Dow plunge is wake-up call to deal with debt

By Jeanne Sahadi, senior writer


NEW YORK (CNNMoney.com) -- Technical glitch. Violence in Greece. Historic U.K. elections. A combination of these factors sent the Dow plummeting nearly 1,000 points Thursday before regaining two-thirds of the ground lost.

But here's the thing: the market could be in for a very bumpy ride in the coming months -- except it won't have technical glitches to blame. U.S. debts, more likely than not, could be an underlying culprit.

In any case, Thursday's Dow drama should be a wake-up call that policymakers heed, said Allen Sinai, chief economist and president of Decision Economics.

The story now is Greece's debt crisis, and the fear of debt contagion to Portugal, Italy, Ireland, Spain -- and EU's neighbor, the United Kingdom.

All of that may spell trouble for U.S. exports six to 18 months from now, Sinai said.

Traders realize that, and they also realize there's a risk that the United States -- with its own large and growing stockpile of debt -- will not have financial wiggle room to address future economic weakness, Sinai said. "Everyone with money on the line knows that."

Not everyone shares the view that the shock from events in Greece could move the U.S. economy in a different direction. What happens to Europe's biggest economies matters, said Lakshman Achuthan, managing director of the Economic Cycle Research Institute. "France and Germany are not going into recession anytime soon."

Sinai stressed, however, that the risk of U.S. debt undermining confidence in the United States' ability to handle potential shocks doesn't have to turn out to be reality. "There is time to remove that risk," he said.

The swelling debt loads of several EU countries, the U.K. and the United States means there will be a lot of competition in the market to finance all that debt in the coming years. "That doesn't go away unless you take action," Sinai said.

To reduce the chances of a U.S. fiscal crisis, the action Sinai and budget hawks have been urging U.S. policymakers to take now is to put together a credible plan to stabilize federal debt that would be implemented over time.

"The longer we wait to act, the greater the number of things that could set off a crisis," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

Of course, any debt-reduction plan would need to be constructed in such a way as to not hamper economic growth or job creation, since both can also help reduce deficits.

A tall order to be sure, particularly in such a partisan environment. But it's one lawmakers will have to attempt if they want to ensure a more prosperous future than a federal balance sheet stacked with debt could ever deliver, budget experts say.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,844.14 -67.97 -0.40%
Nasdaq 4,451.99 9.29 0.21%
S&P 500 1,966.27 -3.68 -0.19%
Treasuries 2.53 0.06 2.64%
Data as of 11:13am ET
Company Price Change % Change
Bank of America Corp... 15.42 0.09 0.55%
Pfizer Inc 29.16 -0.31 -1.05%
Yahoo! Inc 36.64 0.96 2.69%
Facebook Inc 74.84 1.13 1.53%
Windstream Holdings ... 11.41 -0.42 -3.55%
Data as of 10:58am ET

Sections

Regulators in the U.K. are proposing stiff new rules that would see banks withhold bonuses from hotshot bankers for seven years. More

Restrictive immigration policies prevent talented entrepreneurs from launching businesses in the U.S. So, they're moving to Canada. More

Restrictive immigration policies prevent talented entrepreneurs from launching businesses in the U.S. So, they're moving to Canada. More

Steve Mason, a pastor from California, inherited more than $100,000 in student loan debt when his 27-year-old daughter died suddenly in 2009. With interest and late penalties, the debt has since ballooned to $200,000. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.