Thursday presented itself as perfect storm of uncertainty as the Dow plunged 521 points amidst fears of an anemic global economy and the spread of Europe's debt contagion. This was the worst day for the Dow since the U.S. slid into recession in 2008. Overall, the three major indexes, the Dow, the Nasdaq, and the S&P 500, have fallen 10% in the last ten days. Many are going to correlate the Dow's drop to the recent deal made by Congress to raise the debt ceiling. However, it's unlikely that the markets took several days to respond to a sing deal. This is not to say that American politics wasn't part of the story. It was, but it played a limited role. More than anything, the markets responded to Italy's possible default. Italy entered emergency meetings with Eurozone officials discussing the prospects of a rescue plan. Both Italy and Spain are the newest chapter in Europe's debt crisis following the the perils of Greece and Ireland. These developments unfold as China attempts to slow its economy in order to combat its inflation rate. The consumer price index places China's inflation at a three year high which will raise food prices for items like fish and grain. This all paints a bleak picture of the global economy, which was reflected in the markets Thursday.
So what role does the U.S. play in the Dow's drop?
This article appears in Aug 4-10, 2011.