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Home Publications Blogs Beat the Press The Chicago White Sox Sunday Defeat Sent Stock Market Tumbling: It Wasn't the Debt Downgrade

The Chicago White Sox Sunday Defeat Sent Stock Market Tumbling: It Wasn't the Debt Downgrade

Thursday, 11 August 2011 04:07

Time to beat up on really really bad news reporting. The stock market doesn't tell people why it does what it does. We have commentators who bloviate on what they think caused the market to rise or fall, but they don't really know and they could be completely wrong.

That is why it was incredibly irresponsible for NPR to tell listeners in its top of the hour news segment that the market plunged because Standard and Poor's downgrade of U.S. debt. NPR does not know this to be true and it certainly is not obviously the case.

The market that should have been most immediately affected by the S&P downgrade was the U.S. bond market. However bond prices soared in the trading immediately following the downgrade and continued to rise through Wednesday. If there was greater fear that the U.S. would default because of the downgrade, then bond prices should have plunged as investors demanded a higher risk premium. This did not happen.

The most obvious alternative explanation for the plunge in the market is the risk that the euro could break up as the debt crisis spread from relatively small countries like Greece and Ireland, to the euro zone giants, Spain and Italy. The prospect of a euro zone break-up raises a real risk of a Lehman-type freeze up of the world financial system. It is far more plausible that this prospect led to the plunge in the stock market than the downgrade by one of three major credit rating agencies.

This point is important because many political actors, including National Public Radio, are trying to use the debt downgrade as an argument for cutting Social Security and Medicare. Their argument will be furthered if they can claim that the downgrade had enormous consequences for the stock market, since so many people involved in political debates (i.e. columnists, policy wonks, reporters, congressional staffers) have substantial amounts of money invested in the stock market.

Comments (8)Add Comment
written by foosion, August 11, 2011 8:28
The stock market plunge started around July 26. If you look at a chart of stock prices, you wouldn't be able to find the S&P downgrade.

NPR magical "thinking"
written by Nancy Cadet, August 11, 2011 10:17
Every day listeners are treated to another absurd analysis; in reality the stock market dropped after the weekend because the NY Yankees lost and it rained torrentially on Sunday in the Hamptons , ruining the brunch, golf, BBQ plans or the,cruising around in the Jaguar with the top down indulged in so many brokers and Market geniuses!

NPR, get back to reality!
Wrong again.
written by Nassim Sabba, August 11, 2011 10:42
No Sir. The plunge was a delayed response to the Red Sox winning the season series against your Yankees.
NPR (Neocon Propaganda Radio) has a current research going on on the effect of wins and losses by the METS and the National League. But preliminary results suggest AL teams have more correlation with the "free markets" because of the "American" in their name.
Will "report" more on this if you care to in the future. I doubt it.
Conditions, Complexity & Press Narratives
written by William Hurley, August 11, 2011 12:31
I'm in complete agreement with Dean's critique and the comments of those above. It seems to me, as a regular listener to NPR (in my home office), that NPR as well as most of the rest of the media (mainstream & other) prefer to rely on "omniscient narration" rather than rely "objective narration" which requires reporters to engage in empirical fact finding/gathering, inductive & deductive reasoning and a suspension of their on beliefs/self-interests - all of the latter being known more commonly as hard work.

But, being one who does not enjoy omniscience myself, I'll readily admit that my guess is as much sarcasm as an untested hypothesis based on observation.
Post hoc ergo propter hoc
written by Jay, August 11, 2011 12:35
Critical Thinking 101
written by anonymous, August 11, 2011 1:22
"relatively countries"
Relatively what, exactly? Small? Weak? Poor?

Whatever happened to copy editors?
written by S. D. Jeffries, August 11, 2011 8:19
I have been looking for figures on how many people have been laid off from NPR since the recession started (or ended, for that matter), and I can find no such information. I can believe that if a large number of NPR's staff had left their employ that perhaps reporters and commentators were now being busied by so many additional responsibilities (such as sweeping the floors, cleaning the glass walls of the broadcast booths or washing out the dishes in the employees' break room) that they no longer have time to find any facts on which to rest the opinions they broadcast. I stopped listening to NPR when they insisted on continually inviting Alan Simpson back on the station to make snide comments and demonstrate the meaning of the word "curmudgeon." Even country music is better company in my car than Simpson.
written by trish, August 11, 2011 9:25
I've long since given up on NPR. They churn out the same nonsense fed to them by the corporate hacks in our government (both parties)that the rest of our corporate-run media does. they don't bother with any real investigation or fact-checking, and they sacrifice truth for "balance."
I used to think they were just afraid of the "liberal bias" label so skillfully and incessantly trumpeted by the right-wing noise machine. Now I realize it's more that NPR journalists and reporters are just part of the same corporate/elite and beltway club. And it's become infotainment essentially, for many (often ignorant) liberals.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.