spill. >> lehrer: united nations emergency official john holmes updates the flooding disaster in pakistan that has affected at least 14 million people. >> ifill: spencer michels' reports on cyber conflict continue. tonight, a conversation with former cia and national security agency director michael hayden. >> we've created this new domain, this new space called cyber and frankly, it's lawless. there are no natural technical >> lehrer: and paul solman explores the connection between greek food and the country's economic problems. that's all ahead on tonight's "newshour." major funding for the pbs newshour has been provided by: this is the engine that connects zero emission technologies to breathing a little easier, while taking 4.6 million truckloads off the road every year. bnsf, the engine that connects us. >> and by the bill and melinda and the william and flora hewlett foundation, working to solve social and environmental problems at home and around the world. and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. >> lehrer: markets fell sharply today amid fears that a global recovery may be stalling. it was the worst day for wall street in more than a month. all three of the major stock indexes dropped by at least 2% into negative territory for the year. more than 2,600 stocks on the new york stock exchange lost ground today. the dow jones industrial average closed down 265 points at 10,378. the nasdaq fell more than 68 points to close at 2,208. jeffrey brown has more about the drop and the numbers that set it off. >> brown: stocks began falling this morning after investors took a closer look at the federal reserve's latest projections that the economic recovery is weakening. in a statement issued yesterday, fed officials wrote, "the pace of recovery in output and employment has slowed in recent months." growth, the statement said, is being held back by "high unemployment, modest income growth, lower housing wealth, and tight credit." in addition: "bank lending has continued to contract." today, the fed announced an initial response: saying it would buy $18 billion worth of long-term government securities. the aim: hold down interest rates, making it cheaper for consumers and businesses to borrow money. this afternoon, president obama tried to talk up one of the bright spots of the past few months-- increasing numbers of manufacturing jobs following a long plunge during the recession. >> so overall, manufacturing sector added 183,000 jobs this year. that's the strongest seven months in more than a decade. instead of plants leaving america, we are started to see the opposite. a growing number of firms hiring here at home. we are not yet where we need to be, but good trend out there. we can't let up, move forward. >> brown: the presidents remarks and the fed's report come after a disappointing jobs report last friday. and for a closer look at all this, we're joined by: neil irwin, who covers the fed and economics for the washington post. he joins us tonight from chicago. and from miami: tom hudson, co- anchor of the "nightly business report" on pbs. tom, so the fed puts out just a few paragraphs yesterday, and, markets clearly did not like it today. what did they see? fill in the picture for us. >> well, what they saw were concerns building in china and elsewhere about the global economy continuing to hilt the brakes. the chinese markets continue to try to price in a slower economy over there. that's awfully important for u.s. exporters. andry thinking the federal reserve assessment of the economy through the end of the year has certainly shareholders and the stock markets worried as we see lots of folks piling into the resk-off trade, and that meant buying u.s. government bonds ahead of what the federal reserve has promised to do as you detailed earlier. >> brown: now, neil irwin, what seemed to get people's attention was-- in part at least-- was a perceived change in direction by the fed. explain that. >> that's right. what -- for last year or so, the fed has been in exit strategy mode. they've been talking and thinking about how to remove all the supports they put in place for the economy, all the actions they took during the crisis, and, you know, letting programs expire, that sort of thing. this is a reversal. it's a small reversal, but it's a reversal, nonetheless, and what they're door, as you mentioned, buying $18 billion in securities, and buying at a slow pace. part of what was going on in the markets today, people in the markets would like to see more. people in the stock market always want to see the fed doing more to prop up growth, and they would like to see more large-scale asset purchase than the fed is willing to do at this stage. >> brown: neil, explain more about what the fed is doing. for a long time we talked about the notion that the fed has little room to do anything because interest rates are already so low. it gets a little complicated but what are the mechanics here of the actions they take and how it has an impact on the economy. >> because the fed's normal policy-- normally what they do to manage the economy is they raise or lower their target for short-term interest rates. that's already at zero. they can't cut it any further so they have to turn to other tools. what those have meant is buy long-term securities, mortgage-backed securities, treasury, bonds, increasing the money supply and reducing long-term interest rates, and what it costs to get a mortgage and for a corporation to borrow money so it does have an effect on long-term rates. it's an unventional move. it's not clear exactly what the effects are, how effective it is. you want to be very cautious with these approaches and not undertake them lightly. it would take real worsening in the economic outlook for them to do large-scale asset purchases like they were doing a year ago. >> brown: tom, i would like to dig into one of the things the fed brought up because it's been a persistent issue and problem and that's the bank lending and the tight credit issue. what-- how do you explain it? is it a supply problem, a demand problem? businesses , banks? parse the equation for us. what do you see? >> well, the banks will tell you it's a demand problem. they'll say they've got plenty of dry powder, plenty of cash ready to end into a market, assuming that there are people and businesses asking for it, and by the way, those businesses and people need to be qualified, need to be high-credit quality for the banks in order to lend that money. now, you talk to small-business people and some consumers