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Asian markets tumble after share sell-off in the US

Asian markets have been hammered amid fears that the US is heading for a recession and after Wall Street posted the biggest losses since late 2008.

Japan's Nikkei 225 index fell 3.7%, South Korea's Kospi lost 5%, and Australia's ASX shed 3.8%.

Earlier in the US, the Dow Jones stock index dropped 5.6%, despite US President Barack Obama trying to reassure investors.

A US recession would hurt Asia's export-led economies.

"You can't control it," Peter Esho, chief market analyst at City Index, told the BBC.

"You have the onset of fear in the market. There are a lot of things that don't make sense."Rocking market

Analysts said a number of issues had created the current market pessimism.

At the heart of the problem is the fear that ongoing debt problems in the US and Europe will slow economic growth and dent corporate profits.

On top of that, the US had its triple A credit rating cut by Standard and Poor's for the first time in history, added to the sense of gloom surrounding the world's biggest economy.

"What's rocking the market is a growth scare," said Kathleen Gaffney of Loomis Sayles.

She said investors were concerned about "how Europe and the US are going to work their way out of a high debt burden" if the global economy slowed.

Rajiv Biswas of IHS Global Insight told the BBC that investors were worried that given the issues with the US credit rating downgrade there will be a drop in government spending.

"That will be a a big drag on growth," he said.Historic moves

City Index's Mr Esho added that a combination of these fears has dented market sentiment, and prompted investors to dump stocks across all industries in the US.

The S&P 500 index was down 6.7% in New York on Monday, the worst drop since December 2008, with every listed stock falling.

In points terms, the Dow ended down 635 to 10,810, its biggest one-day decline since October 2008, and the sixth largest on record. The Nasdaq index fell even further, losing 6.9%.

Earlier in the UK, the main FTSE 100 index lost 3.4%, or 178 points. It was the first time in the FTSE 100's 27-year history that it had fallen by more than 100 points for four sessions in a row.

Share indexes also fell heavily across Europe on Monday, with Germany's Dax ending down 5%, while France's Cac lost 4.7%.

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Western Governments Will Embark On A New Round Of Quantitative Easing To Help Spur Their Moribund Economies

They'll try to disguise it. They'll call it cupcakes or who knows what. It'll cause a big rally in raw materials and commodities because more and more people will realize they are printing money, they are debasing the currency. - in Reuters

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China Tells U.S. It Must ‘Cure Its Addiction to Debt’

SHANGHAI — China, the largest foreign holder of United States debt, said Saturday that Washington needed to “cure its addiction to debts” and “live within its means,” just hours after the rating agency Standard & Poor’s downgraded America’s long-term debt.

The harshly worded commentary, released by China’s official Xinhua news agency, was Beijing’s latest effort to express its displeasure with Washington.

Beijing’s reaction to the downgrade was the harshest among foreign leaders. Japan — which held $882 billion in United States Treasuries at the end of last year, making it the second-biggest overseas holder of American debt — did not release any official statement about the downgrade. A Finance Ministry official said he could not comment.

Though Beijing has few options other than to continue to buy United States Treasury bonds, Chinese officials are clearly concerned that the country’s substantial holdings of American debt, worth at least $1.1 trillion, are being devalued.

“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” read the commentary, which was published in Chinese newspapers.

Beijing, which did not release any other official statement on the downgrade, called on Washington to make substantial cuts to its “gigantic military expenditure” and its “bloated social welfare” programs.

The commentary serves as a sharp illustration of how the United States’ standing in the world is sliding and how China now views itself as ascendant.

While Washington wrangles over its debt and deficit problems and the European Union struggles to deal with its own debt issues, China is sitting on the world’s largest foreign exchange holdings, and its economy is growing at close to 9 percent. The country is also once again racking up huge trade surpluses with the rest of the world.

Beijing does have its own worries, like soaring inflation and housing prices and an overheating economy. Policy makers are also trying to deal with the accumulation of huge foreign exchange holdings. Trade and current account surpluses have helped China accumulate the vast foreign exchange reserves. It has invested much of those reserves in United States Treasury bonds, largely because the American market has long been considered the safest and most liquid bond market in the world.

Analysts say that China can also buy bonds in the European and Japanese markets but that those two markets are not big or liquid enough to absorb China’s fast-accumulating foreign exchange reserves.

But because China has about $3 trillion in foreign exchange reserves, there are few places big enough to invest those holdings safely outside of United States Treasuries, even though it looks as if they may lose value.

Analysts say that if China pulled back from buying Treasuries, the dollar would weaken and America’s borrowing costs would rise sharply, but that would also hurt China’s existing holdings.

And so until China can find a way to slow its accumulation of dollars or find alternatives, it is likely to be the largest buyer of Treasuries. Still, government leaders here increasingly sound as if they are losing confidence.

“International supervision over the issue of U.S. dollars should be introduced, and a new stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,” the Xinhua commentary said.

