BUSINESS

Wall Street plunge: Could it worsen the economy?

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(AP, WJLA) Don't look away for too long. You might miss a market rally. Or a plunge.

(Photo: Associated Press)

The Dow Jones industrial average is up 80 points after being down as many as 245 points on Friday. It had been up by as many as 171 points after a solid jobs report in the morning.

Many investors fear that Europe's spreading debt crisis might reach U.S. banks and threaten the fragile economy. A stronger jobs report early Friday did little to reassure investors, a day after the Dow's worst decline since 2008.

On Friday, a government official tells ABC News that the federal government is expecting and preparing for bond rating agency Standard & Poor's to downgrade the rating of US debt from its current AAA value.

Officials reasons given will be the political confusion surrounding the process of raising the debt ceiling, and lack of confidence that the political system will be able to agree to more deficit reduction. A source says Republicans saying that they refuse to accept any tax increases as part of a larger deal will be part of the reason cited.

Among the issues investors are most concerned about: Europe's growing financial crisis; hiring in the U.S. that is too slow to significantly lower the unemployment rate; anemic growth in manufacturing and the service sector and a decline in consumer spending; and the belief that the government is unlikely to spend more to stimulate the economy.

Locally, retirees and others were frightened that they'd lose all they had.

“These are scary times they are,” said local retiree Johnetta Davis.

She thinks uncertainty flooding the global market could wash away her nest egg. She just retired two years ago and is scared that all the money she saved could be lost.

Richard Baugh, 85, has seen a lot of ups and downs in the market and thinks the downturn could be deeper and longer than others.

“Oh it's terrible just a horrible,” said the local retiree. “I lost $200,000 in my real estate.”

Fears extended from retirees to those just entering the workforce, like District resident Kate Nix.

“You've seen a lot of failed policies from this current administration and congress has kind of proven it's incapable of doing anything about it,” Nix said.

European leaders have interrupted their summer vacations for emergency meetings. They are trying to craft a plan that would prevent Italy or Spain from becoming the latest country in the region to require large-scale financial help.

The two countries have Europe's third and fourth largest economies. But European leaders and central bankers might not have the cash needed to prop them up until a larger financial rescue fund can be established by a broader group of financial leaders.

The U.S. economy added 117,000 jobs in July, and hiring in May and June were not as bad as reported previously, the Labor Department reported. The unemployment rate inched down to 9.1 percent from 9.2 percent, partly because some unemployed workers stopped looking for work. Health care providers and manufacturers added jobs.

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