Markets Teeter As Tuesday's Debt Deadline Nears
Originally published on Sun July 31, 2011 10:40 am
LINDA WERTHEIMER, host: We'll be updating the story today, as negotiations continue on a deal to raise the debt ceiling. But as the debt ceiling drama drags on, stocks just saw their biggest one-week decline in more than a year. But as NPR's Chris Arnold reports, analysts caution anyone worried about their retirement savings should not panic.
CHRIS ARNOLD: In just a little bit more than a week, the Dow Jones Industrial Average has lost nearly 600 points - and things might get worse. In his weekly radio address, President Obama warned lawmakers that if they fail to compromise, the U.S. could lose its longstanding AAA credit rating.
President BARACK OBAMA: For those who reflexively oppose tax increases on anybody, a lower credit rating could be a tax increase on everybody. We all pay higher interest rates on mortgages, car loans and credit cards. That would be inexcusable and entirely self-inflicted by Washington.
ARNOLD: Economists' biggest fear is that the U.S. would fail to make payments to investors around the world who hold U.S. treasuries. Analysts warn that that could spark another financial crisis: the stock market could crash, the banking system, and the housing market could be in big trouble, but most do not think that that's actually going to happen. David Kotok is the chief economist at Cumberland Advisors.
DAVID KOTOK: In the end, I believe that Congress will resolve legislation and there will be no default by the United States. So, for me, the actual act of failing to make a payment is unthinkable. I do not believe it will happen, but the political theater raises the risk of an accident that markets do not know the outcome and they are scared.
ARNOLD: Now, when average investors see stocks start tumbling, often their impulse is to sell stocks. But most top investors say that that's the wrong impulse. They advise that buying and holding a responsible portfolio for the long term. And if you're going to sell sometime, they say you want to sell when stocks are up, not after they've just had their biggest one-week decline in a year. Chris Arnold, NPR News.
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