Steep Drop in Global Stock Markets Monday

Stock markets plunged around the world on Monday — India's market dumped 7 percent of its shares and in Europe many markets sank almost as much. All this comes amid grim news about the American economy, which affects many other economies.

MADELEINE BRAND, host:

This is DAY TO DAY. I'm Madeleine Brand.

ALEX CHADWICK, host:

I'm Alex Chadwick.

American investors have got to be happy that stock markets are closed today for the Martin Luther King holiday because just about everywhere else in the world markets are plunging. This is one of the worst days in years worldwide. Investors appear to be acting out of fear that this country is headed for a recession, maybe even a severe one.

NPR global business reporter Adam Davidson joins us now from New York. Adam, welcome back to the show. And what is going on? Which countries are affected?

ADAM DAVIDSON: It's hard to find any country that isn't affected. There are huge drops, at least five percent or more: in Germany, Belgium, Hong Kong, Indonesia, Singapore, France. India fell 12 percent - that is an unbelievable drop, although it did climb up to end around 7.5 percent down. The major financial capitals are doing a slightly bit better. Tokyo's Nikkei fell around four percent - that's around the same for London's FTSE. Any of these drops would have been a big deal. But having so many markets selling off so much on the same day, this is remarkable.

CHADWICK: I don't know if you can answer this question, Adam, but if a market like the German market lost five percent of its value in a day, what kind of money are we talking about?

DAVIDSON: Well, it's hard for me to do the math in my head. But if you think about global capital markets are in the couple of hundred trillion dollars, and if you lose five percent of that - I mean, you are talking about trillions of dollars, I think, being lost all in the matter of a few hours.

CHADWICK: Wow. Well, this is all because of talk about a possible recession. This talk has been around for months. So what is it that triggers an event like this on this day?

DAVIDSON: It's true we've been hearing that the U.S. may likely go into recession for a long time. But last week was a particularly bad week. We just got more bad housing news, more suggestions that the U.S. housing market is collapsing, which is more of a sign that housing market problems are spreading like a contagion to the rest of the economy.

Also on Friday, President Bush presented his solution to this problem, his fiscal stimulus idea. At least he presented a framework for talking about it. Democrats also presented some ideas.

And I think what we're seeing today is global markets feeling like that's just not enough, that the solutions presented by the U.S. government are not going to prevent this recession or get us out of it anytime quickly. Also, once you get the fear snowball rolling, it does have a tendency to build on itself. So there's a bit, you know, irrationality going on.

CHADWICK: There's that old business expression, when America sneezes the rest of the world catches a cold. And I guess some people think it's more than the U.S. sneezing now. The U.S. may be coming down with the flu so the rest of the world is getting ready for - I don't know what - pneumonia?

DAVIDSON: Yeah. I mean, that's actually a really surprising development because for the last, say, 20 years or so, it's been very true that the U.S. economy determines how the rest of the world economy does. But many economists, many investors, many financial folks thought that 2008 was going to be the year - they call it decoupling - when the rest of the world can actually churn along without U.S. growth. Today's development suggests that's not entirely true, that the U.S. still is the center of the world economy.

CHADWICK: And Adam, one last question, what will happen tomorrow with these markets?

DAVIDSON: The hope is people are going to calm down, the U.S. is going to calm down, that the irrationality will go away. Of course, it's an even bet that that's not going to happen, and the fear will continue and there will be even more sell-offs.

CHADWICK: NPR global business correspondent Adam Davidson from New York. Adam, thanks.

DAVIDSON: Thank you.

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