who may be of questionable credit quality saying they'd love to go to a bank to get the money but they don't feel confident they will get the money. it's supply and demand contradiction at this point and, really, it's unclear from the market perspective, we saw it articulated today with the 2% sell-off, that investors really remain unconvinced that the federal reserve's actions are going to matriculate down to loosening up the credit and increasing the velocity of money and putting dollars into the pockets of consumers and into the pockets of companies to spend them in the economy. >> brown: staying with you, tom, that issue of lending practices is a direct consequence of what we've been through the past couple of years, right-- a question of who gets loans and who qualifies? >> it's a direct consequence what we've been through, no doubt. but we have to remember, 24 months ago our standards of credit quality were much different than historically what we have been at. the banks will tell you their credit standards have, perhaps, reverted back to where they were before the credit boom days of 2003-2007. been we were used to very easy credit and being able to get a 30-year, no-income-stated home mortgage with a 500 fica credit score. those days are long gone. instead we reverted back to normal credit standards and considering what we've been through the last several years, it seems like it's very tight. >> brown: neil irwin, what's your analysis of the credit and bank lending issue? >> tom hit a lot of the important issues. the thing is, it takes two to have a loan. it's not just that banks are unwilling to lend-- though they are being more cautious. it's that businesses are looking around. they don't see great investment opportunities. they don't have the confidence to buy more equipment or build a new factory. so there is a reluctance on the part of businesses to apply for a loan or take out a loan right now. it clearly goes both ways. even though there might be some banks in fine financial shape and ready and willing to make lones again, there are other banks, especially smaller ones around the country, are still under the weight that they're not sure whether they'll get paid back and while they have the uncertainty they're not willing to take the risk of making new loans. so that's hanging over the economic recovery. >> brown: neil, that ties to the jobs picture, right, too, because the businesses are loathe to hire. >> right, a business that can't borrow money or can't borrow money to build a new factory can't hire employees to for the factory. >> brown: tom hudson are, their implications here-- and i mean in the fed action specifically-- for the rest of us, not the business and the banks, but consumers. >> well, there are implications for those consumers out there who -- who are credit worthy, in the eyes of bankers these days. for those who are in the housing market , or in the credit-- the consumer credit market looking for i.o.u.s, looking to borrow money, what the federal reserve action that it announced yesterday and is going to kind of real off the next several months likely means lower cost of loans, lower interest rates which, clearly, is going to be a good thing if you're interested in that money and if you can qualify for it. >> brown: neil irwin, there is one potential down side, i think, that was noticed in the fed action which is the fear that it makes it easier for borrowing and , including the government to borrow. >> yeah, what's happened is the entire strategy is to try to lower rates. the truth is, interest rates are already really, really low in the united states. the u.s. government can borrow more money more cheaply than at almost any time in its history. on the one hand that's a good things keeping rates low for expurmz business and making it easier for the government to finance its debt. but it can't last and probably won't last forever. >> brown: tom hudson, your last word on that. that feeds into inflation and what we're hearing about deflation. >> a lot of talk about whether or not we're going to enter a deflationary spiral. in fact, we've seen a regional federal reserve bank president in fact mention that "d" word in the last week or two, deflation, something that would have been unheard of a couple of years ago to hear from a federal reserve regional bank president. i think long term the question remains with all of this cash being flooded into the u.s. economy-- and really that means the global economy-- it can only but perhappens stoke the fires of inflation longer term and that's where you really have to pay attention to market interest rates-- not the federal reserve interest rate but what the bond market is telling us, and right now, at least, there's no concerns about short-term inflation, but that could turn on a dime. >> brown: all right, tom hudson of the "nightly business report" neil irwin of the "washington post." thanks both very much. >> thank you. >> thank you. >> ifill: still to come on the "newshour": primary election results; getting rid of gulf oil waste; emergency aid for pakistan; cyber security threats and food as metaphor. but first, with the other news of the day, here's hari sreenivasan in our newsroom. >> sreenivasan: a federal jury in chicago told the judge they are deadlocked in the corruption trial of former illinois governor rod blagojevich. the jurors cannot reach agreement on any given count. the judge is now asking them to clarify what that means. blagojevich has denied charges he tried to profit from his right to pick someone to fill president obama's former senate seat. gunmen in iraq killed eight soldiers today by using children to lure them into a trap. the insurgents killed three adults in a house, in diyala province. then, they sent the surviving children to a nearby checkpoint to get help. when the troops arrived, the gunmen blew up the house. the death toll from weekend flooding and landslides in northwestern china has topped 1,100. chinese troops and rescue teams combed through hardened mud and debris today, searching for more than 600 people still missing. crews also sprayed the disaster zone with disinfectant to prevent the spread of disease. forecasters are predicting more heavy rain in the coming day, which could touch off new landslides. in russia, wildfires threatened to unleash radiation from the chernobyl nuclear disaster in 1986. it was the latest danger in a disaster that shows no sign of ending soon. we have a report narrated by jonathan rugman of "independent television news." >> reporter: russia's