The lack of agreement by the congressional Super Committee comes as no big surprise. Both political parties are truly in gridlock and nothing meaningful is going to happen anytime soon. The image of “Nero fiddled while Rome burned” comes to mind.
So, the only question now is whether our illustrious leaders will try to pull an “end run” to prevent the automatic cuts that are supposed to take place starting in 2013. My guess is they are already working on how to do it. — Dennis
By Matthew Craft And Daniel Wagner
Associated Press
Posted: 11/21/2011 08:21:34 AM PST
Updated: 11/21/2011 09:42:47 AM PST
NEW YORK — Congress’ latest failure to resolve the federal budget gridlock sent stocks plunging Monday. The Dow Jones industrial average fell more than 300 points.
A 12-member bipartisan panel was supposed to agree on at least $1.2 trillion in deficit reductions by Wednesday. The panel appeared ready to admit failure on Monday.
The group’s inability to reach a deal might trigger massive spending cuts over 10 years, starting in 2013. If lawmakers try to prevent those cuts, analysts say it could lead to another downgrade of the U.S. government’s credit rating.
Uncertainty about federal spending hurts the fragile recovery because private-sector growth is so slow.
The lack of an agreement also makes less likely a renewal of the payroll tax cut and extended unemployment insurance benefits. Both expire at the end of December. Economists say that will further drag on the recovery.
Most investors expected the committee to keep working toward a deal until just before its Wednesday deadline, said Robert Robis, head of fixed income macro strategies at ING Investment Management. What’s surprising is that the committee would quit early Robis, said.
“They’re essentially giving up,” he said.
The declines were broad. Energy and technology stocks lost the most. All 30 stocks in the Dow average fell, led by Boeing Co. with a 4.7 percent decline. Only 10 stocks in the S&P 500 were trading higher.
The dollar and U.S. Treasury prices rose as investors moved money into assets seen as safe. The yield on the benchmark 10-year Treasury note fell to 1.97 percent. It traded at 2.01 percent late Friday.
The Dow Jones industrial average fell 293 points, or 2.5 percent, to 11,503 at 11:20 a.m. Eastern time. The Standard & Poor’s 500 index dropped 28, or 2.3 percent, to 1,187. The Nasdaq composite index declined 63, or 2.5 percent, to 2,509.
The Dow turned negative for the year, the first time that’s happened in a month. It had rallied in October as the U.S. economy appeared to recover from a very slow summer. The S&P is down 5.6 percent for the year.
European markets also dropped. France’s CAC 40 lost 3.4 percent, and Germany’s DAX sank 3.4 percent.
The rating agency Moody’s warned Monday that France’s top credit rating remains under pressure as worries over Europe’s debt crisis have pushed the government’s borrowing costs higher. In weekly note, a Moody’s Investors Service analyst said that if high borrowing costs persist it would have “negative credit implications” for France’s triple-A credit rating.
In corporate news, three deals were announced early Monday. Gilead plans to buy drug developer Pharmasset for $11 billion. Pharmasset has an experimental hepatitis C drug in late-stage clinical trials. In early trading, Gilead fell 11 percent in morning trading while Pharmasset soared 85 percent. Gilead plunged 12 percent, the most in the S&P 500 index, after announcing the plans.
Property and casualty insurer Alleghany agreed to buy the reinsurance company Transatlantic Holdings in a $3.4 billion deal. Transatlantic rose 1 percent in morning trading while Alleghany fell almost 9 percent. Alleghany fell 7 percent, Transatlantic edged up 1 percent.
Also, eBay (EBAY) agreed to purchase New York startup Hunch, a company that focuses on deducing consumers’ tastes in order to recommend likely purchases and connect shoppers with like-minded people. The purchase price was not disclosed; eBay shares dipped 3.9 percent.
The S&P 500 lost 3.8 percent last week, its worst weekly drop since mid-September. The steepest falls came Wednesday and Thursday after rating agency Fitch warned that Europe’s debt crisis could hit the largest U.S. banks. The S&P 500 is now down 5.2 percent for the year.
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