Japanese officials in recent weeks had voiced some concern over Washington’s debt impasse and its effect on the global economy. Still, trade-driven Japan is more than ever lured to holding Treasuries as a way to weaken its currency and make its exports more competitive. This week, Japan started what one economist estimated to be a 4.5 trillion yen intervention to buy dollars and sell yen. Data is expected to show that Japan’s holdings of Treasuries have increased.

Meanwhile, Japan is struggling with its own burgeoning debt, already twice the size of its $5 trillion economy. Standard & Poor’s in January downgraded Japan’s sovereign debt rating to AA-, two notches lower than the newly downgraded AA+ rating held by American securities. The markets shrugged off the downgrade, however, and Japan maintains low long-term interest rates.
New York Times

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Factors behind market turmoil

The past few days have seen a dramatic sell-off in shares around the world, with stock markets seeing falls of the magnitude not seen since the global financial crisis of 2007-08.

Once again, there are worries that the eurozone debt crisis could spread from the bloc's smaller countries, to larger economies such as Spain and Italy.

Investors are also worried that growth in the US economy is slowing, which would have a knock-on impact on the rest of the global economy.

And confidence in the world's largest economy could be knocked after the credit rating agency Standard & Poor's downgraded the US's top-notch AAA rating for the first time in its history.

The world's main stock markets have seen big falls in the past few days, as investors shun shares and look for safer investments.

The falls have wiped out any gains that many of the markets had made this year, with fears growing that we could be heading for another credit crunch.

London's FTSE 100 index fell almost 10% last week, while Germany's Dax lost almost 13% and the Dow in New York fell 5.8%.

Shares in European banks have come under particular pressure as investors are worried about what level of eurozone government debt they are holding, and whether this will be repaid if the eurozone debt crisis spreads.

Crisis spreading

One of the main causes of nervousness on the markets has been whether the eurozone debt crisis will spread and about European leaders' ability to deal with it, as voiced by European Commission President Jose Manuel Barroso.

So far Greece, Portugal and the Irish Republic, have already received international help to deal with their crippling debt problems.

Last month, eurozone leaders agreed a second bailout deal for Greece, and also agreed more powers for the European Financial Stability Fund.

This was supposed to have reassured markets that the debt crisis would not spread beyond the "periphery" countries to larger economies such as Spain and Italy.

However, any relief was short-lived, and yields - which indicate the cost of borrowing for a country - on Spanish and Italian debt continued to rise.

Analysts were worried that yields are reaching the point where it would become prohibitively expensive for these countries to borrow on the financial markets and force them to ask for international help, too.

As a result, the European Central Bank has decided to buy Italian and Spanish government bonds to try to bring down their borrowing costs.

The yield on Spanish and Italian 10-year bonds fell shortly after the move.

And the G7 group of industrialised countries has also moved to reassure markets, issuing a statement saying it is "determined to react in a co-ordinated manner".

US fears

Another factor which is unnerving the markets is concern about the US economy.

Part of that focuses on the US's ability to repay its debts, with Congress only agreeing on a deficit reduction plan at the eleventh hour, following days of deadlock between Republicans and Democrats over how to raise the US debt limit.

And investors were further unnerved when the credit rating agency Standard & Poor's cut the long-term US rating by one notch from AAA to AA+ with a negative outlook, citing concerns about budget deficits.

There are also worries that the US economy is growing much more slowly than had been hoped.

Last month, figures show the economy grew at an annualised rate of 1.3% in the second quarter of the year, which was slower than expected.

In addition, the growth rate for the first quarter was revised down sharply from 1.9% to 0.4%.

Recent days have brought more gloomy news. Figures showed that US consumer spending fell 0.2% in June, the first drop in almost two years.

However, the unemployment rate fell slightly from 9.2% to 9.1% in July.

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Iran says U.S. 'will be taught the mother of all lessons'

Iran is planning to retaliate against the United States for the sabotage against its nuclear program, according to an editorial in the Kayhan newspaper, the mouthpiece of Iran's supreme leader, Ayatollah Ali Khamenei.

The U.S. has all of its infrastructure connected to the Internet, the editorial says, and as a result, "it is constantly worried about an unknown player, who they will never be able to identify ... sitting in some corner of the world who would launch an attack on a sector of (the Americans') foundations. They will be taught the mother of all lessons."

Specifically, Iran is looking into launching a cyber attack against U.S. electrical grid systems.

Iranian officials are furious over the July 23 assassination of nuclear scientist Dariush Rezai-Nejad, who was working on electric detonators for the Iranian nuclear program, which can be used on missiles or nuclear bombs. He was the third Iranian nuclear scientist assassinated since 2009.

The frustration over acts of sabotage started with the computer virus Stuxnet in which 1,000 of Iran's centrifuges at the Natanzs nuclear facility were destroyed and had to be replaced. The virus also attacked the Bushehr nuclear power plant, which has resulted in repeated delays in it joining the country's power grid.

The July 29 Kayhan editorial threatening America with retaliation said that during the last month, the United States has published two strategy documents regarding cyberspace, both of which emphasize the ever-evolving nature of Internet communications.
WND

Read more:Iran says U.S. 'will be taught the mother of all lessons'http://www.wnd.com/?pageId=329977#ixzz1URdDdgH3

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Fresh video London riots

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