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World markets plunge as debt fears grow

By Wen Sheng (People's Daily Online)

08:26, August 09, 2011

U.S. stocks plunged Monday as investors fear the comeback of a recession, as the downgrade of U.S. sovereign credit by the Standard & Poor's sent global markets on a freefall run.

The Dow Jones industrials fell 634.76 points, or 5.5 percent, on the first trading day since Standard & Poor's downgraded American government debt on Friday. It was the sixth-worst point decline for the Dow in the last 112 years and the worst drop since December 2008.

On Monday, China's stock markets encountered a "Black Monday" bout, too, as the Shanghai composite stock index fell by 100 points, as investors were unnerved by the first-ever downgrade of U.S. credit.

The Shanghai composite index, tracking the bigger of China's two markets, dropped 99.61 points, or 3.79 percent on Monday on a turnover of 117.5 billion yuan. The smaller Shenzhen market lost 3.33 percent.

Despite Obama administration's strong disapproval, the independent rating agency, the Standard & Poor's, decided to cut the American sovereign credit rating from the top-notch triple AAA to AA+, which immediately threw the global markets to a tumult.

On Monday, officials at Standard & Poor's downgraded the credit ratings of U.S. mortgage giants Fannie Mae and Freddie Mac, and other agencies linked to long-term U.S. debt. The agency says it has also lowered the ratings for: farm lenders; long-term U.S. government-backed debt issued by 32 banks and credit unions; and three major clearinghouses, which are used to execute trades of stocks, bonds and options.

All the downgrades were from AAA to AA+. S&P says the agencies and banks all have debt that is exposed to economic volatility and a further downgrade of long-term U.S. debt. Officials at Standard & Poor's say they will also indicate shortly how local and state governments will be affected by their decision on Friday to lower the long-term U.S. debt from AAA to AA+.

But the S&P downgrade wasn't the only catalyst yesterday. Investors worried about the slowing U.S. economy, escalating debt problems threatening Europe and the prospect that fear in the markets would reinforce itself.

Crude oil, natural gas and other commodities fell sharply on worries that a weaker global economy will mean less demand. Oil fell 6.4 percent to US$81.3 per barrel in New York, its lowest price of the year.

The Dow was down 5.5 percent a 10,809.85. The sharp drop extended Wall Street's almost uninterrupted decline since late July, when the Dow was flirting with 13,000. It fell below 11,000 for the first time since November. The S&P 500 fell 79.92, or 6.7 percent, to 1,119.46. The Nasdaq composite index fell 174.72, or 6.9 percent, to 2,357.69.

Financial markets also did not appear comforted by an afternoon statement by U.S. President Barack Obama, who said Washington needs more "common sense and compromise" to tame its debt.

"Markets will rise and fall,"Obama said. "But this is the United States of America. No matter what some agency may say, we've always been and always will be a triple-A country."
Perceptions that Washington is incapable of addressing the problems of rising debt and slowing growth have contributed to the panic selling. Monday's global stock market sell-off wiped out more than $1.35 trillion in investor wealth worldwide, according to the 5.2 percent drop in the MSCI World Index .

