Tuesday, September 16, 2008
Poor State of the Economy Seems to be Global
On Monday, the stock market plummeted in the United States, due in part to the poor state of AIG (whose stock fell 50 percent), and Lehman Brothers Holdings Inc. filing bankruptcy. The Dow suffered its lowest drop since September of 2001. It's interesting to note how this poor economy is not just located in the United States. Countries all over the world are injecting money into their economy (For instance, the European Central Bank injected 30 billion euros to money markets on Monday, and on Tuesday, injected 70 billion euros, according to World markets tumble.) The Bank of England also pumped more money into England's economy, as well as Japan putting money into theirs. The financial markets in a great number of countries are suffering; Tokyo's Nikkei 225 index decreased to 11,609.72, a decrease of nearly 5 percent. Germany's and Russia's economies also suffered. Did the problems of the US stock market affect these economies? Or are the problems in the United States a further indication that there is a major problem in the global economy?
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3 comments:
I think any economy that the United States is connected to via trade will be affected by the recession in United States.
The collapse of the housing bubble was not only in U.S. but also in the United Kingdom, Spain, Ireland and other European countries. The interest rate in these countries were low for a very long period of time encouraging investors to take out more loans. The severe credit crunch was not only seen in U.S. but also European countries who had excessive consumer debts.
The growth of Japan was always for two main reasons: strong exports to the US and a weak yen. Now, exports to the US are falling (due to the weak U.S. dollar) and the yen has strengthened. Moreover, Japan meets all its oil requirement through imports. This could push Japan into a recession because the price of oil has been increasing.
This could, probably, lead us to believe that recession in U.S. could lead to a global recession.
Furthermore the stock markets that are based in all of these countries all refer to the US as an indication of the overall state of the global economy, and the major hit that investor confidence has felt lately in the US is being viewed by people all around the work and is in turn shaking global confidence in the economy.
I think what happened in Wall Street over the last few weeks is an indication of major problems/ slowdown in the global economy. The US, being the “super power” that it is, I think that there is a likely hood that the turmoil here will filter through to economies in Asia.
I have been following the Economic Times and hence I gather that even before the dramatic events in the US recently, slowdown in the US and Europe were affecting the east Asian economies and hence now the question arises whether the situation in the Asian economies will get worse. This I think is contingent on how much the Asian economies depend on the US.
Pooja made a point about how the growth in Japan was due to strong exports to the US and a weak Yen. Hence it can be seen that these Economies are still dependent on the US and hence and turmoil here is likely to trickle down to Asia. What happened in the US was a result of bad loans and mortgages and hence it would be an indication that lending across the world has tightened. This could be a problem for smaller businesses across Asia that lack the financial resources that larger corporations enjoy.
I think that recession in the US could lead to a global economic slow down if not a global recession since so much of the rest of the world is dependent on the US for so many reasons.
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