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Morning News Roundup

Posted by Vriz on October 10th, 2008

The Dow Jones industrial average fell below 8,000 today, or 8 percent, at the opening bell. The broader Standard & Poor’s 500 fell 7 percent and the Nasdaq fell 6 percent. The U.S. markets are falling for seven days straight.
The traders are clearly not responding to the government announcements of cash infusions and plans to finance the purge of the bad debt from the system. Perhaps the markets are saying: “Show me the money.” Talk about “erosion of trust”!

The Wall Street Journal did a survey of 52 economists, publishing the results today. The economists now put the odds of recession in the next 12 months at 89%, up from 60% in last month’s survey. Interestingly, the number of economists who are advocating for another government stimulus package for the economy to be launched when the new President takes office next January from 34% in August to 54% now.

The world finance ministers have gathered in Washington D.C. today for the annual IMF and the World Bank meetings. The G-7 ministers are conferring today with their “Back against the Wall”—the Bloomberg headline says it all. Expect more push for coordinated actions to stabilize the financial markets. The G-7 will come out with a joint statement at 6pm tonight.

I guess, one way to decrease the trade deficit is to go into recession. The Commerce Department released its trade figures for August today. The trade deficit declined 3.5 percent in August to $59.1 billion. This is mostly due to our decreased oil bill. The prices of oil have declined from the all-time high of $145 per barrel of crude in July to $83 per barrel now, and so have the shipments due to significant economic downturn in the U.S. However, the deficit with China has increased, as the imports of consumer goods reached $25.3 billion, up 1.8% from July, the second-highest imbalance on record. The import gain reflected big increases in shipments of toys and games, cell phones and clothing as American retailers stocked up for the holiday. It’s hard to imagine many Americans will be spending at record levels on their Holiday purchases this year, though.

The unfolding global financial crisis has not hit China as hard as Europe and the U.S. so far, because Chinese financial institutions have been relatively insulated from the U.S. subprime mortgage investments. The Chinese policy-makers are still trying to sustain the economic growth, rather than stem the financial meltdown, the point at which the developed economies are finding themselves now. However, the global downturn in demand for consumer goods will eventually backfire on the Chinese export-oriented growth model. And it seems wise for China to start aggressive implementation of measures that stimulate domestic consumption and investment now.

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