August Market Loss
Summary:
The top three market indexes in the U.S., measurements that track the stocks of a certain populations of companies, have finished the month with losses not seen in years. Dow Jones has loss 0.7%, the S&P 500 is down by 0.8%, and NASDAQ, by 1.1% (Vaishampayan & Whittall, par. 1). The plunge is being largely attributed to the change in economic growth powerhouses in China, where “smokestack industries, huge exports, and massive infrastructure spending (Areddy, par. 3),” which are now responsible for a crippling debt. To counteract this, the Chinese government intends to replace the old foundations with “services, consumer spending, and private entrepreneurship (Areddy par. 4),” but because these aren’t as well-formed, growth has been sluggish. In an attempt to simulate the economy, China has devalued the yuan last June, borrowed more money to buy shares, and in a seemingly impetuous move, started pumping money lent by state banks into infrastructure projects, which has caused volatility in the stock market. China does not appear to have a plan to rejuvenate their economy, instead, warning their citizens to get used to the ‘new normal’ of economic growth (Areddy, par. 1).”
For Investors in the U.S. and around the world, they’re shying away from companies tied to over sea markets, alternatively investing in companies that are “linked to the U.S. economic recovery instead of those with global growth (Vaishampayan & Whittall, par. 9).” The U.S. government continues to monitor the employment and inflation data as they decide to make any changes in monetary policy, possibly halting the Federal Reserve’s interest rate increase that was planned. The data on employment, the predicted job growth by economists to be 220,000 new jobs in August, will be released to the public on Friday.
Let’s try go get a discussion going: post any questions, predictions, conclusions, or observations you have about the articles. Try to draw connections from these articles to what we’ve learned so far.
Q: What are some economic growth strategies you recognize that the Chinese government are utilizing that we’ve learned in the textbook?
A: Private entrepreneurship was listed as one of the new strategies for economic growth. As we’ve learned in our chapter 2 of our textbook, human ingenuity and entrepreneurship increases economic growth as depicted on production possibilities curves. Also, private ownership seems to be in play here, and that facilitates cooperation between individuals to exchange goods and services.
Q: Can you foresee any secondary effects from the change in foundations?
A: With the shift in spending from manufacturing and exporting, the world may experience a decrease in exports from China, and the exports will increase in price. Countries relying on China may look elsewhere for exports.