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Economists worry as stock markets plummet

The Local · 5 Aug 2011, 07:28

Published: 05 Aug 2011 07:28 GMT+02:00

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In the United States, the Dow Jones industrial average fell 513 points, or about 4 percent. And in Germany, the DAX plummeted about 200 points to 6414, 3.4 percent down on the previous day.

“The situation is worrying,” said Gustav Horn, the director of the Macroeconomic Policy Institute (IFK), who spoke of a market “panic” that could cause lending markets to crash.

He called on US and European authorities to intervene immediately and prop up failing markets.

Analysts think the massive stock exchange drops are being driven by new investor concern over wobbly Italian and Spanish banks and what that could mean for the world economy. Investors are concerned that the banks carry too much national debt and aren’t reporting their true state of affairs.

The biggest problems lie in investors’ scepticism of the creditworthiness of debt issued by European countries and concern that a major European bank could eventually default.

A European bank default could create a major credit crisis, on par with what happened in the United States in 2008 when a series of financial institutions began failing.

Some also believe European Union bailout efforts won’t be enough to save the continent’s most troubled economies, including Greece and Portugal.

Story continues below…

Financial fears are also being manifested in other ways, for example through gold prices, which have risen to an all-time high.

DPA/DAPD/The Local/mdm

The Local (news@thelocal.de)

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Your comments about this article

09:20 August 5, 2011 by freechoice
sooner or later the gold bubble will burst too! then we have a double whammy!
10:40 August 5, 2011 by pepsionice
The gold bubble is months away...maybe not to be seen until the end of 2012. The critical nature of the Euro will arrive before the gold bubble bursts though. I still think the old Deutsche Mark returns sooner rather than later.
11:08 August 5, 2011 by lwexcel
If the Deutsche Mark returns Germany will fall into a huge recession, caused by its own success as a global exporter. Nobody would be able to afford to buy from them.
13:29 August 5, 2011 by Johnne
The west just need to face the fact, it´s not a bed of roses anymore period! You see what we´re saying? instead of politicians to be working harder and continue to advocate better relationships with the emerging economies and developing countries, some people are ignorant and senseless enough to support some far-right extremists that are unaware and uninformed about the things that are really important to us all. I just came back from a trip to Nigeria & Gabon. I saw what "economy is" almost 1 million people buy mobile phones every month in Nigeria alone! and people are hungry for Western technology. Oil & Gas, Gold, Diamond, Iron ore and other minerals resources are awaiting western/asian investment in partership for development of refineries and mining plants. On major infrastructure like roads, electricity, housing, rail & air transportation and so much more. There are jobs, unlimited oportunities in different sectors and I think together we can work hand in hand to stabilise the unstable & insecured financial institutions causing problems in the stock markets all the time by mixing our economies with open mind and equity.
15:16 August 5, 2011 by slawek
At first it looks like a good thing. The EU took one of the most ridiculous actions to help out Greece and the stock markets stall as a result. It would seem the market has its own vote in these matters.
16:46 August 5, 2011 by storymann
The latest article from CNN fortune "Thanks a lot Europe" starts out like this

"The latest bailout by the European Central Bank backfired in a big way. Investors are trying to position themselves as far away from the contagion as possible, opting to liquidate equities, bonds and commodities into plain old cash."

People in the know all agree on one point. If the Euro fails do to the indebtedness and the USA goes into a long recession or depression if the Euro fails every economy will suffer. No one is immune. All the finger pointing and postulating will make no difference in this looming crisis.
18:00 August 6, 2011 by derExDeutsche
Send more money, Germany !:)
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