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Subprime crises can push world market into recession

January 29, 2012

It’s not only America and Europe, who are battling with the subprime woes, but Asian markets are also affected by it. It’s so obvious that even single news also affects other markets dearly. Subprime dragon has already eaten up many markets and all the major and budding markets felt the heat. To end the volatility, major central banks injected money into the market. To some extent, markets feel easy, but now recession is hoping round the corner. Head of Countrywide Financial Corp raised worry on the US housing downturn and said that it could create a recession. His statement hit hard on the market, whereas Asia’s were the worse affected from it. MSCI’s measure of Asia Pacific stocks excluding Japan was down 0.6%, whereas Hong Kong’s market dithers after Bank of China’s revelation of possessing of $8.965bn in U.S. subprime mortgage-backed bonds and $682m in collateralized debt obligations at the end of June. Japan’s Nikkei average also fell 0.3% from a one-week closing high hit in the previous session. Exporters and U.S.-exposed firms contributed to declines in Australian and South Korean shares. Even Indian stock exchange could not part itself from the speculation and stocks fell in the morning trading. Statement also proved expensive for the American market as the Dow Jones industrial average ended flat, while the Standard & Poor’s 500 Index slipped 0.11% and the NASDAQ Composite Index shed 0.43%. The currency market also affected from it, the yen traded lower against the dollar. Amidst the credit crunch oil prices also fell and U.S. light crude for October delivery dipped 5c at $69.78 a barrel, after gaining 57c on Thursday, ending a three-day losing streak that had knocked prices to their lowest since late June. Analysts don’t rule out the recession speculation and Policy makers find themselves in a limbo. All their measures were effective for two or three days and than subprime generated cycle started rolling again and added another vicious chapter. Fed reduces its rates, it works for couple of days and than inflation start soaring, if fed again raise rates than story will be same as earlier. On one side economist wants to check inflation and also seek some way to dump the subprime crises, but at this point of time all economies are on the threshold. If the bubble of subprime explodes it will ruin all economy, doesn’t matter whether it’s developed and budding. Mortgage problem is 10 fold larger problem than it appears. Therefore, policy makers have to move carefully, otherwise speculations might not take much time to convert into reality. Image Source