Economy Woes and Déjà Vu

Increasing fear of another economic meltdown seems all too familiar

By: Khristopher Reardon, Staff Writer

“The panic caused by a post triple A US economy is leading people to read signs prematurely, creating stress on a market which only a couple of months ago seemed to be in recovery.”

BAM! After the US credit rating was lowered to AA+ by Standard and Poor and the Euro zone bracing for another dog eat dog year in finances, we seem to be teetering on the edge of another recession less than two years after the first.

We thought we got through one recession after bailouts, tax breaks and a stimulus, but it seems we were wrong. Worries of an economic meltdown have dragged us kicking and screaming back into the proverbial woods once again.

The S&P/TSX posted triple digit losses with seemingly more to come, losing ground with 179.24 points, down 1.5 percent, according to the Toronto Star. The Dow Jones in New York is also down 172.93 points.

Bank of Canada Governor, Mark Carney, and Canadian Finance Minister, Jim Flaherty, are betting on growth past the disappointment of the second quarter results for the Canadian economy. However, markets remain volatile past the US credit downgrade.

Right after the US’s credit rating was downgraded two weeks ago, the market witnessed staggering loses rebound momentarily prior to this new wave of fear.

People are putting their money into precious metals for safe keeping as stocks fluctuate. Gold gains have been consistent as the precious mineral reaches a record high of $1,852.20 an ounce.

The situation has become so dire that people are debating whether or not there should be a movement back to the gold standard.

Of course, across the pond, they have their own worries, as European nations attempt to ban the short-selling of stocks in order to turn the market’s screaming panic down to a feeble whine. France, Italy, Spain and Belgium came together on the issue to impose the ban.

[pullquote]The panic caused by a post triple A US economy is leading people to read signs prematurely, creating stress on a market which only a couple of months ago seemed to be in recovery.[/pullquote]

The short-selling of stocks is a strategy whereby investors trade a stock and sell it, expecting the price of the stock to eventually fall so they may repurchase it at a lower price. It’s believed that the short-selling of stocks could undo the good will the market has built during the recent rebound.

Basically, the situation is spiraling out of control due to fears of a new recession. Short-sellers are capitalizing on these circumstances by selling stocks, heightening the level of fear, then buying these stocks back when the price of shares dip. This means the markets hit hard waves because short-sellers decide to rock the boat.

The panic caused by a post triple A US economy is leading people to read signs prematurely, creating stress on a market which only a couple of months ago seemed to be in recovery.

For those watching and waiting for the onset of another recession, it may all feel like deja vu all over again.

ARB Team
Arbitrage Magazine
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