Tuesday, October 18, 2011

Stocks Slide as Germany Cools Hope for Debt Deal

Last week stock markets rose in reaction to hopes that a strategy to fix the debt crisis in Europe was being developed. Yesterday, the stock market fell as German leaders showed little progress on plans to minimize Europe's debt. 

Expectations that a plan of action would be completed by October 23rd showed to be too optimistic, resulting in emotional let downs and dropping stocks. The U.S. stock index hit an all time low for the year on Monday, making it the worst day since Oct. 3rd. 

Jason Pride, the director of investment strategy at Glendale, a wealth management firm in Philadelphia, stated, "It's completely a reaction to Germany. The reality is everybody is hanging on to what Europe's doing."

French and German leaders gave false hope by promising to create a solution to Europe's debt crisis by the end of October, exciting stock markets around the world. Some German leaders are planning to have a strategy formulated by Sunday, while other leaders say plans to tackle to debt crisis could last well into the next year. 

Everything relies on Greek government bonds, which have been the driving force behind the dramatic swings in the stock markets lately. If Greece defaults on its debt, then the premiums on Greek bonds plummet, and will cause the banks who own them to take heavy losses. This could result in banks not being able to lend to each other, which would result in another crisis similar to that experienced in 2008. The European debt crisis holds the global financial system in its hands, which could fall through its fingers like sand.


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