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Gloom has been pretty persistent during August: stocks fell, U.S. consumers lost heart and policymakers threw up their hands. The gyrations from early August still hang in the air. On Aug. 1, the government announced it had reached a compromise on a bill that would raise the debt ceiling, allowing Congress to borrow and pay its bills before a symbolic deadline on Aug. 2 was breached.
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The Treasury Department had declared Aug. 2 would be the day in which a higher debt ceiling was required or bills would go unpaid and the United States would, essentially, through political dysfunction, throw itself into default.
It is one thing when the average household finds funds to pay a bill at the last minute. It is quite another thing when there are trillions of dollars at stake. Skimming close to that kind of deadline feels like much of the country's bloated belly of debt has already crossed the line, even if technically the toes hadn't done so.
Many had warned chaos would ensue if wrangling got so fierce that investors got spooked. Precisely so. On Aug. 5, after markets closed, credit rating agency Standard & Poor's did what was most obvious and most unthinkable at the same time: It lowered the U.S. credit rating from Triple A to AA+.
The rest, as they say, is history.
The Dow Jones industrial average, after four days of consecutive 400-point swings in early August, settled down to a less dramatic shimmy. Nonetheless, the critical index began the month at 12,143 and closed Friday at 11,284, off 859 points or 6.9 percent. The Standard & Poor's index dropped from 1,292 at the start of the month to 1,176, off 116 points or 8.9 percent.
Now here's how things look in the average kitchen when the dishwasher needs repair and the cabinets look a little old:
When it is time to remodel, consumers justify it three different ways. It is rarely an absolute necessity. Generally, it is a luxury. For that, consumers pull cash out of the bank and pay for it, although that's rare. Or they take out a loan -- an option that was a lot more common before the basic home equity loan crumbled into dust during the recession.
The third way to pay for it is to do so with next year's raise or bonus. Consumers will squeeze a bit, maybe cutting back on going out to eat, and add this together with next year's raise and use that to pay for an expensive home project.
But what if there is no raise next year?
There well may be a raise but consumers no longer believe in it.
The University of Michigan's Survey of Consumers found respondents indicated they would make up to 5 percent more n the next year, when the question was asked in the 1980s.
That figure hovered closer to 2 percent in the 1990s and is now at zero. Consumers no longer think next year will pay for frivolity this year.
The possibility of borrowing? Credit card and home mortgage loans rose from 65 percent of the gross domestic product to 90 percent from 2000 to 2008, an enormous run-up, The Washington Post reported.
But now it is slipping, coming back down to 85 percent, recent data show.
Those illustrious policymakers? "Unfortunately, the Fed [the U.S. Federal Reserve] doesn't have any rabbits to pull out of its hat to magically re-ignite economic growth. It is doing what it can [and that will probably mean more quantitative easing at some point], but its prime ammunition has already been used," wrote analysts at IHS Global Insight in a recent research note.
"I'm concerned about a risk of events this autumn," World Bank President Robert Zoellick said at the Fed's annual retreat in Jackson Hole, Wyo.
In international markets Monday, the Nikkei 225 index rose 0.61 percent and the Shanghai composite index in China fell 1.37 percent. The Hang Seng index in Hong Kong gained 1.44 percent and the Sensex in India gained 3.58 percent.
In Australia, the S&P/ASX 200 rose 1.51 percent.
In midday trading in Europe, the FTSE 100 index in Britain fell 0.02 percent while the DAX 30 in Germany rose 1.39 percent. The CAC 40 in France gained 1.67 percent and the Stoxx Europe 600 index rose 0.94 percent.
