Asian, European Markets Rattled By U.S. Losses

After a horrific day in the U.S. stock markets, traders in Asia assess the damage. Steve Inskeep gets the latest from NPR's Frank Langfitt in Japan and NPR's senior business editor Marilyn Geewax.

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RENEE MONTAGNE, host:

This is MORNING EDITION from NPR News. I'm Renee Montagne.

STEVE INSKEEP, host:

And I'm Steve Inskeep. Good morning.

We're reaching the end of a turbulent week. It began with the United States government narrowly averting a failure to pay its bills. A market sell-off that had begun some days before that has continued all week, and the Dow lost 512 points yesterday alone.

European markets fell sharply as they opened today but have recovered somewhat. Asian markets fell also and NPR's Frank Langfitt is covering the story from Japan.

Hi, Frank.

FRANK LANGFITT: Hi, Steve.

INSKEEP: When we say fell, how bad was it?

LANGFITT: Pretty bad. Japan's Nikkei closed down more than three-and-a-half percent. In Hong Kong, the Hang Seng was down more than four percent.

INSKEEP: And what is the basic anxiety that seems to be driving all these losses?

LANGFITT: What we saw yesterday is kind of a throwback. It almost felt like a throwback to 2008, the numbers just kept falling. And I think what happened is, you know, there was some hope early on in Monday, the beginning of the week, the U.S. government got that debt deal, but then people looked and saw the U.S. economy still not looking really good. We've had some very bad numbers of recent - consumers spending less for the first time in nearly two years. The U.S. economy grew less than one percent, an annual rate, in the first six months. And so this kind of recovery that we've all been waiting for is looking really, really weak and really fragile.

INSKEEP: And not only that, there are continuing problems in Europe, where their debt crisis has gone on. And even some efforts by the European Central Bank and governments to deal with the crisis have seemed to make investors even edgier.

LANGFITT: Absolutely. And it's sort of like this double whammy. I mean they're concerned about growth in the United States - again, the world's largest economy by far - and then they see these continued problems in the Eurozone. You know, you first had smaller economies affected by the debt crisis, Greece and Portugal, but now it's threatening much larger economies, Italy and Spain. And interest rates spiked this week for government debt for both of those countries.

There's also concern just about leadership, where those countries are going in getting out from under that debt, and the combined risk with a second, a potential second recession in the U.S., which people are talking about, is kind of causing fear, you know, in markets really all over the globe.

INSKEEP: And we should emphasize the word potential. We do not know if a slow U.S. growth could turn into a recession or not. Although the fact that Asian markets have dropped in the last 24 hours as well, Frank, perhaps reminds us yet again that Asian markets are very closely tied to the United States as well as the reverse.

LANGFITT: Very much so. I mean trade is still very important here. You have a lot of Hondas and Toyotas that are made here and people do look at the United States' economy to help drive growth. There's also just this realization the U.S. economy isn't getting back on track and people are very frustrated and worried, so they sell stocks and they put money into things that they think might be safer.

INSKEEP: Well, now, Frank, we're in a situation where we're several years out from the financial crisis and still feeling shocks from it. Is this a familiar feeling in Japan?

LANGFITT: I think it is for a lot of people in Japan. Remember, they had not just one lost decade but really a lost generation in terms of economic growth, and people here do see some similarities, also with the kind of gridlock leadership that we've been seeing in Washington.

I was talking to Richard Koo. He's chief economist here with Nomura Research Institute, and he sees some parallels to Japan in the late 1990s. He says even with the debt problem that the U.S. has, he doesn't think that Washington should be cutting spending now while the economy is still sputtering, and he's worried about, you know, the potential for, you know, this double-dip, a possible double-dip recession. Here's what he said earlier.

Mr. RICHARD KOO (Nomura Research Institute): In 1997, Japanese economy was recovering and Prime Minister Hashimoto became rather complacent and argued that maybe it's time to cut budget deficit. And when the government cut the budget deficit, the whole economy imploded.

LANGFITT: And so what Koo said is he's afraid that what he's seeing in the U.S. could be a replay.

INSKEEP: Well, Frank, you're just in one location there in a worldwide story. But what is your sense about whether investors have confidence in governments, whether in Asia, in Europe or the United States, to help get out of this?

LANGFITT: Well, I think they feel that governments have kind of exhausted a lot of what they can do. And they also just see a lot of, to some degree, dithering and not really getting things done. Certainly that's been a complaint about Washington and a complaint with some governments in Europe, and it's somewhat reminiscent of what people have seen in Japan for many years. The Economist last week, I think it was, had a cover with President Obama and Angela Merkel from Germany both wearing kimonos, and I think the title was "Turning Japanese."

INSKEEP: NPR's Frank Langfitt in Japan. Frank, thanks very much.

LANGFITT: Youre very welcome.

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