London (CNN) – The unprecedented downgrade of the U.S. debt rating Friday triggered mass sell-offs in equity markets around the world, with $2.5 trillion wiped off global stocks yesterday following last week’s losses.
While markets are steadying, the dramatic slump and unhealthy economic data has raised questions over the risk of another U.S. recession – one which could tumble into Europe.
The debt crises on either side on Atlantic have also thrown into sharp contrast the different strategies employed to deal with financial meltdowns.
The U.S. used stimulus; Europe turned to austerity. Both strategies are struggling to stave off economic pain.
We know the causes of this latest crisis - fear, worry and concern. Three uncomfortable bedfellows that have wreaked havoc on the world's financial markets. What pushed everyone over the edge was the debt ceiling debacle and the downgrading of U.S. debt by ratings agency Standard & Poor’s, that was followed by a 630 point fall in the Dow Jones index.
The markets are basically saying that they are unhappy with the wider economic situation - and with good cause. Manufacturing numbers in the U.S., UK and Germany were all weak last month. Unemployment remains high. Inflation is creeping up in some countries. And the debt situation in Europe is not getting any better.
What the markets are seeking is leadership, and for the moment they believe it is lacking. Take Monday's speech by U.S. President Barack Obama. The Dow had been trading down around 150-200 points until the president started speaking. It was in the hours after his speech the market saw its biggest losses.
Hong Kong, China (CNN) – Oh my! In the past 24 hours, three of Asia’s dragon economies have traded in their scales and roars for shaggy fur and whimpers. That’s thanks to the shock from S&P’s unprecedented downgrade of the U.S. debt rating last Friday.
China, Hong Kong and South Korea are now officially bear market economies. They’ve lost at least 20% of their value from their previous peaks.
Today, Hong Kong’s Hang Seng crossed into bear territory after falling 22% from its November 2010 high. China’s Shanghai Composite has fallen 20% from early April. South Korea’s KOSPI Composite has tanked 20% from its recent high in May.
In April, 1993, I was a young Canadian reporter covering politics and finance, trying daily to make sense of debt-to-GDP ratios, a falling Canadian dollar, and a good old fashioned free-for-all in Canadian politics. The political debate of the time was rife with the same threadbare arguments we hear today, from among the Keynesians who wanted to spend their way to prosperity, and the hackers-and-slashers who felt that deep cuts were the only way to save the tanking Loony and stem the rising Canadian unemployment rate.
So forgive me for wanting to crawl back into bed as I stumbled home from a vacation week of relaxing and fishing in my former homeland directly into my first day back at work in the United Sates and a 600-plus point freefall on the Dow Jones. This was not what I had in mind.
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CNN International's business anchors and correspondents get to grips with the issues affecting world business, and they want your questions and feedback.