Dow Plummets to New Record despite Obama Reassurance

World | August 9, 2011, Tuesday // 10:07|  views

President Barack Obama: "This is the United States of America. It will always be a triple-A country. Photo by BGNES

The main US share index, the Dow Jones Industrial Average saw Monday its biggest one-day decline since October 2008 and the sixth largest on record.

The index dropped 5.6%; in points terms the Dow ended down 635 to 10 810.

Meanwhile, US President Barack Obama attempted to reassure investors. In what was his first public reaction to Standard & Poor's downgrade of the US credit rating Obama said markets continued to regard US government debt as being the highest possible grade.

"Markets will rise and fall. But this is the United States of America. No matter what some agency may say, we've always been and always will be a triple-A country," the President stated.

The rating agency Standard & Poor's (S&P) last Friday downgraded America's top-notch AAA rating to AA+.

S&P, one of the world's three major rating agencies, failed to be impressed by a last-minute deal in the US last week to raise the US debt limit by up to USD 2.4 TN from USD 14.3 TN, saying a potential US government default on its debt was avoided, but only achieved after months of bickering between Democrats and Republicans in Congress.

The credit rating downgrade is not only seen as a major embarrassment for President Obama's administration, but it could also raise the cost of US government borrowing and has underminded investors' confidence.

On Monday, Obama stressed he hoped the downgrade would give US politicians "a renewed sense of urgency" in the need to tackle the US deficit and debt, calling on both Republicans and Democrats on Capitol Hill to avoid party-political positioning over the issue.

"It is not a lack of plans or policies that is the problem. It is a lack of political will in Washington, an insistence on drawing lines in the sand. That is what we need to change," Obama said, pointing out he would now be putting forward a new plan, including higher taxes for the biggest earners, and reduced spending on Medicare.

Despite the comments, the NASDAQ index fell even further, losing 6.9%. The S&P's 500 index also saw a sharp decline, falling 6.7%, its biggest drop since December 2008.

Bank of America saw the largest fall, dropping 21%.

Share indexes plummeted across Europe as well, with Germany's DAX ending down 5%, while France's CAC lost 4.7%.

Analysts, cited by BBC, suggest that further austerity measures, which will be needed to tackle high levels of debt in the US and some Eurozone countries, could choke their already weak economic recovery.

The jitters were also reflected in the price of gold and oil. Gold, seen as a safe investment in times of economic uncertainty, jumped to a new record high of USD 1 697 an ounce while the price of oil slipped further.

Earlier Monday, yields on Spanish and Italian bonds fell sharply after the European Central Bank (ECB) intervened to try to stop the Eurozone debt crisis spreading.

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Tags: DAX, rating agency, S&P, US, credit rating, crisis, debt, American, ECB, G7, bonds, FTSE, CAC, financial crisis, recession, stocks, markets, dow jones, industrial average, NASDAQ, S&P's 500, Bank of America


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