Budget deficits will remain at record levels, at least for now.
The Congressional supercommittee, tasked to reach a deficit- cutting deal that would trim some of the red tape from the nearly $15 trillion deficit, failed to reach its goal. And true to form this year, investors reacted with a swift selloff, sending stock prices lower.
Created in August of this year, the so- called supercommittee was delegated responsibility to find ways to trim government spending by approximately $1.2 trillion over a period of ten years. They have, effectively, given up as of the close of business today. Leaders of the committee officially announced their predicament late in the afternoon, after the financial markets closed. But there was a strong sense throughout the day that an agreement would not be met, and this was enough to encourage investors to dump their stocks, sending the Dow Jones almost 250 points lower.
Automatic spending cuts may be next. The lack of decisive action by the supercommittee is supposed to trigger automatic spending reductions, but word on the street is that Congress will find a way to get around them. And this concerns many analysts who fear another downgrade of U.S. debt if Congress fails to make progress, even though Standard and Poors has already indicated that it will not downgrade U.S. debt over something like this.
Stock market investors have behaved strangely this year, reacting and overreacting to the slightest hint of good or bad economic and financial news. The Dow Jones and other indices continue their volatile, up and down, every- which- way trend, a practice that has continued for several months now. A bad news day sends investors into a state of caution, leading to a selloff. The next day, positive news turns those same sellers into buyers, many of whom end up repurchasing the same stock they sold the day before.
With today’s plunge, the Dow Jones is back into negative territory for the year. But the way things have been going, it won’t be that surprising to see a sudden upward swing tomorrow. Positive economic news, either domestically or from Europe, could be enough to move stock prices sharply higher, erasing the losses of today. And until the U.S. economy and European economies stabilize, this reactionary type of investing will likely continue well into next year.
Want to read more financial articles and receive money saving tips and advice? Visit Money Saving Parent today!
I hope you enjoyed this post! Click the “subscribe” link above to receive automatic updates whenever a new post is made.