Fear infects financial markets

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Fear infects financial markets

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Sparking memories of the 2008 crisis, Friday was another very turbulent day on the world’s financial markets starting with a massive sell off of shares around Europe and then a rollercoaster ride even as the latest figures showed the US economy creating more jobs than expected in July.

European shares closed at their lowest in 13 months and investors remain very jittery. They are ready to jump at any sign of the global economy slowing and the euro zone debt problems spreading to Italy and Spain. They are also not confident about how politicians are handling the situation.

Investment fund manager Francois Chaulet of Montsegur Finance in Paris explained: “What is driving these falls is a change in the state of mind of investors. Previously, they were banking on a strong economic recovery and now the leading indicators are showing that the rate of growth is tending to reduce. “

In Asia – which has lent a lot of money to the US and Europe – fears are focused on a slide back into recession.

As Japanese and Chinese markets slumped, China’s foreign minister, Yang Jiechi, said US debt risk is escalating and there has to be more cooperation on global economic risks.

Countries around the world are carrying too much debt and not growing fast enough to pay back what they owe.

Europe’s worst offenders are Greece and Italy with predicted debt to GDP ratios of 157 percent and 129 percent respectively this year. France is also a worry at 97 percent. And with the debt ceiling finally lifted US debt this year is forecast to hit 101 percent of GDP.

Economic expansion is the key: without it the market fear will continue and investors will not take risks. All this is against a background of recent slowdowns in manufacturing in Europe, the US and China along with weak growth in countries’ gross domestic product.