The US Market has fallen more than 500 points in the last few days: a huge fall, which almost seems wrong, for the US economy has been growing at a strong, steady pace for some time now.
The fall is the result of deep systemic imbalances that are rooted in many of the world’s major markets. Greece, a part of the Euro Zone, has had a major debt crisis that stems from its government promising subsidies that it simply cannot afford to do repay. Until recently—when Greece’s Prime Minister Tsipas decided to resign—the political solution to this complication was to demand more money instead of balancing the debt. Unfortunately, this now leaves the future of Greece, and by extension the EU, clouded in uncertainty.
The problem only gets worse when you look at the Chinese economy. Over the last few years, the Chinese stock market had grown rapidly. Lately, however, there have been some worries about the stability of the Chinese marketplace. For example, the government has been reported as encouraging individual investors to take out loans and buy stocks. While this doesn’t sound so terrible in theory, in practice it isn’t smart. Individuals are taking out loans to gamble, because they have no knowledge of how to quantitatively value stocks (which is a complicated field in and of itself). This hurts the individuals who are investing since the companies that they are investing in have unrealistic stock-market valuations.
This makes the data that the Chinese government produces about their market quite unreliable. Additionally, global companies were reporting that China’s domestic economy was slowing down, which is a major detriment because China is a major worldwide producer and consumer of both raw materials like copper and industrially produced items, such as smartphones. Thus, much uneasiness was felt in the marketplace, which only got worse with some poorly translated official statements by the PVOC (the Chinese currency commission) that set off an international panic.
This marketplace fall is bad news for Germany, the center of the EU, which only further augments this problem in the global marketplace.
These difficulties with China and the Eurozone have affected the American marketplace. Although the US is relatively better off because of its strong domestic economy, this just illustrates the interconnectedness of the world marketplace in the modern era.
Written by Sid Menon’17
