From the fallout over the subprime disaster to the credit crisis to rising gas prices to unease on Wall Street, the US economy looks increasingly shaky and possibly on the brink of a recession.
Bear Stearns Bailout: On Friday the Federal Reserve, looking to head off a financial crisis, implemented a dramatic rescue of faltering Wall St. giant Bear Stearns. The Washington Post reports:
The Federal Reserve took the extraordinary step yesterday of providing emergency funding to one of Wall Street's venerable firms, Bear Stearns, after it ran out of cash to repay its lenders.
The Fed used a little-known power it last exercised in the 1960s to stem a run on Bear Stearns that could have sent multibillion-dollar losses cascading across the world financial system, causing more failures on Wall Street and threatening to choke off global economic growth.[...]
Critics characterized the Fed's move as a bailout that inappropriately intrudes on the free market and could lead banks to keep taking risks like those that imperiled Bear Stearns. Other analysts said the action was necessary, given the precarious state of world financial markets.
"We're on a knife's edge," said Eugene White, an economics professor at Rutgers University who studies financial crises. "The danger is if people's confidence is lost in a place like Bear Stearns, no one will lend to anybody."
Market Stumbles: The Bear Stearns bailout failed to stabilize Wall St., with the market tumbling Friday, the AP notes:
Wall Street plunged anew Friday after a near meltdown at Bear Stearns Cos. handed investors the unwelcome confirmation that the credit market's troubles are far from over. Word that the investment bank needed rescuing touched off a wave of selling that left each of the major indexes down more than 1.5 percent on the day; the Dow Jones industrial average fell nearly 200 points.
More Interest Rate Cuts Expected: The AP reports that Tuesday could see further action from the Federal Reserve:
Desperate to aid an economy in crisis, the Federal Reserve is ready to deliver yet another big interest rate cut.
How big? One-half of a percentage point, some economists say. Investors and others hope for even more, a three-quarters cut or perhaps a full point, given the turmoil on Wall Street. It will be a close call, Fed watchers say.
Gold Prices: On Thursday gold prices passed the $1,000 mark.
The metal peaked at $1,005 a troy ounce before noon. It fell back by day's end, with the June contract settling at $998.70, its highest nominal close, but below its inflation-adjusted peak, reached in the early 1980s after a series of wars, oil shocks and a deep domestic recession.
Gas, Diesel Prices Reach Record High: From the AP:
At the pump, gas prices set records for the fourth straight day, rising 1.3 cents Friday to a national average price of $3.28 a gallon, according to AAA and the Oil Price Information Service. Average prices are nearing $4 in some parts of Hawaii.
Diesel, meanwhile, rose 2.9 cents to a new record national average of $3.938 a gallon. Heating oil, a fellow distillate and close cousin of diesel, jumped to new records on the New York Mercantile Exchange.
Grocery Inflation: The New York Times reports that the price of food is surging:
Government figures released Friday showed that grocery costs had jumped 5.1 percent in 12 months, the latest in a string of increases. In fact, the nation is undergoing its worst grocery inflation since the early 1990s.
With a few exceptions, nearly every grocery category measured by the Labor Department, which compiles the official inflation numbers, has increased in the last year. Milk is up 17 percent, as are dried beans, peas and lentils. Cheese is up 15 percent, rice and pasta 13 percent, and bread 12 percent.
No food product has gone up as much as eggs, jumping 25 percent since February 2007 and 62 percent in the last two years.