Are We Heading for a Global Recession?

The $700 billion bailout package did nothing to quell investor’s fears on Wall Street as the Dow Jones Industrial Average closed trading down more than 370 points on Monday with worldwide markets faring no better.

The enormous plan passed by Congress last week was intended to restore confidence in the markets and calm panicky investors, neither of which has come to fruition yet. The credit market is still frozen because banks are not lending to one another. Investors are fleeing the markets for safe havens and the beginning of a worldwide recession looks to be taking root.

Markets in Europe, Russia, Brazil, Indonesia and the Middle East were all down on Monday, a domino effect of the poor performance in U.S. markets. Stock markets in emerging economies experienced their worst day in 21 years, and Russia and Brazil both closed their markets down early to halt the rapid decline.

“It is still true when the US sneezes, the rest of the world catches cold,” said Michael Goldstein, a Babson College finance professor. “And we’re doing more than sneezing.”

On Wall Street the Dow fell below 10,000 points for the first time since 2004 and has lost over 1,000 points in the last week. Overall, the market is down 30 percent from one year ago.

Unfortunately, there appears to be no end in sight. In all likelihood things will get worse before they get better as a worldwide recession takes hold.

“It looks pretty ugly down the road,” said Simon Johnson, an economist at the Massachusetts Institute of Technology and a former chief economist of the International Monetary Fund who specializes in financial crises. “Everybody is going to get caught up in this.”

Source The New York Times:

When the White House brought out its $700 billion rescue plan two weeks ago, its sheer size was meant to soothe the global financial system, restoring trust and confidence. Three days after the plan was approved, it looks like a pebble tossed into a churning sea.

The crisis that began as a made-in-America subprime lending problem and radiated across the world is now circling back home, where it pummeled stock and credit markets on Monday.

Source: Economy in Crisis

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