Most financial markets around the world have fallen since the start of the year, with all of them plunging in unison yesterday. Today, the Federal Reserve was forced to cut its key federal funds rate by three quarters of a percentage point, to 3.5 percent, to calm global stock markets, as investors adjusted anew to the long-term structural weaknesses in the U.S. economy, particularly in consumer spending and in the housing and mortgage markets.
What sparked Monday’s stock market sell off, however, was investors’ lack of confidence in President Bush’s grasp of the depth of the problem. His proposed $145 billion economic stimulus package is not targeted enough to get the biggest bang for the buck from the sizeable spending increase he proposed, and it does not include an answer to the threat of sharply lower house prices.
Read more here.