Crash! Biggest fall in shares since September 11

George Bush has been euphemistically referring to it as a "slowdown" in the American economy, but yesterday - as the American markets slept due to a holiday - the rest of the world reacted and it's verdict was damning. The markets clearly feel that a US recession is now inevitable.

In a single session, a massive £84bn was wiped off the value of Britain's biggest companies, as the FTSE 100 index plummeted by 5.5 per cent, closing 323.5 points lower at 5578.2. Last week the index dipped beneath the 6,000 mark for the first time since the credit crunch began in August. It was the eighth consecutive day of losses. Since Christmas Eve, the FTSE has dropped by almost 1,000 points and last night analysts were predicting further falls.

While President George Bush has authorised an economic rescue package to address the US sub-prime crisis, market experts believe the plan has come too late. And no one believes the world's other major economies will remain unscathed as America plunges into an economic downturn. For the world's biggest companies, recession in an export market as vital as the US can only spell trouble.

One senior UK-based trader said: "The fear is palpable as investors are getting more worried about the prospect of a recession in the US. In the current climate any vaguely scary news is pummelling the market." Martin Slaney, head of derivatives at GFT Global Markets, said: "The punches just keep coming. Ambivalence over Bush's rescue plan for the US economy was the trigger of this rout, causing fears of an economic slowdown."

It was literally felt worldwide. Japan's Nikkei index was down almost 4%, while Germany's Dax and France's CAC index both fell by 7%.

In Britain:

Since the start of the year share prices have dropped by 14%, with the near 900-point fall in the FTSE 100 wiping out all the gains of the last 18 months and putting renewed pressure on pension funds. Yesterday's 5.48% fall was the biggest in percentage terms since the immediate aftermath of the 9/11 terrorist attacks but less than half as big as the record 12.2% drop in October 1987.

What's interesting here is that, for so long, Bush has been allowed to create his own reality. Success is just around the corner in Iraq, a fantastic job was being done clearing up Katrina etc., etc,. And a mostly compliant US press have simply printed this rubbish as if it was the truth.

Now the worlds markets are reacting to Bush's plans to prevent the US economy from plunging into recession and it is quite obvious that they believe his plan to be too little, too late.

UPDATE:

Fed slashes rates in shock move

The Federal Reserve has cut interest rates to 3.5%, a shock three-quarters of a percentage point reduction.

Fighting to stave off recession in the world's biggest economy, the decision comes after sharp stock market declines on Wall Street and around the globe.

The Fed said incoming information indicated a deepening of the US housing market slump and increased unemployment levels.

One analyst said the Fed was "obviously panicked" by the threat of recession.

"Unfortunately they have no power to reverse what in my opinion is the worst post-war recession," said Michael Metz, chief investment strategist at Oppenheimer in New York.

The last two such surprise cuts were on 17 September 2001, shortly after the attacks of 11 September, and on 3 January 2001, in the wake of the dotcom bust.

The last time the Fed cut rates as much as three-quarters of a percentage point was in August 1982, almost 26 years ago.

"This is huge," said the BBC's business editor Robert Peston.

Related Articles:

America's economic perfect storm.

FUTURE HISTORIANS are likely to look back on the final year of the Bush administration as a moment not unlike 1930, when government dithered while a financial crisis deepened. At every stage of this unfolding crisis, the official response has been too little and too late.

I'm not predicting another Great Depression. Happily, the people who kept insisting that private business could regulate itself did not repeal the entire New Deal. We still have deposit insurance, Social Security, (reduced) bank regulation, the Securities and Exchange Commission, and a Federal Reserve given much stronger powers than in the 1930s.

And we still have a government capable of serious anti-recession spending - if it so chooses. But as the credit crisis deepens, this particular government is still infatuated with free-market fables now thoroughly discredited by events. So we must wait another 13 months before a new government can begin digging out of a needlessly deep hole.

America now faces an economic perfect storm: a weakened financial system, diminished consumer purchasing power, a swooning dollar, and rising inflation. [...]

. . . The eventual recovery will require a repudiation of free-market economics, as bold as the New Deal. But like so much else about the Bush legacy, recovery will be far more agonizing than it had to be.

Click title for full article.

Tags: Bush, United States, recession, crash, stock markets