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Signs of Trouble

Joe McGowan

Nations around the world are closely connected to the U.S. economy. That's why many people felt so concerned early last week, when prices fell in stock markets around the globe. In Germany, stock prices dropped 7.2% on January 21. In Japan, prices fell more than 9%. The New York Stock Exchange was closed for the Martin Luther King Jr. holiday, so its investors did not react to the global jitters until Tuesday. That day, stocks fell at first, but later rose a bit.

What's going on? Many investors are nervous that the U.S. economy is headed for a recession. An early sign of a slowdown came last summer. Banks and lending companies lost billions of dollars when homeowners could not pay back their home loans.

The housing crisis has affected other parts of the economy. Lenders are reluctant to give more credit to people who can't pay back the money they already owe. It is harder for almost everyone to borrow money.

A worrying series of signs has followed. Costs of products, including oil and gas, have also risen. So shoppers have cut back on buying items such as clothes, cars and appliances. Many companies have had to cut costs, which often means cutting jobs. In December, the number of people who could not find employment had inched up to 5%.

President George W. Bush and leaders in Congress worked out a $145 billion plan to help businesses and individuals by cutting taxes. They hope the plan will get people and businesses spending again.

The U.S. Federal Reserve is the institution that oversees banks. On Tuesday, it took steps to help banks manage loans. Bruce Rockowitz, a businessman in Hong Kong, said the Federal Reserve's action gave people "comfort that the government will do whatever it can to solve this crisis."

Next: Money Talk