The two-week plunge in stock prices is signaling economic anxiety, but it’s also compounding the problem: Lower stock prices are shrinking Americans’ wealth, rattling their confidence and making them less inclined to spend.
And employers may become even slower to hire.
Cracks in the European financial system widened further Thursday as investors worried that Italy and Spain would be unable to pay their debts. Regulators have put banks there through a series of stress tests. The tests are designed to show whether the banks could withstand defaults by their weaker neighbors.
Fears of default by smaller, heavily indebted countries such as Greece and Portugal have been replaced by concerns about large Italian and Spanish banks. Some investors also worry that the banks are carrying too much of their home nations‘ debt and that the banks aren’t reporting the true value of those bonds....