The Latest 420 Point Plunge!

The DOW dropped another 420 points today.

Tomorrow it could jump 600+ points… or fall another 600+. Who knows?

The markets are volatile.

Why?

Lousy TV Analysis Misses the Mark

DOW 8-18-2011 - Source:CNN Money

CNN is quick to point out the obvious on TV… that market volatility is fear driven.

They noted today, for example, that at one point Apple had lost 3.3% of its value but there were no announcements from Apple to explain it.

That part is true.

CNN suggested that if we stop fear selling everything will be all right.

That part is false.

They also pointedly noted, incorrectly, that ideological arguments are driving the markets down. Translation: It’s the Tea Party’s fault.

Is ideology driving the markets down? No!

So what is?

Today’s Lesson: Europe

World Markets 8/18/2011 - Source: Financial Times

The DOW took the plunge in lock step right behind the world markets. The plunge in Europe was lead by Germany’s DAX stock exchange.

According to The Guardian today, “World stock markets plunge as fears of recession intensify“, the plunge is driven “amid growing fears that the world is sliding into a double-dip recession“.

German’s GDP growth last quarter was reported at 0.1% by German authorities last week. That is worse than the U.S. GDP growth of an anemic .4% in the first quarter of 2011.

CNNMoney reported that British market analyst Michael Hewson said, “I think we’re seeing a bit of a delayed reaction to the Sarkozy and Merkel meeting earlier this week”.

A full reporting of that meeting is here:
Pledge for Euro Unity May Not Be Enough to Satisfy Markets“-Steven Erlanger, New York Times, 8/17/2011

That article explains that European Markets are concerned that euro zone countries will not reel in their sovereign debt. Sarkozy and Merkle called on countries to do so, but the European Markets obviously don’t believe they will follow through.

Then Stanley-Morgan comes along and warns that the world is dangerously close to a double dip recession. That was all she wrote… markets started to drop like a rock.

The  possibility of a double-dip recession isn’t just words.

U.S. GDP 2007-2011

A quick look at the U.S. GDP clearly shows we are angled toward a double dip. Don’t be fooled by the jump in Q2 2011. That Q2 figure is only preliminary and will likely drop. If Q2 drops down as much as Q1’s GDP did when it was revised then we will be right where Germany is right now!

Europe is on the same curve as the United States.

Conclusions

Sovereign debt concerns in Europe are the driving force behind today’s fearful plunge.

But that is not the end of the story.

U.S. government debt is a real, just like it is in Europe. Greek sovereign debt was just the tip of the iceberg when it surfaced in late 2009. The debt crisis is now exposed throughout Europe and in the U.S.

The fundamental problem is that Europe and the United States had dangerously high debt levels before the Great Recession of 2008 and it has only got worse since.

The U.S. debt ceiling arguments in Congress played a roll but only a small part in today’s plunge. It is the exposure of U.S. debt level that really worries Europe. Ideological arguments don’t mean squat to them.

Governments are now sucking up so much GDP out of their economies that it has stalled their recoveries. Debt is behind it all.

The problem will only get worse unless both Europe and the United States take serious steps to get their debt under control immediately.

It may already be to late to stop a world wide double-dip recession.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Aug 18, 2011, in Debt, Deficit, DOW, Economy, euro, euro zone, Europe, European Union, GDP, Gross Domestic Product, National Debt, Politics, Stock Market, World Economy and tagged , . Bookmark the permalink. 2 Comments.

  1. Yeah, but we will be alright. Obama just created a Jobs Department so you can relax now. What a freaking twit!

  2. A jobs department, huh? That should be interesting. lol!!

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