Thursday, August 4, 2011

European stocks plunge


This is a chart of the Italian stock market, and it's a good illustration of just how ugly things have gotten in Europe, and a big reason for why U.S. markets are swooning. Italian stocks are down 67% from their 2007 highs, and that is reminiscent of the plunge in Japan's Nikkei index, which is still down 75% from its 1989 high. By comparison, the S&P 500 is down only 22% from its '07 high, and the Dow is down only 12%.

11 comments:

Frozen in the North said...

Not only is Europe in the middle of a stock melt down, but its politicians seems to be doing everything to push it even lower with their comments -- Both Italy and Spain have cancelled their August bond auctions.

It's going to be a brutal day today, noon and the S&P500 is already off by more than 230 pts

John said...

Europe causing US markets to "swoon?"

Maybe, but based on the last 9 sessions, maybe investors fear the kooks have taken over the nut House.

Dr William J McKibbin said...

The fog of depression is falling upon us...

Benjamin said...

Europe and the world, have one choice: Limit government deficits, and pursue expansionist monetary policies.

Otherwise, it is going to be a generation or two before economies get better.

Benjamin said...

Greg Mankiw predicted a stock market tumble when QE2 ended/

Cabodog said...

Frozen: I show the S&P500 off by 31 pts; am I missing something?

Benjamin said...

Really, is now the time to get inflation down from 1.6 percent down to an even lower level?

Should we not champion growth, innovation entrepreneurship and capitalism more than minute rates of inflation?

What is about Japan's monetary policy we should emulate?

John said...

"The fog of depression is falling upon us..."

And corporate profits soar. And corporations hord their cash. And workers sit idle. Krauthammer is right. We're seeing a capital strike.

Benjamin said...

"Friedman suggests that control of the money supply is the ultimate key to inflation.

For Gilder, the answer is “. . .a widely uttered heresy, not modifying the Keynesian analysis, but turning it inside out: inflation is caused by taxes.” Although Gilder does not deny the importance of money, money supply does not play a major role in his proposed anti-inflationary program:

Although the Federal Reserve should expand credit only in a prudent way, in proportion to the growth of government and business, any attempt to fight inflation by monetary contraction alone at a time of repeated shocks to supply will
cause new, yet more destructive, and more permanent inflation.. . . At this juncture, there is no practicable anti-inflationary program except Lafferite economics and supply-side stimuli.. . "

Maybe it is time for us to re-consider Gilder. I have to say, tightening money now to get inflation down to microscopic levels seems like poor timing.

Benjamin said...

Several right-wing economists are referring to this piece, including Greg Mankiw.

http://www.project-syndicate.org/commentary/rogoff83/English

Frozen in the North said...

BTW, I meant 230 bps (of course by now S&P 500 is down 317bps). Will it make it to 400 today...