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June 21st, 2013
The lead article in today’s New York Times, “Global Sell-Off Shows Fed Reach Beyond the U.S.,” shows how interconnected our world has become, especially in terms of economic activity. While U.S. markets are undergoing a much anticipated correction, falling by four percent, they are not operating in a vacuum.
Volatility in U.S. markets is having a major impact overseas, where foreign markets have declined by six percent. The anticipation of reduced support from the Fed has led to a chain reaction affecting the housing market, overseas investments and even the European debt crisis.
It is ironic that the Fed action is based on an improving economy in the United States, and it just increases the alienation between the upper classes and the general public when the markets go down because of what would be widely assumed to be good news.
In addition, the Fed has promised to move slowly in whatever action it takes, but the markets seem to be oblivious to this fact. It is often difficult to anticipate how investors will react to any item of news, and it may be that the market was poised to undergo a correction no matter what the Fed did. Ben Bernanke, however, needs to be more careful about his pronouncements when the world’s markets are on a razor’s edge.
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