It’s a small world, after all – as today’s global stock market sell-off demonstrates. News emerged that manufacturing in China is contracting and investors dumped their stocks in Japan, which sent Asian stocks plummeting around the world.
It’s a classic example of how the global economy works.
Economies are now so interdependent that the health of each country depends on the health of other countries. When the Federal Reserve floods the market with US dollars, for example, commerce thrives and stock markets bloom. When the Fed pulls in its horns, commerce slows and investors pull back. As an Associated Press analysis of today’s stock market slump explains:
Much of the recovery in global stock markets over the past few years has had its roots in the extra money that’s been recycled through financial markets. This extra liquidity has come from the stimulus initiatives by a number of the world’s leading central banks. The withdrawal of some of the Fed’s stimulus measures has been seen as the greatest threat to stocks for some time.
AP noted that:
Mixed messages from the U.S. Federal Reserve about when it may start easing the amount of financial assets it purchases each month have also contributed to Thursday’s retreat.
Of course there’s more to the stock market slump than the Fed’s ambivalence. For one thing, China’s leaders are making a conscious effort to slow that country’s growth. But I’m sure that the underlying causes include shrinking consumer spending in America – and most of the world. With European and American politicians inflicting “austerity” on the poor and middle class, while lavishing tax breaks on corporations and the rich, more and more people have less and less money to spend.
That might be why Walmart’s sales declined 1.4 percent last quarter. And, as I’m sure you know, Walmart is responsible for a hefty chunk of China’s manufacturing output.
When a small sliver of the global population gobbles up more and more of the world’s wealth, they leave the rest of us with too little for us to sustain the economy. We can’t buy the stuff their investment dollars are producing, sales dry up, profits plummet and stock markets collapse.
Today’s stock market slump will probably be just another bump in the road. The gnomes who push the market’s buttons have ways to fix this sort of thing. (Indeed, while I was writing this blog, the New York Stock Exchange was beginning to recover.)
But even if this is just a passing phase, it should serve as a warning to the austerity hawks who pander to the super-rich.
It might seem like a good idea for the elite to put the squeeze on the poor and middle class. They will prosper for a while. But, inevitably, the shock waves will reach the top of the pyramid.
Perhaps not today. Perhaps not tomorrow. But one day.