In response to Standard & Poor’s downgrading the U.S. credit rating from AAA to AA+ on Friday, the Dow lost 634 points yesterday and $3.8 trillion from investor wealth in stocks was lost globally. Investors are losing faith that the U.S. and Europe can get a rein on their debt and prevent a double-dip recession. To make matters worse, even Asian equity markets are pulling back, and it doesn’t look like China, which helped buffer the 2008 global recession with its stimulus package, will be in a position to help this time. Recent reports show that China’s industrial growth is slow and its annual inflation has unexpectedly jumped to 6.5%. Some financial players are calling on China to help global markets by stimulating its own domestic demand. Here at home, the Federal Reserve has announced that it will keep interest rates near zero until 2013—the record low they’ve been at since December 2008. This extension of low interest rates is meant to calm investors and halt panicked selling. Will the international community come together to create an international rescue plan? And will investors sit tight or pull out as much as they can and trust in their piggy banks instead?
Mark Gilbert, London Bureau Chief, Bloomberg News