From the Website of CNN NEWS
links: http://edition.cnn.com/2015/08/24/opinions/ghitis-stock-market/index.html
The threat of a falling stock market
(CNN)People
in power have learned to fear swings in financial markets. That's
because a whipsaw in the markets can reflect or aggravate problems in
the economy. And there is nothing scarier to a ruling government than an
economic collapse.
It's
not just the market slide that is creating turmoil, but financial
markets are both signaling and causing harsher economic conditions.
When
the economy is working, people tend to forgive their leaders' misdeeds.
When times get tough, there is no patience for corruption, incompetence
and arrogance. Cast your glance toward Brazil, Iraq, Venezuela and
elsewhere, and you'll see shivers of anxiety at the highest level.
Frida Ghitis
Something
is happening with the global economy. We are seeing it now in stocks,
but the evidence of trouble surfaced many months ago in the commodity
markets. Prices for raw materials have been dropping steadily for about a
year. That occurred in large part because China, the world's
second-largest economy, which had been growing at eye-popping rates for
years, suddenly started to slow down. That was a devastating turn of
events for economies that had built their fortunes on feeding China's
voracious appetite.
China's
economy grew 7.4% in 2014. For any other country, that would count as
spectacular. But it was the lowest rate of growth since 1990, the year
after the Tiananmen Square massacre prompted international sanctions.
And now, indications point to a steeper decline in China's growth, with visible reverberations in all corners of the world.
The entire phenomenon is made even more acute by the collapse of oil
prices, the result of both supply and demand factors. New technologies
have exploded oil production. The sharp increase in supply converged
with a slowdown in demand.
Europe,
another major global powerhouse, is still in the economic doldrums. A
sluggish Europe and China have further depressed oil and other commodity
prices.
For consumers, lower prices
sound like reason to rejoice. But economies and markets don't respond
well to sudden change. They like it to happen gradually, allowing them
to adjust.
Instead, we have turmoil in the markets, people taking to the streets and governments looking wobbly.
China's
slowdown brought a sudden end to the economic boom in much of Latin
America, and with that, people ran out of patience with corruption,
creating a wave of anti-graft movements that is threatening to topple
once powerful governments throughout the region.
Brazilian President Dilma Rousseff
has seen hundreds of thousands take to the streets to protest a massive
corruption scandal involving the state oil company Petrobras. She has
not been directly implicated, but dozens of top government officials,
business tycoons, and scores of legislators are under investigation or
have already been charged. Calls for the President's impeachment are
growing louder.
It's no coincidence that public impatience with the system ran out just as the economic boom ended and Brazil plunged into recession.
Venezuela, where economic mismanagement was concealed under oil riches, is now teetering on the edge of a cliff.
Across the developing world, where commodity exports tend to play a large economic role, growth is weaker. Mining firms are losing ground. Investors are leaving. Currencies are falling.
Without
foreign investors, countries that did not feel exposed to commodity
prices are now in trouble. Spillover fears are threatening Turkey, where
the economic minister, watching the collapse of the Turkish lira, said, "For God's sake, take my word. There is no crisis in Turkey."
But
there is enough of a crisis that an economic slowdown was the top issue
in June elections. And the ruling AK Party lost its parliamentary
majority for the first time since 2002. What came later, including the
end of a peace process and a new conflict against Kurdish separatists,
is viewed by critics as an effort to reverse AK Party's slide in the polls ahead of a new election in a couple of months.
In Iraq,
the drop in oil export revenues pummeled state finances, already
drained by war, taking a toll on public services. In the scorching
summer heat, the lack of air conditioning was enough to bring masses of protesters to the streets to complain about corruption and mismanagement. Trying to save his government, Prime Minister Haider al-Abadi is enacting far-reaching reforms unlike anything Iraq has seen since the fall of Saddam Hussein.
The drop in earnings has hit Russia, where gas exports financed rising living standards, burnishing Vladimir Putin's
personality cult. The economy, now also hurt by sanctions, is
contracting. But Putin's popularity is kept radiant by the patriotic
appeals of war in Ukraine.
In China,
the epicenter of the economic contraction, the government continues to
play its curious oxymoronic game of communist capitalism, a form of
capitalism closely managed by a powerful state apparatus controlled by
the Communist Party.
Many investors doubt Chinese economic statistics and find other signs of economic trouble ahead. Authorities say the economy is still growing, but more slowly than usual. They say exports fell 8% last month.
When the Shanghai market started nose-diving, the government, which had deliberately propped it up, seemed to panic.
The
country has vast cash reserves -- about $4 trillion -- so there is
plenty of money to stimulate the economy. But there are limits to the
government's powers. In fact, the more China tries to stimulate growth, the more global markets smell fear that the situation is worse than it's letting on.
For
now, all eyes are on China. The world has grown accustomed to strong
Chinese economic growth. In an irony of globalization, governments
everywhere are rooting for China's regime to succeed in stabilizing its
economy, because if it doesn't, political turmoil will intensify in
other parts of the world.
CNN Website
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