The global financial system, which has never properly recovered from the recession, is poised on the brink of a second crash.
The immediate trigger seems to be the fiasco in America over raising the debt ceiling. The whole process revealed the growing power (and lunacy) of the Tea Party faction within the Republican Party, and the corresponding weakness of Obama and the Democrats. I like this summary by Paul Thomas in The Herald:
So it’s come to this. America, the land of laissez-faire capitalism, the bastion of thrift and self-reliance, the spiritual home of the Protestant work ethic, being lectured on fiscal responsibility by the Chinese Communist Party and the former KGB apparatchik who seems to run Russia.
As the debt drama went down to the wire, Vladimir Putin took time out from crushing frying pans with his bare hands to describe America as “a parasite on the world economy”, and China’s state news agency Xinhua demanded that Washington defuse its “debt bomb”.
Nor were they impressed by the way politicians went about ensuring that the US didn’t default, complaining of “madcap brinkmanship” and “dangerous irresponsibility”. … America got what it voted for in last year’s mid-term elections.
The other underlying cause is the sovereign debt crisis. Although the immediate flash point in Greece has been temporarily papered over with another emergency bailout, it is obvious to all that the underlying problems remain. And Greece is just one small part of a much wider crisis…
Growing divisions on how to manage crisis in Europe
A BLOODBATH on stock exchanges has forced European Commission president Jose Manuel Barroso to admit the sovereign debt crisis was spreading to Spain and Italy and to call for an urgent review of the EU’s failing bailout systems.
But his call exposed continuing divisions among European leaders on how to manage the dramatically intensifying crisis, with both Germany and the Netherlands snubbing Mr Barroso’s request. …
I’m frankly surprised that it has taken this long, but the inevitable stock market fall has begun. The piece above continues:
Alarmed by the prospect of an American recession and by the failure of European authorities to deal with the woes of the euro, investors rushed to sell. In Britain, the FTSE 100 index fell 3.43 per cent to its lowest level in almost a year in the fifth straight day of heavy selling.The French stock market fell 3.9 per cent in Paris and the German index 3.4 per cent in Frankfurt. Italy suffered the steepest collapse, with its stockmarket down more than 5 per cent in Milan.
The new crash is all over the news:
Crisis mounts as world markets dive
Stock markets around the world have plunged again as fears persisted that the global economy could slip back into recession. The FTSE 100 Index has seen 9.8%, or £147.9 billion, sliced off its value in the past week – its worst performance since October 2008 when Lehman Brothers collapsed and the credit crunch began in earnest.
Markets across the world are in meltdown as traders panic that America will lead the global economy back into recession and the eurozone will be crushed under the weight of its debts.
And there are fears that the crisis could escalate further unless Governments are able to convince financial markets that they are able to pay off their loans.
Emergency meetings are under way:
FTSE slumps to worst week since 2008 despite US employment data rally
Emergency meeting of G7 ministers called after biggest share slump since 2008 banking crisis
Britain’s stock market suffered another major selloff yesterday, ending its worst week since the collapse of Lehman Brothers in 2008 with almost £150bn wiped off the value of the country’s top 100 companies.
After a calamitous five days for stock markets on both sides of the Atlantic, the FTSE 100 closed 146 points lower at 5247 to record its third day of triple digit declines – a trading pattern last witnessed in the immediate aftermath of Lehman’s bankruptcy in September 2008.
The first impact on NZ seems to be that the dollar has tumbled from its heights (which is not actually all bad news for the economy). But if the world economy continues its spiral into a second recession then our own faltering recovery will be washed away in the flood. We continue to live in interesting times.