White House / Pete Souza (with a notable modification)
President Obama signs the debt compromise, agreeing to trillions of dollars in cuts at a time when economic indicators are already moving in the wrong direction.
The Dow Jones Industrial Average has plummeted by 760 points since the terms of the debt ceiling deal were announced Monday. If austerity was supposed to encourage economic growth, someone forgot to tell Wall Street.
On Thursday alone, the index dropped more than 500 points, the worst one-day drop since the lowest lows of the meltdown.
Some budget-cutting enthusiasts promoted the “important economic advantages of linking the debt limit to spending reductions,” and we’re seeing the immediate aftermath.
Before the deal was voted on, Paul Krugman warned, “The worst thing you can do in these circumstances is slash government spending since that will depress the economy even further.”
Investors seem to agree and, for the moment anyway, have decided to get out of Dodge. —PZS
A few choice quotes from The Wall Street Journal:
Stocks plunged, driving the Dow Jones Industrial Average to close down more than 500 points, as investors appeared to lose faith in the ability of the world’s policy makers to revive the global economy and stave off a rolling debt crisis in Europe.
[...] Investors across the globe have been buffeted by economic and political turmoil in recent days. In the U.S., fears have turned from worries about a possible default by the U.S. government to a weakening economic outlook. A string of data have pointed to a slowing of the recovery, and investors are now bracing for the closely watched non-farm payroll report on Friday.
[...] On the floor of the New York Stock Exchange, the mood was somber and tense. “There is no reason to buy U.S. cash equities,” said Doreen Mogavero, president of Mogavero Lee & Co. “[Investors have] come to the point where we find out we could be looking at ten more years of austerity.”