United States Pending Economic Crisis: Is the World in a Panic?

XETrade, London FTSE100 and Paris CAC 40 lost a combined $300 billion on Monday, January 21, 2008. United States markets were closed on Monday in honor of the birthday of Martin Luther King, Jr. When the Dow opened on Tuesday, it took a deep plunge - 460 points - right after opening in response to the stunning losses on the international markets. NASDAQ fell more than 50 points shortly after opening.

In response to the huge loss in Asian and European markets, the Federal Reserve announced Tuesday morning they will slash two key interest rates in an emergency action intended to calm the panic worldwide. The Prime Rate was reduced 0.75 of a point - to 3.5%, marking the biggest reduction in this target rate for overnight loans since 1990, and the discount rate, the interest the Fed charges banks directly, was reduced to 4 percent. The U.S. markets responded positively to the announcement by the Fed, by closing down, at a much milder drop of 128.11

Consumers have reduced their discretionary spending as salaries drop, jobs are eliminated and gas and food prices are on the rise at record-setting rates. President Bush announced last week his intention to give tax rebates to middle class taxpayers in the hope consumers will spend the extra money, and thus help stimulate the economy. Congressional Democrats and Republicans have vowed to put aside political partisanship in order to rush this tax relief and other relief measures through Congress.

The President has proposed tax rebates of about $800 for individual taxpayers and $1,600 for couples paying taxes. Speaker of the House, Nancy Pelosi has stated her agreement with the President's plan and also shares his desire to help small business by allowing write-offs for new equipment purchases to pump more money into the economy.

While taxpayers will surely welcome the rebates, it will be at least late spring or early summer before the checks could be processed, even if Congress approved the package today. Also, six years ago an overwhelming majority of tax payers who received a tax rebate at that time used their rebate to pay down debt, for medical expenses or other necessities, rather than on consumer goods.

The stunning losses in the European and Asian markets reflect the worldwide panic over Bush's economic stimulus plan. International markets fear Bush's proposed economic stimulus plan offers too little too late. Fears grow around the world that America is in the midst of a recession. A word the President refuses to use.

Widespread concern of the United States economy is certain to be the topic of conversation among business and political leaders from around the world who will be meeting in Davos, Switzerland for the 2008 Annual World Economic Forum beginning Thursday, January 24.

Over 2500 people from 88 countries are expected to participate in the forum this year. The World Economic Forum is an independent, international organization that works to encourage partnerships between government and business.