Most world markets were digesting for the first time the Bush administration's proposal to try to stimulate the U.S. economy with tax benefits. (It was announced Friday, after Asian and European markets had already closed.)
Traders around the world seemed to have little faith that the plan would arrest the slowdown in the U.S. economy, even if some version of it is passed by Congress.
"Foreign markets are doubtful about the ability of Congress to move quickly, and foreign markets have watched the Federal Reserve move slowly in August, September, October and November," Kotok said. "So the concern from abroad is that the U.S. has been too slow and done too little and is now playing catch-up."
We'll see if a rate cut of 75 basis by the Federal Reserve, the largest in 18 years, will help. At any rate, the Fed is taking this seriously now.
I'm not sure how fair it is to declare this yesterday's declines to be a referendum on Bush's stimulus plan (which I have yet to thoroughly review) given that investors seeing a lot of risk out there. With Bank of America and Wachovia reporting very large declines in fourth quarter profits, and the Bank of China reporting exposure to U.S. subprime mortgage loans, investors are going into full panic mode.
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