Global Stock Market Turmoil Shows a System in Grave Crisis

Stocks plunged on Wall Street Aug. 5, with the Dow Jones Index closing at 1033 points down, for a 2.6% drop, the worst in two years, while the Nasdaq Composite lost a daily 3.43%. The trend had started in Japan, where the Nikkei nose-dived more than 12%, the worst one-day loss since Black Monday in 1987. European stock markets followed suit when they opened a few hours later. Shares fell , more than 3% in Frankfurt, while the Paris market lost 2.6%, London was down 2.3% and Madrid 2.8%, but Milan was the worst hit, plunging by 4%. Concerted efforts were quickly made to stop the panic, but the volatility remains.

There were several triggers for the stock market selloffs. On Aug. 2, the report released on U.S. jobs/unemployment for July, caused concern. And there was the sudden spike in the Japanese yen relative to the dollar, roughly from the range of 160/dollar to low 140s/dollar. This may not be a cause so much as the result of mass closing of yen carry trades, forced by losses in other trades in Europe and the United States.

Another stock value factor was the huge drop in Intel stocks on Aug. 5. Why? Because this company, having just been afforded the largess of an $8.5 billion grant from the CHIPS and Science Act to support building new “fabs” for advanced semiconductors, instead announced it would lay off 19,000 employees out of a total workforce of 116,000. Its stock fell by 25% in a couple of days. Is this how “investment in high-tech infrastructure” works according to “Bidenomics”?

As a result, U.S. Treasury market interest rates have plunged across the board, excluding only the shortest-term (6-month, 3-month bills), and the secured overnight funding rate (SOFR) of the Federal Reserve, which has risen in the past week to 5.33%, from 5.21%, is now far above all Treasury securities’ rates. The banks and money-market funds are now invited to withdraw entirely from investment in the economy, and just build up their capital reserves and excess reserves, as well as their reserves in the Fed’s Standing Overnight Repo Facility, which earn this high SOFR from the Fed.