World Stock Market Plunge as Global Recession Fears Grow

Stock markets across the world plummet on Monday, 21 Jan 08, on worries of a global recession. It is the biggest single day decline since the Sept 11 attack.

A credit squeeze prompted by a crisis in the US subprime, or high-risk, mortgage sector has given way to a wider malaise in the world's biggest economy, with unemployment rising and the dollar falling.

All over the world, especially the developed nations, are suffering from the slowdown in the US. As said by Chairman of Eurogroup Finance Ministers, Jean-Claude Juncker, "The situation is continuing to deteriorate in the United States. In recent months, we have always ruled out a recession in the United States, but we cannot totally rule it out today".

US President announced on Friday, 18 Jan 08, of a US$140 billion stimulus plan, but this is seen as a little too little, a little too late. Najeeb Jarhom, head of research for retail clients at Fraser Securities in Singapore shared, "It looks like the US is heading for a recession or may be already in recession, looking at the data".
(source : http://news.yahoo.com/s/afp/20080121/bs_afp/stocksworld_080121214357)

The U.S. has suffered recessions only twice in the past quarter century, and both were short and mild. But there are good reasons to fear that the looming recession, if it arrives, could be worse.
The combination of heavy debt loads, still-high energy and food prices and a weakening job market has households tightening their belts.
That sets the stage for something more severe than the 2001 recession, which spanned just eight months. The eight-month recession that ended in early 1991, when a housing downturn and credit problems sapped the economy, is a better guide

University of Maryland economist Carmen Reinhart and Harvard University economist Kenneth Rogoff agree. They say the current crisis appears on track to be at least as bad as the five most catastrophic financial crises to hit industrialized countries since World War II.
(source : http://online.wsj.com/article/SB120086867005203883.html?mod=hpp_us_whats_news)

Every major banks in America has suffered major losses from bad loans. Any consumer loans made out are subjected to exceptional risk of default. This range from housing mortgage, auto mobile loan, credit cards, renovation loan, unsecured loan, you name it, you have it.

Living in denial and oblivious to the on-going just makes matters worst. Early signs of trouble dated as far back as in 2006 but had slipped the eyes of most people including economist.

Somehow, this is like SARS (Severe Acute Respiratory Syndrome). Warning signs of a new strain of flu bug that are immune to then current drugs were there but people ignored it, till it struck and killed many.

As a matter of fact, signs of the US recession had been prominent since months ago. I had mentioned of some recession or even a potential depression, in my post couple of months ago. I won’t even be surprise to know that the US is already in recession.

Since the Sub-prime meltdown followed by credit crunch, signs had point the US economy towards a recession. Interest rate slashes started in September 07, job creation started to decline since November 07, manufacturing dipped since December 07, and the list goes on.

Government can’t announce a recession as it happen, they have to keep it contained for awhile till they can’t wrap it anymore. Once a recession is announced, consumer confidence plunge, and will worsen the current situation.

On a positive note, the likely US recession will not likely hit most economies as badly as it would have been if this had happened 10 years ago. In the last few years, many countries have lesser dependence on the US. With booming economies in China and Asia, countries have spread its trading partners to many countries.

In the US itself, many other industries (apart from housing and credit) are still performing. This may help reduce the potential fallout.