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A Hump on the Road- Escalating Economic Crises?

A Hump on the Road- Escalating Economic Crises?

In January 2008, the prices of stocks have fallen drammatically in many Asian and European stock exchanges. But in a split second a day afterwards, the markets have seen an immediate but small rise again, but not to a considerable extent.

This financial drop has pushed many governments and central banks to participate in efforts to prevent a significant downturn in the global economy. Several countries have expressed concerns that the downward spiral of the US onto recession has been the main factor influencing current events in many international markets.

Beijing Normal University's economics professor Zhong Wei said that the current US subprime crisis and government intervention in many countries to stop economic overheating has been the cause of banking assets mismanagement and market fluctuations.

Will China catch the cold from overseas? China's market, more increasingly in harmony with other markets, had been affected by this movement and its reactions to this will be monitored closely by a multitude of stakeholders. Fortunately, for both the Chinese and the foreign investors, the government heavily regulates the flow of investment funds into the economy and outside into foreign economies. This would prevent any significant irregularities that may occur if government intervention is very minimal.

And this is what China is exactly doing. The Banking Regulatory Commission has warned the nation's major banks to monthly monitor the sub-prime losses, because there is a possibility that the banks would have to carry the burden of the sub-prime liabilities.

In spite of the recent write-downs and trade suspension, the banks are still showing positive net profits, which is a sign of good financial management.

Fraser Howie, an expert on the Chinese market, suggested that the recent reactions in the Chinese market was a result of the herd mentality possessed by a number of investors. The top sheep to be followed- the US slowdown. But is it really the top sheep or just a false sheep disguised wearing top sheep's collar bells?

To stop the bells from ringing, Warwick University Professor Marcus Miller urged that other nations, in particular the vast European Union, should assists the Americans in avoiding a recession through huge investment packages to be delivered to the western side of the Atlantic. Good strategy? Perhaps yes. If a recession-relief package is sent to the US, then investor confidence would be restored, at least in the medium-term.

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