The US House of Representatives failed to pass the 700 billion dollar economic bailout package today, by a vote of 228-205. As the votes were counted, and it began to look like it would not pass, the Dow Jones Industrial Average (DJIA) began to plummet. When the trading day was over, the DJIA had dropped 777 points, its largest one day point drop ever, striking fear that an economic depression is on the horizon. While 777 points is the largest point drop ever in one day, it represented a loss of just under 7%, which was nowhere near the 22% drop on Black Monday, October 19, 1987.
As usual, politics ruled the day, as some Republicans blamed Nancy Pelosi’s pre-vote speech. More likely however, is the fact that elected officials who are up for re-election didn’t want to go on record as voting for something that appears to be looked on unfavorably by the majority of the voters in America.
So what is going to happen next?
Apparently, the US House will reconvene on Thursday and try to sort things out. Will the succeed in passing some sort of economic bailout? Only time will tell. Maybe they can put party politics and political posturing aside and do what they think is the right thing. I am not 100% sure that the bailout package in its present form was the best way to achieve some sort of economic stability, but, based on the markets reaction today, it does appear that some additional intervention, besides the bailouts and takeovers already performed, may be necessary. One problem is, and I admit a limited knowledge, is that many companies use lines of credit- to make payroll, for example. What happens if these dry up?
Is an economic depression on the horizon?
I don’t think anyone knows the answer to this either, and I don’t pretend to either. Many well-known economists don’t think a “Great Depression” with 25% unemployment is possible today, but that the economy could go through a severe recession, akin to the early ’80s. At any rate, things are certainly going to get worse before they get better. The wild ride is probably far from over, so be sure to make smart moves with your money whenever possible.
What are your thoughts on the bailout and the outlook for the economy in the coming years?
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{ 5 comments… read them below or add one }
working poor 09.29.08 at 11:33 pm
An economic depression doesn’t seem very conducive to thinking your way to wealth.
RC 09.30.08 at 6:37 am
@working poor- That is true, so it is even more important now to make wise spending choices and look for other ways to increase both your income and savings.
Curt 09.30.08 at 11:04 am
Now that the people have spoken, I doubt any form of the bailout bill will pass. With election only 36 days away, the market could continue to sink as credit continues to freeze lending.
The next problem is perhaps going to be a political collapse, as the economy disaster become a political disaster. Ron Paul may be the only Senator to keep his job.
Jason Simon 09.30.08 at 2:14 pm
A few lessons will be learned from the current banking crisis. The adjustment to whatever is to come will be difficult though… maybe necessary…
RC 09.30.08 at 8:45 pm
@Curt- I am not sure if that is the case. It seems both presidential candidates still want something to pass. I am not sure if they have the political capital to convince their colleagues to do it though. It certainly seems whoever wins the presidential election has a good chance to be a “lame duck” so to speak, as it may be difficult to turn the economy around in a short period of time.