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VOL. 123 | NO. 204 | Friday, October 17, 2008

Worries Over Economy Spread; Global Markets Sink

By ELLEN SIMON | AP Business Writer

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NEW YORK (AP) – Fears of recession are trumping fears of inflation.

A crucial barometer of inflation came in flat last month, temporarily halting Wall Street’s slide. But stocks seesawed in a wide range Thursday.

The Dow Jones industrials, down 380 at one point, later rose more than 100; the major indexes were also seeing wide swings.

Stock prices fell globally, credit markets remained tight and oil prices declined to a 14-month low.

After more than a month of unprecedented government intervention, it’s unclear what policymakers can do next to calm markets. Treasury Secretary Henry Paulson said Thursday that he’s not proud of the mistakes leading up to the crisis, but insisted the administration is pursuing the right course to end it.

Federal Reserve Chairman Ben Bernanke has left the door open for another rate cut, saying Wednesday that inflation pressures are moderating, but the Fed’s emergency half-point cut on Oct. 8, which brought its target short-term rates to 1.5 percent, did little to affect the actual rates banks charge borrowers and each other, which remain dramatically higher.

The availability of short-term commercial paper loans – which businesses use to buy raw material and pay workers – fell for the fifth straight week, according to the Federal Reserve. But interest rates on one-week commercial paper fell sharply Thursday, a sign that those markets could be reviving.

Thursday’s Consumer Price Index for September, the government’s most widely watched inflation barometer, was flat. In a sign more price declines might follow, crude oil fell $3.14 a barrel to $71.40.

“Inflation has peaked,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics, predicting huge declines in inflation readings.

The U.S. economy is suffering from a litany of woes: falling wages, weak consumer spending, tight credit, slumping home prices and rising job losses. While the number of new people signing up for unemployment benefits last week dropped, new claims still totaled 461,000 – a figure associated with deep troubles in employment conditions.

Citigroup Inc. reported its fourth straight quarterly loss Thursday. The bank said it had cut 11,000 jobs in the third quarter, bringing its job cuts for the year to 23,000.

Coming economic data on housing, consumer spending, manufacturing and employment are “apt to show either stagnation at depressed levels or substantial further deterioration,” Goldman Sachs economist Seamus Smyth said in a report.

In a sign credit markets are returning to life, interest rates on commercial paper fell sharply following more than $250 billion in loan auctions Wednesday by European Central Banks.

Interest on one type of seven-day commercial paper sharply overnight, said Tony Crescenzi, chief bond market strategist, Miller, Tabak & Co.

On Wednesday, the Dow saw its 20th triple-digit swing in the past 23 trading sessions, an unprecedented run of volatility. The Dow has finished higher on only one day this month. The loss of 733 points was the second-worst ever for the average, topped only by a 778-point decline Sept. 29.

Stocks lost $1.1 trillion Wednesday. Since Oct. 9, 2007, when the Dow high topped 14,000, investors have lost $8.3 trillion from pension funds, college savings plans, 401(k)s and other investments. A measure of volatility hit a record high.

The plunge in stocks put the nation’s economic anxiety front-and-center as the two major presidential candidates, Sens. Barack Obama and John McCain, squared off in their final debate Wednesday night in Hempstead, N.Y.

McCain used the debate to accuse Obama of waging class warfare by advocating tax increases designed to “spread the wealth around.” The Democrat denied it, and countered that he favors tax reductions for 95 percent of Americans.

Earlier this week, after governments around the world announced plans to use trillions of dollars to prop up banks, including a U.S. plan to buy about $250 billion in bank stocks, the market appeared to be turning around – or at least calming down.

Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke have expressed confidence that the government’s radical efforts to stabilize the financial system and induce banks to lend again eventually will help the economy.

But Bernanke warned that even if financial markets calm, the nation will not snap back to economic health quickly.

“Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away,” Bernanke told the Economic Club of New York on Wednesday.

President Bush plans to speak on the financial crisis early Friday – before U.S. markets open – at the U.S. Chamber of Commerce headquarters across from the White House. Officials said the speech wasn’t intended to put forward new

policy actions, but rather would give the nation a more detailed explanation of what the government is doing to combat the crisis.

Leaders of the world’s top economic powers, the Group of Eight, said they would meet “in the near future” for a global summit to tackle the financial crisis. The group comprises the United States, Japan, Germany, France, Britain, Italy, Canada and Russia.

British Prime Minister Gordon Brown said the meeting could be held next month. He said the discussions should include not only the world’s richest nations but also major emerging economies such as China and India.

The current financial crisis began more than a year ago in the United States when lax lending standards on certain home mortgages came home to roost. Foreclosures skyrocketed, mortgage securities soured and financial companies racked up huge losses.

_

Associated Press writer George Jahn in Vienna, Austria and Ellen Simon in New York contributed to this report.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 92 280 9,849
MORTGAGES 105 287 11,601
FORECLOSURE NOTICES 11 39 1,673
BUILDING PERMITS 247 575 20,885
BANKRUPTCIES 44 163 6,600
BUSINESS LICENSES 38 90 3,529
UTILITY CONNECTIONS 30 109 4,092
MARRIAGE LICENSES 16 79 2,258

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