Markets are crashing — all caused by poor planning and allowing China and Asia to dictate the agenda,” Trump tweeted. “This could get very messy! Vote Trump.”

California Republican Carly Fiorina, a rising candidate angling for a spot in the next GOP debate, also hit Obama’s economic plan, while criticizing the Federal Reserve’s policies.

In a Fox Business interview, she argued the central bank’s accommodative policies, long a target of GOP criticism, helped lead the market to such a volatile state.

Meanwhile, the White House also leveraged the market drama somewhat, pushing lawmakers to avoid a “self-inflicted wound” when they return this fall to tackle major issues.

Earnest called on Congress to address a host of pending economic matters, calling on Congress to keep the economy on track rather than expose it to further risks. Among the items requested are a government funding bill that reverses the sequester, a reauthorization of the Export-Import Bank, and a long-time highway spending bill.

More financial drama will also be at stake when Congress needs to address the debt ceiling before the government defaults on its bills, likely to come sometime later this year. GOP leaders have insisted they have no interest in pursuing the drama central to those fights in recent years, but it remains to be seen if market drama helps or hurts that effort.

“It might force people to behave a bit more rationally on Capitol Hill, but it’s almost never a losing bet to bet for members of Congress to act irrationally,” said Francis Creighton, executive vice president of government affairs for the Financial Services Roundtable.

The political repercussions of the day’s Wall Street drama also spread to less prominent areas. A major regulatory battle at the moment is over the role of financial advisers in retirement accounts. The White House and Wall Street are sparring over an administration effort to require advisers to act solely for the benefit of their clients.

The White House argues new rules would protect investors from being steered to bad investments that reap profits for advisers, but the industry has hotly contested the effort, arguing it would limit overall financial advice.

And on a wild day like Monday, the industry is arguing that investors, particularly small ones, need to be able to rely on cool-headed professionals.

“It shows the importance in having a live financial adviser, somebody who can calm people down ... rather than panicking and selling into a dip,” said Creighton. “A day like today is a good thing for people who believe that quality financial advice is a good thing.”

The Labor Department is currently working on rules implementing what's called fiduciary duty, while the Roundtable and others work hard against them.

—Jordan Fabian contributed to this report.