Everything seems to be going wrong all at once for the world's financial markets.
August is on track to be the worst month for U.S. stocks in more than a year, India is on the verge of a full-fledged currency crisis like the Asian disaster of the 1990s, and oil prices are skyrocketing. And the real trouble could still be on the way.
Here is a roundup of all the things that are bothering markets now and could make life miserable in September -- which is often an ugly month for markets anyway.
The thing that first set markets on edge was talk starting back in May from Federal Reserve Chairman Ben Bernanke and other Fed heads, saying they intended to taper their bond-buying program known as "quantitative easing," probably beginning in September. Interest rates jumped as traders sold their bonds, fearing less demand from the Fed. (Bond prices and rates move in opposite directions.) Thirty-year mortgage rates have jumped a full percentage point from record lows in May, reaching two-year highs. That is starting to hurt the housing market, which had been one of the few truly bright spots in the economy.
The stock market was slower to respond, but recently has been less sanguine. The Standard & Poor's 500-stock index is down 4 percent so far in August, making this the worst month since May 2012. And the Fed hasn't even started tapering yet -- the decision on that is scheduled for September 18, potentially a huge day for markets.
Emerging Market Slaughter:
The Fed's taper talk has also hammered stocks and currencies in emerging markets such as India and Brazil. Traders had taken cheap money from the Fed and pumped it into developing economies that promised high returns. Some of these countries, such as India, had big current-account deficits with the rest of the world and really needed that hot foreign money. Once the Fed started talking about making money a little less easy, the emerging market trade got less profitable, and traders started collecting their winnings.
In some cases, the selling has calmed down recently. Brazil's Bovespa stock index has rebounded by about 10 percent, following a 20 percent collapse between late May and early July. Other countries haven't been so lucky -- particularly India, where the rupee is still under steady attack, falling to new lows against the U.S. dollar just about daily. The selling has gotten so ugly that some analysts have warned of a repeat of the 1997 Asian financial crisis. Standard & Poor's on Wednesday dismissed this possibility, but then S&P also rated subprime mortgage-backed securities "AAA" before the financial crisis, so...
What's been bothering markets most in recent days is anxiety about looming military action by the U.S. and its allies in Syria. U.S. stocks sold off on Monday, as traders watched Secretary of State John Kerry announce that the U.S. had proof Syria's government had used chemical weapons on its people. U.S. crude-oil prices have jumped to $110 a barrel, near a two-year high, with at least one analyst saying they could surge toward $150 on fears the conflict could affect oil supplies in the Middle East. The global economy has enough problems without having to worry about expensive gasoline, too.
Yet Another Dumb Debt-Ceiling Fight:
Wall Street may not be fully focused yet on what could be the biggest threat to its stability: Yet another horrible fight over the federal budget is at hand. Two horrible fights, in fact: A continuing resolution by Congress to fund the U.S. government is due to expire at the end of September. And, the Treasury Department warned this week that it would bump into the debt ceiling in mid-October, meaning it would be unable to pay its debts.
Speaker of the House John Boehner didn't exactly help when he swore on Tuesday that there would be a "whale of a fight" over the debt ceiling. The first time we had a whale of a fight over the debt ceiling, back in August 2011, we ended up with a U.S. credit-rating downgrade and a market panic. The second whale-fight, last winter, led us to the draconian austerity measures of the "fiscal cliff" solution, including sequestration and a payroll-tax hike, which have helped keep the U.S. economy anemic. The third fight will probably not be a charm.