Since the debt crisis showdown in Washington, D.C., in July, the Dow has lost more than 2,000 points, sparked by increasing concerns that the US economy will slide back into a recession and endanger corporate profits. Rising market volatility has investors on edge, fearing more of the same or worse.
“Four-hundred point moves are pathological - they’re not normal,’’ said Brian Bethune, an economics professor at Amherst College. “We have to go through this period and get some new base level the market can be comfortable with. But right now, the volatility is off the charts. It will settle down.’’
The latest unknown is whether one of the world’s largest economies, France, could be so overwhelmed by its debt that it could lose its top AAA credit rating, suffering a downgrade like the one handed by Standard & Poor’s to the United States last week. France has the highest budget deficit and debt among top-rated countries in the eurozone, and its finances could be further weakened if it has to bail out neighboring European countries in even worse condition.
With French bank stocks pummeled early in the day, President Nicolas Sarkozy cut short his summer vacation and returned to Paris and vowed the government would consider additional measures beyond the recently enacted package of spending cuts and tax increases to improve its finances. Also yesterday an analyst at Standard & Poor’s moved to reassure clients that additional measures, including an overhaul of its politically contentious pension system, put France ahead of the United States in reforming its finances, suggesting a credit downgrade wasn’t in the offing.
“So we do see more seriousness in addressing fiscal issues in France than in the US,’’ said the analyst, Nikola Swann, according to Reuters news service.
