Yesterday was a ‘Black Monday’ for investors throughout the globe, with stocks in American, European and the Asian markets witnessing unprecedented downslide amidst fears of the US economy moving towards recession. In London, FTSE crashed by 217.3 points to close at 5,414, its lowest since November 2005. Hang Seng lost 5.18% points to close just above 21,000. The BSE Sensex lost 951 points the second largest fall in equity prices in the history of the Bombay Stock Exchange. Dow Jones was perhaps the only major index to witness a slight 0.2% rise in response to the Fed’s intention of further cutting the interest rate.

Dollar continues to tumble touching 79.12p against the Euro, its lowest since the formation of the European single currency in 1999. The volatility of the value of the dollar is forcing investors to switch their money into ’safe havens’ that is pushing up gold prices to new heights. Gold price touched $1,030 an ounce on Monday. With dollar depreciating, equity prices crumbling and rising crude prices pushing up inflation, the global economy is facing one of its worst crises in the history of globalization.

The US sub prime crisis has pulled down banking indices of the global financial giants, with every US and European bank introducing stringent lending norms to prevent further loss. With strong linkage with the US financial institutions, the European banking institutions have every reason to become jittery after the collapse of Bear Stearns. The rollercoaster ride of the share prices had badly hit the share prices of the High Street Banks with their combined loss amounting to roughly 13 billion pound in a single day. If the British banks, find it difficult to borrow then they would be forced to rein in lending causing upward spiraling of lending rates, further reducing consumer spending. The Bank of England in its endeavor to prevent any impending financial crisis has made an emergency 5 billion pounds available to banks and buildings societies in loans, which must be repaid in three days. The offer was five times oversubscribed as institutions competed with each other for the cheap money.

Despite of assurance from political leaders and the UK Prime Minister in particular that the economic fundamentals are in sound health but the magnanimity of the financial crisis triggered by the highly risky US mortgage market is all set to see a new global recessionary condition.

Source: DailyMail