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Nalliah Thayabharan at 2011-09-0669.159.21.*
The economists define wealth and justice in terms of access to the market. Politicians echo the economists because the more dependent that people become upon the market, the more securely they can be roped into the fiscal and political hierarchy. Access to land is not simply a threat to landowning élites — it is a threat to the religion of unlimited economic growth and the power structure that depends upon it.The market (however attractive it may appear) is built on promises: the only source of wealth is the earth. Anyone who has land has access to energy, water, nourishment, shelter, healing, wisdom, ancestors and a grave. Ivan Illich spoke of “a society of convivial tools that allows men to achieve purposes with energy fully under their control”. The ultimate convivial tool, the mother of all the others, is the earth.Although the earth gives, it dictates its terms; and its terms alter from place to place. So it is that agriculture begets human culture; and cultural diversity, like biological diversity, flowers in obedience to the conditions that the earth imposes. The first and inevitable effect of the global market is to uproot and destroy land-based human cultures. The final and inevitable achievement of a rootless global market will be to destroy itself.In a shrunken world, taxed to keep the wheels of industry accelerating, land and its resources are increasingly contested. Six billion people compete to acquire land for a variety of conflicting uses: land for food, for water, for energy, for timber, for carbon sinks, for housing, for wildlife, for recreation, for investment. The politics of land — who owns it, who controls it and who has access to it — is more important than ever. Rome fell; the Soviet Empire collapsed; the stars and stripes are fading in the west. Nothing is forever in history, except geography. Capitalism is a confidence trick, a dazzling edifice built on paper promises. It may stand longer than some of us anticipate, but when it crumbles, the land will remain.-Nalliah Thayabharan
PD User at 2011-08-09114.160.71.*
It is time for China to look into a new economic paradigm - VALUES China can use its US$1 trillion treasury bill and the current global economic system to GIVE VALUES and GET VALUES until it has built a fair trading system for the world.GET VALUES:The US$1 trillion reserves can be use to secure needed resources like energy and technology. China can participate as a silent controlling partner in buying stakes in Australian, Canadian, South American and African entities through the convertibility of US T-bills. It can be used to fund ailing excellent R&D entities like the CDC to faster transfer the needed medical technology for China. It can fund R&D centres overseas to secure technology needed by China. Japan Toyota has research centres in Detroit and California. Japan NEC has development centres in Palo Alto to do the software needed to power its mobile devices and research centres in UK for other products. NEC use Australia to test its products for the world market. Do it gracefully without the Australian, UK, US or Canadian politicians and interest groups involvement.GIVE VALUES:The existence of the Chinese Government is to give values to its people. I saw a lot of happy children faces on the CRH trains. This is a non-monetary value. The 20,000 km extensive CRH network is something that money alone cannot buy. The US cannot give this to its people whereas China can. China can use its US$3 trillion reserves to invest in human capital and education. This will prepare its vast population to participate in meaningful jobs that no amount of money can buy and that is a lot of values that China can give to its people. Meaningful jobs as oppose to a normal jobs is a job that people love to do at every moment of his/her working life like creating/inventing new technology and process that will give a lot more values to China and the world. Then there are so many other values that the reserves can exchange for like clean water, safe food, healthcare, health sciences, social security, etc.DEFAULT:Some say that the Nixon Shock in 1973 was essentially a default. Ever since, every US administration has been using what was left like borrowing and printing money to keep it going. The US and Europe has little left now. The S&P downgrade is just a deep exposure and many nation have a deeper understanding now. The US can never be able to repay its debts! In fact, it is not going to pay. The rating should be a D instead of AA+.LESSONS:US can do little now after it make the decision to live off finance in Wall Street. It is like China moving its rural people to work in urban areas. Farmers have to be trained from young and be used to the daily grind. It will be close to impossible for a young Chinese who has been use to an easy job in a bank or a finance sector to go back to farming after he/she lost the job when the financial sector collapse. This is the situation in US and Europe now. China lending the US and Europe another US$1 trillion will only last one year at most and that is never a solution. It is best that China invest in its people such that a few will be able create robots, that work like people, to take over farming and that is value.I came across an excellent documentary on the history of the Great Depression that was produced by BBC and was televised by Australian television in 1992. Malaysia Astro televised another good one: "Crash - The Next Great Depression" in 2009. These should be the minimum for any one trying to have a grasp on what was happening. Britain took off the gold standard, similar to the floating of US dollar in 1973, and lived on 'Old Rice' since. The Black Tuesday in 1929 was the result of excessive speculation and insider trading similar to the sub-prime fiasco in Wall Street. The banks collapse in 1929 was a lack of confidence similar to selling in the equity markets around the world today. The hyper-inflation in Germany in 1930 was the result of printing money similar to Zimbabwe, QE1 and QE2. The documentaries is a lot more and it is worth to search in the archives for them.The following web-link give a good explanation of the situation. Look into his archive as there are few more good ones too.http://chedet.cc/blog/?p=562#more-562CASINOS:The equity markets around the world are casinos in the true sense. People play/punt/speculate on them.China should not open the Shanghai and Shenzhen Stock Exchanges to the world. Doing this will is not only harmful to China, it is also exporting harm to the world like Wall Street. China already has Hong Kong as an open exchange and it can be used for observation from afar. I noticed that Hong Kong economy has declined a lot since seven years ago. Perhaps, its economy is speculative in nature.China should use Shanghai and Shenzhen equity markets as a source of capital - that is to get values from the systems. The analogy is a group of four people playing Majong. You lost, I win, but she will win next. This way, the financial resources will stay inside China as a giant cash flow to run the real China's economy. The cumulative 5 per cent drop each in Shanghai and Shenzhen in the past two days has little impact in China and the world except its shareholders clear shows that the current Chinese financial system is superior and is working well.Australia has an empty economy when it liberalised its financial instruments in the 1980s. It got nothing except for a few financial jobs for its people. In the past weak, the ASX (The Ordinaries) lost about A$200 billion! That is about ten per cent of its market capitalisation. It is like China giving A$200 to Australia to get its resources over two years, but Australia lost all of it in just a week to Wall Street and London. All wasted for nothing. Perhaps, China can help Australia by giving values in building a high-speed rail network.My country was in a way saved by the global financial crisis of 2008. In June that year, our newly elected Prime Minister was pushing to liberalised our nation financial instruments to get the country into the high-income status. This plan was on hold due to the exposure in Wall Street. But then there are stockbrokers, the politicians and outsiders pushing for it. This is the similar dangers lurking in China too. That is, people anywhere can be bought.REAL ECONOMY:In the past month, I had been travelling in Nanjing, Beijing, Tianjin, Shanghai, Suzhou, Hangzhou from my current base in Guangzhou. I can see that China now has a tremendous capacity for an internal economy. I was in a few tour groups. This is one type of economic activity that is giving values to the people of China. There are certainly a lot more. It is up to the people in China to identify them and seize the opportunities.The key to the new fair economic system is one that gives VALUES to the participants. Exploring, identifying, and implementing them will benefit China and the whole world.
  

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