Forget about the stimulus plan and the housing assistance program: world markets are taking a dive. The World's Matthew Bell looks into why that's happening.
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MARCO WERMAN: I'm Marco Werman. This is The World. It's been a rough week for global markets. They were down sharply in Europe, Asia, and here in the US. That's despite historic efforts by the Obama administration this week to jump-start the economy. The World's Matthew Bell reports.
MATTHEW BELL: On Tuesday, Mr. Obama signed a massive economic stimulus bill. On Wednesday, he announced plans to help struggling homeowners. And today, Mr. Obama put those moves into a context of hope. He was speaking to a gathering of American mayors in Washington.
PRESIDENT OBAMA: People will look back and say that this was a turning point. This was a moment where in the midst of great crisis, leadership was shown and we created a new platform for success for all Americans in the future.
BELL: But if global markets sense a turning point this week, it's probably not the kind that President Obama had in mind.
ROGOFF: Markets have basically started to realize that this recession is deeper and longer than they imagined.
BELL: Kenneth Rogoff is an economist at Harvard University.
ROGOFF: Asia's fallen off a cliff the last couple quarters. Korean output has crashed. Japanese exports have dropped by 13 percent. China's saying they're okay, but nobody believes it. German manufacturing is down at a 50-year fall. Europe's experiencing really a catastrophic decline in output. It's a very deep recession.
BELL: In fact, as bad as things are here, the United States isn't suffering nearly as much as some parts of the world, says Allister Heath. He's the editor of the London-based business newspaper, City AM.
HEATH: Eastern Europe for example is the next big area of the world to be plunged in crisis. Their countries like Ukraine or even Poland are in deep trouble. Wherever we look, we see a crisis. The United Arab Emirates, Dubai – these are the kinds of economies that people just 6 months ago thought would be able to weather the storm with little problem. Well, no. They're facing deep-seated issues of their own. All of them are linked, but all of them have taken a life of their own. They're all independent now of one another.
BELL: Heath says it's likely that several countries will suffer the same fate as Iceland and go bankrupt in the coming months. The biggest single thing rattling international investors, Heath says, is the uncertain fate of troubled American banks. They're the grease that keeps the global economy in motion, and he says they're still in desperate need of US government intervention.
HEATH: People are waiting. They want to know exactly whether some device will be found to remove all the dodge assets from the banks balance sheets or whether the big ones will be nationalized or whatever. But I think the second big question is the extent of the overall recession, which is no longer only to do with the banks. You know, the rest of the economy is shrinking very fast. So you've got these two big forces that are playing out at the same time, and I think both of them had a big impact in the markets today.
BELL: But no one thinks any of the options for rescuing the banks – nationalization, bankruptcy, or restructuring -- will be easy. Again, Kenneth Rogoff at Harvard.
ROGOFF: It's just a hard pill to swallow. We're a very pro-market, free market society and the idea of having banks be governed by the government, even if it's for a month or two, really horrifies people.
BELL: Meanwhile, fear is driving investors to traditional safe havens like gold. The price of one ounce of gold climbed above $1,000 dollars today. For The World, I'm Matthew Bell.
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