Debt

A Bleak Week For The U.S. And Europe

Investors in the U.S. and Europe are doing all the things they do when the economic outlook is getting worse.

They're selling stocks and the bonds of the European countries with debt troubles. And they're buying gold, U.S. Treasuries, Swiss francs and Japanese yen, all of which are seen as safe havens.

A few key details:

U.S. stocks fell by more than 4 percent today (as measured by both the Dow and the S&P), and hit a new low for the year.

European stocks fell by more than 3 percent today, also hitting year-to-date lows.

Gold briefly hit a new all-time high today (in nominal terms).

The yield on 2-year Treasuries hit a record low today (Bond yields fall when bond prices rise, so falling yields are a sign of increased demand from investors.) This is a sign that investors are still very confident that the U.S. will make good on its debts, by the way.

Italian bond yields hit a euro-era high yesterday, and Spain's borrowing costs rose as well. (Bond yields rise when bond prices fall.) That increases borrowing costs for the governments, exacerbating their debt troubles.

Demand for francs and yen was so high that the central banks in Switzerland and Japan both jumped in to try to reverse the rise in the value of their currencies. (When lots of people buy a currency it gets stronger relative to other currencies, which makes the country's exports more expensive and therefore less competitive on the global market.)

The context:

In the U.S., the economic recovery looks weaker than ever. Job growth is slowing. The U.S. manufacturing sector just had its worst month in two years. And in the economy is growing even more slowly than previously thought.

In Europe, debt worries are rising for Spain and Italy, which are far too big to be bailed out by the euro zone's rescue fund. Those fears are spilling over into worries about European banks, which are major holders of that shaky sovereign debt.

Post updated at 4:10 p.m.

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