Taking Stock Of Downward Pressures On Economy Michele Norris talks with Aline van Duyn, the U.S. markets editor for the Financial Times, about bond ratings, the eurozone and what else is influencing economic trends downward.

Taking Stock Of Downward Pressures On Economy

  • Download
  • <iframe src="https://www.npr.org/player/embed/139276586/139276577" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

MICHELE NORRIS, Host:

In the past three weeks, the Dow has lost about 11 percent of its value. And we wanted to better understand that jagged line downward and how it fits with markets around the world, so we're joined by Ailene van Duyn, the U.S. markets editor for The Financial Times. Welcome to the program.

AILENE VAN DUYN: Thank you.

NORRIS: Even with the instability that we've been seeing and this sort of three week shift in the Dow, you've said that the downgrade was the final straw. So help us understand the impact on the downgrade in the U.S. and also in the markets overseas and the connection between those two things.

VAN DUYN: Yes. Confidence is very important to financial markets. And over the years, over the last three years, investors have had experiences where things have plummeted very rapidly. One investor I spoke to today called it the muscle memory. So when they see things going down, they just press the sell button rather than sit around and wait and hope for the best. The downgrade in itself didn't necessarily have new information. But having headlines questioning the status of the U.S., having headlines questioning the credit worthiness of the U.S., it just seems to have really affected confidence, which was already fragile to begin with.

NORRIS: You know, after the Standard & Poor downgrade, there was an immediate concern about how the markets might react overseas. But that downgrade, in some ways, seems to have been affected by what already had happened in those markets overseas. It's sort of like a chicken and egg question.

VAN DUYN: Yes. Last week, markets fell very sharply. There was a real downgrade in the expectation of growth and also the eurozone debt crisis has gone from being relatively contained to Greece, perhaps Ireland, to potentially engulfing Italy and Spain, which are huge economies. If those countries can't borrow, can't roll over their debt and go into crisis themselves, that has very sharp implications for the global economy. So against that backdrop - again, we're looking at this confidence issue - against that backdrop, a high profile downgrade of the U.S. just led investors to panic, especially in the equity markets.

NORRIS: But investors are still going to U.S. Treasuries. It seems to still be a safe harbor in a storm. Is there some almost silver lining in the downgrade?

VAN DUYN: That reflects the reserve currency status of the U.S. dollar. The U.S. dollar has a unique role in the global financial markets. U.S. Treasuries are the most liquid, easily tradable markets and that's where people park their money. So whenever things get really bad, even if the source of some of the concern is the U.S., U.S. Treasuries benefit. That's not going to change in the very short term, but over the long term, you know, over the next five, ten years, there could be a shift if the balance - if things don't - if the economic balance doesn't improve.

NORRIS: Ailene van Duyn is the U.S. markets editor for The Financial Times. Ms. van Duyn, thank you very much for speaking with us.

VAN DUYN: Thank you.

Copyright © 2011 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.