Blood on the Trading Floor.

Yesterday (4/8/11) stock market's worldwide lost an estimated total of US$3 trillion. This is the worst single day losses since September 2008 which is more commonly known as the start of the credit crunch or the beginning of "The Great Recession." There are two main reasons for this;

The US Debt Deal: Although any deal to raise the American debt ceiling is better then no deal a lot of people were hoping for a more balanced deal that saw the increase in borrowing off-set by both cuts to spending and an increase in tax revenue. Instead what they got was a plan that hopes to do it all through spending cuts. By taking this much money (US$900bn) out of the US economy right now this creates the risk that it will choke off America's economic recovery and push America back into recession. As America is the world's largest economy and therefore the market everyone else relies upon to buy their exports an American recession will most probably lead to a world recession. Today's job creation figures from the month before the Budget Control Act 2011 was passed were not great.

However it is still far too early to tell what effect the US debt deal (I've not read it yet) will have so the main thing causing the most concern to the world's financial markets is;

The Eurozone: Specifically Spain and Italy.

Since May 2011 Spain has seen the growth of the semi-government sponsored protest movement against spending cuts and austerity measures known as "The Indignants." In the business this has been seen as a sign that the Spanish government intends to either refuse to pay it's debts or beg for a German bailout that it won't get. If either of these things happen then a lot of banks, pension funds and people will lose a lot of money.

Since 2008 Italy has been run by a buffoon named Silvio Berlusconi. Under his tenure Berlusconi has been more concerned with having sex with underage prostitutes and doing dodgy business deals then running the country. As a result the Italian economy has been all but annihilated and the country has the highest levels of debt in the entire Eurozone. So there are very serious concerns that unless Berlusconi resigns soon Italy will collapse and this will have a bigger effect then the Greek collapse, the Irish collapse and the Portuguese collapse combined. Unfortunately Berlusconi is already playing the "They're all out to get me" card.

These concerns have caused the holders of Spanish and Italian debt to increase the interest rate on those loans in order to recover as much of their money as possible. In turn this has increased fears that Spain and Italy will default and forced the markets to look at the institutions that will have to deal with this crisis. They've found an European Union/Commission (EU/EC) that is far too busy arguing about it's name to respond to any crisis. They've also found and IMF which is fully in the pocket of the French government which is up to it's eyeballs in bad Eurozone debt and has so far blocked any rescue package being offered. Finally they found a European Central Bank (ECB) that is adament in it's refusal to accept that it is the responsability of a central bank to back it's currency.

As for my role in all of this it's actually been pretty minimal. It's really just that the people who've been saying that this will all be fine are the same people who've been saying that I'll be losing by now. As that's not happening their credibility is wearing about as thin a William Hague's hair.

Anyway the good news is that it's now the weekend and things seem to have calmed down a bit. So it looks like what's currently going on is a very large market correction rather then a full scale meltdown.