forests are the biggest in the world. and now they are on fire in the hottest summer here since records began. sparking widespread anger at how this emergency has been handled. for it was only in week three of this crisis that the army was called in to help put out some of over 25,000 separate fires burning across the country outside the village of petrushino just 30 miles from moscow, people fought the flames on their own for more than 10 days before the military arrived. >> ( translated ): we were fighting together. men, women, old and young, even datcha owners. we were scattered in the fields and woods using whatever tools we had. shovels, axes, saws and buckets of water. >> reporter: today, officials confirmed that fires have spread to forests contaminated by the chernoblyl disaster in 1986. the soil there is radioactive and particles could become airborne in billowing smoke. though officials claim they are mounting extra firefighting patrols and that there is no cause for panic. the drought is expected to ruin up to a third of russia's wheat harvest. and could cut $15 billion from the country's overall economic output. >> sreenivasan: a tropical depression in the gulf of mexico lost strength today, and forecasters said it could dissipate. for now, though, a tropical storm warning was in effect for much of the gulf coast from destin, florida to intracoastal city, louisiana. as a precaution, crews at the oil spill site stopped drilling a relief well until the storm passes. former congressman dan rostenkowski died today at his home in wisconsin. the chicago democrat served 18 terms and chaired the powerful ways and means committee. during the reagan era, he was the leading architect of congressional tax policy. but he was defeated in 1994, after being charged with misusing government and campaign funds. rostenkowski later served 17 months in prison for mail fraud, but president clinton pardoned him in 2000. dan rostenkowski was 82 years old. those are some of the day's major stories. now, back to jim. >> lehrer: now to politics-- primary results from four states last night produced more clues about the shape of 2010 midterm election season. ten weeks out from election day, voters on tuesday gave both the president and the tea party alike, something to smile about. the marquee race was in colorado, where democratic senator michael bennet beat former state house speaker andrew romanoff to win the nomination. bennet was appointed last year, after ken salazar left the senate to become interior secretary. president obama had endorsed bennet, while former president clinton endorsed romanoff in the hard-fought primary race. bennet's eight point win was a piece of good news for a beleaguered white house. >> the president was proud to lend his name, appeared in mailings, ads, participated in teletown hall. >> lehrer: but with the democratic primary behind him, bennet would not commit today to have mr. obama back to campaign this fall against a republican opponent. >> we'll have to see. we'll obviously do what's right for the campaign. he's been a huge help and i appreciate his endorsement. and we'll see what happens between now and november. >> lehrer: bennet will face republican district attorney ken buck with ties to the tea party movement. he claimed the mantle of outsider in beating former lieutenant governor jane norton. >> republicans have been sending their elected officials back to washington d.c. to change congress, and instead those republicans have been changed by congress. >> lehrer: in fact, buck's win was one half of a big night for the tea party in the rocky mountain state. the other half was businessman dan maes and his upset win over former congressman scott mcinnis to take the republican nomination for governor. maes will face denver's democratic mayor john hickenlooper and a third-party candidate, former congressman and anti-immigration crusader tom tancredo. a republican gubernatorial primary run-off in georgia featured another proxy fight between national political figures. there was karen handel, backed by sarah palin. >> it's time to bring it on georgia! >> lehrer: and former congressman nathan deal, endorsed by two other potential presidential contenders, newt gingrich and mike huckabee. handel conceded the tight race today, clearing the way for deal to face democratic former governor roy barnes. in connecticut, republicans nominated linda mcmahon for the u.s. senate she's former head of world wrestling entertainment. >> linda mcmahon said she wouldn't take money from special interests either. well, how much did she take? not a dime! >> lehrer: in fact, mcmahon spent more than $20 million of her wrestling fortune in the primary. she'll take on long-time democratic attorney general richard blumenthal to fill the seat of retiring democrat chris dodd. and to "newshour" political editor david chalian. now there are themes to be read into these results, beginning with colorado. let's start there. >> yes, the democratic senate race in colorado, as you said there in the piece, jim, very welcome news at the white house today because they avoided the headlines of the obama political operation is out of sorts. they won one here and won it big by eight points. they backed michael bennet, and they needed a win here over andrew romanoff, the bill clinton-endorsed candidate. i do think there is an ability for barack obama , a chance for him to show i have some political mojo don't count me out. i'm not on the mat. but that's within the context of a deemt primary fight. that's very different than the general election contest, and that's why you heard michael bennet on that morning show this morning not saying, hey, here's the date i'd like to invite barack obama back to colorado this fall. he started keeping his distance because now he has to appeal to the broader electorate in colorado where barack obama 's not nearly as popular as he is inside the primary election. >> lehrer: is it conceivable he could get away with, that turning his back on obama now? >> i don't think necessarily he will turn his back. he vote forward the health care bill--. >> lehrer: he will just be very busy. >> he will just be very busy. the president will have other playings to be. >> lehrer: on the republican side in the senate race. >> this is the other big stheem, i think, of the night overall, and we saw it here in the senate race on the republican side , ken buck was a tea party-backed candidate and upended jane norton, the former lieutenant governor there. this is the third senate race now where we