World Economy

US Stock Market Teeters on Edge of Collapse

US Stock Market Teeters on Edge of CollapseUS Stock Market Teeters on Edge of Collapse

World stock markets continued to plummet, fueled by another steep decline in Chinese shares and concerns over a marked slowdown in the world’s second-largest economy and turmoil in emerging market economies.But the meltdown was most intense in the United States.

The Shanghai Composite Index fell 8.5%, its sharpest fall since February 2007, bringing its losses since June to nearly 40%. Major stock exchanges across Asia followed suit, with Japan and Hong Kong falling 4.6% and 5.2%, respectively, WSWS reported.

The panic spread to Europe, with the British, German and French indexes plunging between 4.6% and 5.2%. Stocks also sank across the Middle East and in Latin America.

With pre-market futures for the Dow Jones Industrial Average down 700 points, the Dow collapsed at the opening bell, along with the S&P 500 and Nasdaq indexes.

  Full-Scale Meltdown

Within four minutes of the start of trading, the Dow had sunk by 1,089 points, or 6.6%, the biggest single-day point drop in US history. The Nasdaq dropped 400 points, or more than 8%, and the S&P 500 fell over 100 points, about 5%.

The massive and seemingly unstoppable wave of selling shocked market experts and commentators and provoked comparisons to the “Black Monday” trading disaster of 1987, when the Dow plunged 22% in one day. There were many indications that a full-scale meltdown was in progress.

Apple stock plunged 13% at the opening, prompting CEO Tim Cook to go on CNBC television to reassure Apple investors that the company’s business in China was not threatened. Apple ended the day with a 2.47% loss.

Online brokerage firms TD Ameritrade and Scottrade were swamped by a wave of sell orders, blocking many investors from gaining access to their accounts. Scottrade said that it experienced a 230% spike in trading volume at the opening.

The VIX, a market index that measures volatility and is known as the “fear index,” hit 53. The last time it was over 50 was in March 2009, when the market hit bottom following the September 15, 2008 Wall Street crash.

  US Gov’t Bonds Affected

The atmosphere of panic was also reflected in a large-scale move from stocks to US government bonds. The yield on US ten-year treasury notes, considered a safe haven, fell below 2% for the first time in months, reflecting a surge in demand for the bonds.

Yet five minutes after the initial US market collapse, a wave of buying cut the losses in half. At one point the Dow came within 115 points of breaking even. The selloff resumed later in the day and the Dow ended the session with a loss of 588 points, or 3.6%. The S&P 500 ended down 77 points, or 3.94%, and the Nasdaq closed with a loss of 179 points, a decline of 3.82%.

All three indexes are in “correction” territory, having declined by more than 10% from their recent highs.

  Fed’s Intervention

There can be little doubt that the Federal Reserve Board and related government agencies intervened behind the scenes to organize the massive buying spree that halted the opening market plunge.

Reports emerged later that the New York Stock Exchange had invoked an obscure and rarely used rule to preempt panic selling. Rule 48 speeds up the opening of trading by suspending a requirement that stock prices be announced at the beginning of the session. This may have been used to facilitate an intervention by the Fed.

Given the role of the Fed in financing the tripling of stock prices since the 2008-2009 crash by holding interest rates at near-zero and pumping trillions of dollars into the financial markets, such an intervention to once again rescue the financial elite would not be an aberration.

  Enriching the Rich

The entire policy of the Fed and other major central banks and governments since the eruption of the crisis seven years ago, has been focused on engineering a vast redistribution of wealth from the working class to the corporate-financial elite through a combination of austerity and record high stock prices.

The unprecedented bull market has been the main mechanism for further enriching the world’s multimillionaires and billionaires, even as the real economy was starved of productive investment and remained mired in stagnation. The current stock market panic reflects the growth of deflationary pressures in the global economy that are overpowering the efforts to inflate and maintain financial bubbles for the benefit of the rich and the super-rich.

The slowdown in China and in the world economy more broadly, along with a rise in the US dollar, has undermined so-called emerging market economies from Brazil and Mexico to Turkey, Russia, Indonesia and South Africa, which depend on China as a market for their commodities exports. The financial markets and currencies of these countries have been plunging for weeks, exacerbating the international tendencies toward slump and threatening to spark a financial crisis.