Financial Markets & the U.S.

¶ … Financial Markets & the U.S. Economy The article I am writing about in the New York Times (titled "Global Markets Down After U.S. Sell-Off") touches on three of the Power Points; Causes of Recession; Financial Markets; and Inflation. But it is mostly concerned with Financial Markets, and I chose the article because it relates to the world financial markets, and to how badly the U.S. dollar is doing in those markets. The article quotes several key people in financial markets who say that the U.S.

is in trouble financially in the global marketplace. For example Erik Nielson, who is the chief European economist at the big financial house, Goldman Sachs, said "We are experiencing among our clients an awakening that the United States is in big trouble." He said that because recently the dollar "sank to a record low against the euro," the Times reports (Grynbaum, et al., 2007).

One of the reasons the stocks fell in Asia and Europe on the day before this article was published (November 8, 2007), is that there are rising oil prices and "the prospect of an economic slowdown in the United States." Another fear on the U.S. economic market picture is housing problems, as the market has slowed down to a very sluggish pace. But among the main things the financial markets are wary of, the article asserts, is rising oil prices.

What those rising prices do is raise the cost of gasoline, which is already at record high levels ($3.50 a gallon in some places); the article points out that when oil prices are rising rapidly, that also raises the cost of heating oil. Winter is coming on, and consumers in many parts of the U.S. use a lot of heating oil. If they are asked to spend more and more to run their cars and heat their houses, they won't have much left over.

"That only intensifies concern that American consumers may no longer be able to sustain their spending on other goods and services, particularly the large number of gas-guzzling vehicles still being turned out by the Detroit automakers," Grynbaum and Goodman write in the Times. The PowerPoint on inflation states that inflation takes place when prices rise across the board in the economy; oil prices going up can influence many other consumer items.

And in the Financial Markets PowerPoint, it points out that depository institutions (banks) need capital so they can make loans.

But in the Times' article, writers explain that in recent weeks there have been "...a string of unpleasant reckonings for major Wall Street banks." Several big Wall Street banks have had to "...slash billions of dollars from balance sheets to account for losses in the mortgage market." What that means is that many people are not able to make their mortgage payments, so the money banks have loaned those people cannot be repaid to the banks, and hence, the banks write off lots of money.

This is a sad state of affairs, and one wonders what the Bush Administration is going to do about it. Also in the Times' article is that Xu Jian, the vice director of a major Chinese central bank, is quoted as saying the dollar was "...losing its status as the world currency." All of this information is very closely related to what we studied in class, because what happens.