August 4th, the Dow Jones Industrial Average dropped 513 points, the lowest fall since the 2008 financial crisis. But Monday, August 8th topped last week's mark with a 634 point drop in the Dow after Standard and Poor's announced it was dropping the status of U.S. Bonds from AAA to a AA+.
"The downgrade of the U.S. Bonds is a tangible thing we see and the markets do react heavily," says Coastal Carolina University Economist Rob Salvino. "I don't think that this is an indication that the sky is falling. I think it is more of the markets are reacting to what we really knew, debt is a problem in the world right now."
CCU held its 14th annual Economic Growth Summit Tuesday. The agenda's topics were growth and taxation. But with the spiraling stock market fresh on people's minds, the discussion turned to the latest economic woes.
Salvino says the falling markets show the economy was not as stable as once thought.
"Unemployment rate here is 11.5 percent, and it's been that way. We were over 12 percent in the heat of the recession. Where as when the economy was surging we were around 5 percent unemployment. Our economy has been bad so even though we've had a recovery as far as GDP is concerned, unemployment rates don't suggest that."
Steven Morse is an economist and the Director for the University of Tennessee's Tourist Institute. He was one of the speakers at the summit. He says the downgraded status started with policy makers.
"I think the debt ceiling introduced some unstable environments for business to operate in. Investors and businesses both like stable environments for the future," says Morse. "That debt ceiling deal really gave people an uncertainty about our the future and the leadership in Washington and fiscal monetary policy, namely our Congress."
Morse thinks the U.S. is headed for another down turn before the economy improves. "I do think, unfortunately, we are going to see a double-dip recession. I don't know how deep it will be next time. But I do know in past recessions, the private sector has led the economy."
But both economists say the market will eventually correct itself.
"We still live in the strongest economy. We have blips sometimes and sometimes these short term blips are reflected on the long term view of a stable economy. We have a stable economy," says Morse. "We'll always come back over long term. We'll just see how long it takes."
"The stock markets will react to changes in the future that will be positive changes," says Salvino. "There will be positive changes that deal with these types of things, and eventually U.S. Bonds will be upgraded. Hopefully that's something to take some comfort in."
What do you think about the state of the economy? Do you have faith it will bounce back?
