By James R. Riffel
City News ServiceA University of San Diego business professor said Monday that the stock market dive is a result of the failure of the nation’s political leaders to act cohesively when solving the debt ceiling issue in recent weeks.
Alan Gin, known for his monthly San Diego Index of Leading Economic Indicators, told City News Service that today’s drop of nearly 635 points by the Dow Jones Industrials was prompted by Friday night’s lowering of the U.S. credit rating by Standard & Poor’s, which cited concern over the “political discourse’’ and “intransigence’’ in Washington, D.C.
S&P lowered the long-term sovereign rating on U.S. debt from AAA to a still-strong AA+, but it had a huge impact on investors.
The firm said the way the debt ceiling negotiations went led to doubts that future progress could be made in corralling public spending or raising revenues.
Gin said “ideological rigidity’’ in the federal government made him “pessimistic,’' as well.
“The ideal solution is if politicians take this as a wake-up call and moderate some of their positions,’' Gin said. “The market is really concerned about the economy and the debt situation.’'
The giant drop in the stock market follows a 513-point fall last Thursday. The market is 2,000 points below its high point of 12,810 on April 29. The value of another major index, the S&P 500, has decreased 18 percent from its 52-week high.
Kelly Cunningham, of the National University System Institute for Policy Research, said investors were also reacting to poor economic news, including an employment report Friday that he called “pathetic.’' He said the slight increase in the number of jobs was “spun’’ because far more positions need to be created to make a dent in unemployment.
Cunningham, interviewed Friday by City News Service, said odds of the U.S. economy falling back into a recession are “very high,’' and he questioned if the last one ever really ended.
Spending by government, not business, raised the Gross Domestic Product, creating “a phony recovery,’' he said.