The Dow Jones Industrial Average fell more than 600 points Monday after a one-two punch: the first-ever Standard & Poor's downgrade of U.S. debt, then the downgrading of government-backed mortgage debt. The Dow's one-day drop was its biggest point loss in a single day since Dec. 1, 2008 and its sixth biggest point drop in its history.
The Dow closed down 634 points, the S&P 500 lost 79 points, and the Nasdaq ended 174 points lower, dropping almost 7 percent.
Even after the U.S. markets closed, the fallout continued to cascade, as the Nikkei in Japan opened down more than 2 percent and was down more than 4 percent in its first hour of trading early Tuesday, falling below the 9,000 line for the first time since March 17.
President Obama spoke this afternoon, saying the United States knew well before the S&P downgrade that it had a debt problem. "The U.S. will always be a triple-A country despite what rating agencies say," he said.
The good news, he said, is the debt is a "solvable" problem that can be addressed through tax reform and spending cuts.
Investors don't seem to agree. The Dow plunged an additional 100 points to hover around 500 after the president's speech.
Today's rout wiped out about $2.3 trillion in investor wealth in the United States.
As stocks reeled, gold surged today by $61 to $1,713 an ounce.
Investors were hoping for some sign that the steep market selloff of the last three weeks would abate. Those hopes were dashed when S&P announced the downgrade of the mortgage debt agencies, which are now owned by the U.S. government following their takeover in the 2007 financial crisis. Lower ratings on U.S. bonds and mortgage debt could mean higher interest rates, creating still more drag on the faltering U.S. economy.
Though government officials sought to find fault with S&P's assessment, pointing out that the agency had made a $2 trillion error in its math, others say rampant government spending led to the downgrade.
"If we were running our affairs properly we wouldn't have to worry about S&P, Moody's and Fitch...," Paul O'Neill, Treasury secretary in the Bush administration, told ABC News.
Since the late Friday announcement of S&P's downgrade of the U.S. credit rating there were efforts across the world to calm markets. All weekend the White House had been fighting in some very strong language, calling the move "amateurish" and "breathtaking."
A managing director at Standard & Poor's told George Stephanopoulos on "Good Morning America" today that he has no second thoughts about the decision to cut the U.S. debt rating.
With global stocks sinking early Monday, S&P's David Beers said the agency's decision was based on factors including damage done to the U.S. reputation over the controversy surrounding the debt ceiling and concerns that underlying public finances are on an unsustainable path.
Asked if he had any second thoughts about the downgrade, Beers replied, "absolutely not."