How News Lifts—or Sinks—World Stocks
The growth of computerized trading has closely connected all the developed nations and many of the developing nations. A snapshot of the world markets at the end of a recent month illustrates how events in one country influence stock markets everywhere.
In the spring of 2010, Americans grew hopeful that the country was starting to climb out of the worst financial crisis since the Great Depression. The Federal Reserve announced that although American households were not spending as much as before the recession, the U.S. economy was slowly improving. Some companies were making a profit from rising consumer demand. Earlier in the recovery, companies had made money by cutting costs. Prices of stock in U.S. companies such as Apple saw some increases. The computer giant Hewlett Packard announced that it was buying the smart phone maker Palm.
The credit crisis that America seemed to be emerging from struck Greece, which warned that it might not be able to pay off its debts. As a member of the European Union, Greece has adopted the euro as its currency. Other euro countries, like Spain and Portugal, faced financial troubles as well. Standard & Poor reduced the bond rating of all three countries.
As it tried to recover, Greece adopted drastic measures, reducing government spending on social programs despite public protests. Prime Minister George Papandreou said that the public sector was overly grown, overly expensive.” He hoped the austerity program would give us a cushion” that would give us quite a bit of money.” Questions for Critical Thinking
1. Why would a financial crisis on the other side of the world affect the U.S. economy?
2. This Hit & Miss” feature describes events at the end of April 2010. As you read this textbook, what has happened in Greece, Spain, and Portugal? Have they recovered from their economic crisis?