Ups and downs are common in the stock market. Sometimes they’re big gains and losses, and other times they barely leave a dent. After the surprising climbs in the stock markets these past two weeks, nationally and internationally, we have to realize that that is probably not meant to be a long-term trend.
This week, the Federal Reserve is meeting to look at many aspects of the economy, including interest rates—they are expected to reduce them yet again. This is part of the reason for seeing such a tremendous rallying in the stock markets on Tuesday, which sent some of the major indexes up more than 10 percent. But this change in rates would be just a short-term fix, if it really fixes anything.
The rate is the target the Federal Reserve sets for banks to lend money to each other. The lower the rate, the easier it is for banks to borrow from each other, and, through a trickle-down effect, money generally becomes more accessible to consumers. But many banks are not eager to lend money—in some cases, they’re stockpiling it to insulate themselves from the backlash of subprime loans they’ve made, as well as future financial crises.
As the holiday season approaches, many companies are starting to reconsider how they’ll fare in sales. Department stores like Wal-Mart and Sears appear to be ready to slash prices to draw in customers looking for extremely low prices. Meanwhile, credit card companies have already cut credit limits and closed accounts for customers who might have problems repaying their debt.
Credit cards are the means of survival for many Americans, who will swipe them over and over as the economy continues to slow, unemployment increases, and debt piles up. As governments in countless nations try to respond to the blatant effects of our most recent economic crisis, we must now look around the corner to what’s ahead. This credit crunch will stifle sales in the coming months, when they’re typically their highest. It will be harder for people to obtain credit, and more expensive to pay off balances as interest rates go up. Let’s not wait to start working on this important issue, or consumer spending will grind to a halt.
In one week, we will know the results of one of the hardest-fought presidential campaigns in history. Will John McCain defy recent polls and become our next president? Or will Barack Obama write a new page in the history of America by becoming our first African-American president?
Either way, that individual will have to face some of the most challenging times. His leadership in the U.S. and the world will be integral to the recovery of our global economies and the policies that we will develop to keep this from happening again.
