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U.S. Financial Crisis Increasingly Infecting The Rest of the World
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This Link is located in the Public Channel Housing Bubble and Bear Links.
Posted by ian 1 year 248 days ago (washingtonpost.com). Views: 89
Tags: economics recession housing bubble credit crisis |
| Related Tags: finance wall street business stocks video politics infesting stock market |
I have always believed that those who say the rest of the world will be OK because it's "decoupled" from the U.S. are full of shit.
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Fresh worries spread through world markets yesterday as a crisis of confidence battered more U.S. financial institutions and the chairman of the Federal Reserve issued a sober assessment of the country's economic woes. It appeared to mark a new phase in the U.S. financial crisis, with fears of a contagion effect that could yet weigh more heavily on the global economy.
With world capital markets interconnected as never before -- financial problems at U.S. banks are affecting pension funds in Japan as well as depositors in California -- a mounting sense that America's financial crisis is still far from touching bottom is adding to global troubles, including rising overall inflation and soaring energy prices.
In Paris and London, stock markets fell yesterday to their lowest levels since 2005, partly as investors doubted plans unveiled by U.S. regulators this weekend to prop up the ailing government-sponsored mortgage giants Fannie Mae and Freddie Mac. In Tokyo, the benchmark stock index fell 2 percent, slipping to levels not seen in 3 1/2 months as the Nikkei newspaper reported that Japan's three largest banks were holding at least $44.2 billion in debt issued by Fannie Mae and Freddie Mac.
"I think the problem now is a general confidence crisis that is complicated by some global contagion that's now spreading," said Brian Bethune, a chief economist with Global Insight of Lexington, Mass.
U.S regulators "need to act promptly and forcefully to break the psychology," he said. "I think the Treasury needs to be a bit more clear about what they're planning to do to shore up Fannie Mae and Freddie Mac. The details are still vague, and there is no room for that now."
One camp of economists has argued that the rest of the world has to some measure "decoupled" from the U.S. economy -- with consumers in Europe, Asian powerhouses such as China and India, and fast-growing Latin America potentially blunting the drag on the global economy from a U.S. recession. But others have argued that soaring energy prices, rising inflation and a weakening dollar are already zapping the strength out of the world economy, with a full blown U.S. recession likely to take the wind out of the sails of global growth.
"The rest of the world has accumulated U.S. assets, and if these prices go down, the rest of the world suffers," said Alex Patelis, head of international economics for Merrill Lynch in London. "That said, many foreign banks are still doing very well. In Japan, for example, you have one of the healthiest banking sectors around. So there is a global impact, but the biggest impact is still going to be in the United States."
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