Fed Comments Cause Global Markets to Slide
When the Fed announced its $400 billion plan, known as Operation Twist, to sell short term Treasury bonds and convert them to long term bonds, it didn't realize that the bigger impact was going to be the statements made in conjunction with the announcement. The shift in the bonds was meant to drive down long term interest rates. Three members of the Fed Reserve Board dissented, an unusual circumstance, according to the Associated Press. When the announcement was made, however, the Fed indicated that there was serious downside risk to the global economy. This caused the Dow to fall 283 points, closing at 11, 124.
World markets decline According to the Financial Times
European stocks are falling dramatically based upon the Fed's remarks as well as slowing activity in China's factories. The Bank of China has stopped dealing with some European banks, including UBS, BNP Paribas and Societe Generale, on foreign exchange swaps. CNBC reports that the European Central Bank is engaging in heavy bond buying today of Italian and Spanish bonds. Economists and Billionaires have dire statements Billionaire George Soros told CNBC that he believes that the US is already in a double dip recession. Nouriel Roubini, the economist who predicted the previous crash, is also predicting a recession in the US.
Moody's Cuts Ratings of Major US Banks On Wednesday
The US cut the ratings of several major US banks, including Bank of America, Wells Fargo and Citibank. The downgrades were because Moody's believes the government is less likely to step in and bail out the banks than in the past. Part of this is due to new laws under the Dodd Frank Wall Street Reform Act. The Associated Press reports that Bank of America was downgraded from A2 to Baa1. Wells Fargo went from A2 to A1. Citibank remained at A3 but some of its short term debt was downgraded. Renters paying more than appropriate USA Today reports that the number of renters that pay more than 30 percent of income, the amount deemed safe by the markets, rose to 53 percent in 2010, up from 51.5 percent in 2009. The median cost of rent stayed stable at $855 per month. Median income fell 2.2% in 2010. The homeownership rate fell to 65.4 percent in 2010 down from 65.9 percent in 2009 and down from 67.3 percent in 2006, the highest historical rate.
Home sales rose in August
The National Association of Realtors indicated that home sales rose 7.7 percent in August to 5.03 million homes, according to the Wall Street Journal. Six million homes indicates a healthy market. A large share of the homes, 31 percent, were homes at risk of foreclosure. First time buyers represented thirty one percent, with forty percent representing the healthy market percentage. There are fears that the housing market will soon be impacted by changes to the maximum loan amounts from FNMA and Freddie Mac. The maximum loans will fall from $729,750 to $652,500 and to $550,000 in some regions.
Retail revenue to increase over holidays
In some good news, the International Council of Shopping Centers believes that retail revenue will be up 3 percent over the holidays. This is below the 4.1 percent of last year and even lower than the over 5 percent seen during stronger economic times. According to the Wall Street Journal, holiday revenue represents 40 percent of annual revenue for retailers.
Catherine S. McBreen is President of Millionaire Corner. McBreen plans and develops content for Millionaire Corner. Catherine balances editorial content to meet the informational needs of both new and seasoned investors. She designs special monthly surveys on topical issues affecting the economic environment.
McBreen has a B.S. in speech communications from Northwestern University and a J.D. from DePail University College of Law. She is a member of the American Bar Association, the Illinois Bar Association, and the Chicago Bar Association.
Well-known for her expertise in the affluent and retirement arenas, McBreen is a frequent speaker at industry conferences. She has been quoted widely by the financial media, including The Financial Times, The Wall Street Journal, Research, Private Asset Management, On Wall Street, Reuters, Bloomberg News, The Dow Jones Newswires and Worth. Cathy has appeared as a guest on CNBC Closing Bell, First Business Morning News, Neal Cavuto at Fox Business News, ABC and CBS radio.
McBreen is co-author with Spectrem President George H. Walper, Jr. of the book "Get Rich, Stay Rich, Pass It On: The Wealth-Accumulation Secrets of America's Richest Families" (Portfolio, January 2008)
Catherine is the mother of four and is involved in many school and community events.