Stocks plummet on economic worries
The Dow Jones industrials plunged below 10,000 Tuesday as traders turned away from stocks amid worries about the global economy and tensions between North and South Korea.
A disappointing report on U.S. home prices added to the market's dark mood. The Standard & Poor's/Case-Shiller 20-city home price index fell 0.5 percent in March from February, a sign that the housing market remains weak even as mortgage rates are near historic lows. There are concerns that last month's expiration of the government's home buyer tax credit will hurt sales in the coming months.
This last point is particularly interesting because it is nearly an exact duplication of what happened with the "Cash for Clunkers" program and it demonstrates either this administration's complete ignorance of economic principles at play here or simply their wishful thinking that their best intentions can trump reality.
A better-than-expected report on consumer confidence had no lasting effect on trading. The Conference Board's consumer confidence index rose for the third straight month, climbing to 63.3 in May from 57.7 last month.
Investors are not focusing as much on current signs of growth, but instead trying to gauge where the global economy will be later this year. Pessimism, particularly about Europe, has replaced the hopeful tone the market took early in the year.
European Union leaders warned Tuesday that the continent's economy would stagnate unless governments make major reforms to promote growth. The problem is, though, that large debts in some countries make it difficult to implement stimulus measures to rally economies.
Oh, so maybe you can't borrow your way to prosperity and you can't borrow your way out of problems that were created (at least in part) by borrowing.
Traders have been heavily selling the euro in recent weeks because of uneasiness over whether steep budget cuts in countries like Greece, Spain and Portugal will drag down an economic recovery on the continent. Italy was set to become the latest European nation to announce spending cuts to reduce its deficit.
This item and the one about the mortgages above (along with specific examples like cash for clunkers on a smaller scale) provide examples of exactly how government intervention ultimately distorts the economy and exacerbates the business cycle making it more like a roller coaster.