Stock prices plummeted worldwide Monday,

amid fears of a US recession

The Dow fell by 5 percent last week

but many Asian and European indices

dropped by a similar amount in just one day

It was the biggest one-day

fall since September 11, 2001

Stock Markets Plunge Worldwide

Symptomatic of an insoluble crisis of the world capitalist system

Stock prices plummeted worldwide Monday, amid heightened fears of a US recession. While over the course of last week US financial markets suffered the worst fall since 2002, with the Down Jones Industrial Average dropping by 5 percent, many Asian and European indices dropped by a similar amount in just one day.

It was the biggest one-day fall in world stock markets since September 11, 2001. Industrial stocks fell together with financial, suggesting that the US credit crisis, hitherto confined mainly to the banking and mortgage sectors, is spilling over into the real economy worldwide.

The huge fall in global equities markets indicate nothing if not the utter inadequacy of the fiscal stimulus package put forward by the Bush Administration last Friday.

The package, valued at some $145 billion dollars, or one percent of gross domestic product, will come mostly in the form of tax cuts to top income earners.

To put the measure in perspective, US household debt is now more than 100 percent of GDP, up from approximately 80 percent in 2003.

Given the current rate of debt accumulation among consumers, the stimulus package will put a tiny dent in overall debt accumulation by US households, and its effect on consumer spending and the foreclosure rate will be almost negligible.

The opinion pages of Monday’s Financial Times exemplify the thinking that led to the sell-off. In a column entitled “A fiscal stimulus offers limited help,” Clive Cook notes that the injection of cash from the US federal government will likely have little effect on consumer spending, partially due to the high debt accumulation among consumers.

Moreover, he writes, “confidence in the economy continues to plunge; on some estimates barely a third of the downward adjustment in house prices has happened; and the end of the credit crisis is not yet in sight.”

The column concludes, “Imminent fiscal stimulus notwithstanding, the heavy lifting on stabilising the US economy will therefore continue to be done by the Fed.”

Wolfgang Münchau, another Financial Times columnist, argues that rate cuts by the Federal Reserve are also likely to be limited in their effect on the real economy.

He writes, “There are recessions like the one in 2001, which respond well to a monetary policy stimulus. But not all do. This is going to be one of those.”

Perhaps most notable is the fact that Münchau refers a prospective downturn as “the 2008 recession,” taking for granted that one is imminent if not already in progress.

He continues: “Do not be fooled by anybody who says that the central bank should cut interest rates for the benefit of innocent citizens who have been caught up in this maelstrom.

"The first, second and third beneficiaries of the Federal Reserve’s pending helicopter drop of cash will be banks, not ordinary people or companies.”

While the columnists make strong cases against the effectiveness of either the proposed fiscal stimulus or Federal Reserve Board rate cuts, they do not put forward any convincing alternatives.

The overall sense is that the worldwide plunge of the stock markets is symptomatic of an insoluble crisis of the world capitalist system that has emerged with the bursting of the speculative subprime mortgage bubble in the US.

Global Share Crash: Blood on the Stock Market Floor

Threat of Recession Sends Markets Tumbling

Fears that 2008 will see the looming recession in the US spreading to every other continent triggered a global crash in share prices yesterday, wiping £77bn off the value of the City's blue-chip stocks in the biggest one-day points fall in London's history.

On a day of panic selling, hefty overnight falls on far eastern stock markets prompted a ripple effect through Europe and left the City's FTSE 100 index down 323.5 points at 5578.2 at the close.

Since the start of the year share prices have dropped by 14%, with the near 900-point fall in the FTSE 100 wiping out all the gains of the last 18 months and putting renewed pressure on pension funds.

Yesterday's 5.48% fall was the biggest in percentage terms since the immediate aftermath of the 9/11 terrorist attacks but less than half as big as the record 12.2% drop in October 1987.

In the City's money markets, traders were betting that the risk of a synchronised global downturn would force the Bank of England to cut interest rates by a full percentage point during the course of 2008 despite its concerns about inflationary pressure.

Economists are expecting the toughest year for the UK since the pound was removed from the Exchange Rate Mechanism in 1992.

In the US, pressure is mounting on the Federal Reserve to cut interest rates by 0.75 points at its meeting later this month, taking its main policy rate down to 3.5%.

Some analysts believe it will be necessary to cut rates to 1% by the end of this year to prevent the contagion from bad loans to subprime mortgage borrowers causing even more damage to the rest of the economy.

Shares in London closed near their lows for the day amid concerns that the market rout would continue today when Wall Street opens after being closed for the Martin Luther King public holiday.

Last night, there were indications that the Dow Jones industrial average would open more than 600 points lower.

In other markets, Japan's Nikkei index was down almost 4%, while Germany's Dax and France's CAC index both fell by 7%.

With markets in the developing world also suffering, the MSCI gauge of stock markets globally sank 3.3% percent, falling below its 2007 trough to lows last seen in December 2006 and taking it down more than 12% so far this year.

Dominique Strauss-Kahn, the managing director of the International Monetary Fund, warned western countries to expect knock-on effects from the slowdown in the US, the world's biggest economy.

"The situation is serious," Strauss-Kahn said after meeting the French president, Nicolas Sarkozy. "All countries in the world are suffering from the slowdown in growth in the United States, all countries in the developed world."

After briefly rising above $100 a barrel earlier this month, the cost of oil fell by $2 a barrel to $88.59 yesterday in expectation that weaker demand for energy would push down the price of crude.

Mining stocks were among the biggest losers in London amid concern that the boom in commodities seen in recent years would be ended by a global slowdown.

Nick Parsons, head of strategy for NAB Capital said: "There was no real trigger for what was a Black Monday. Overnight there was the very large sound of pennies dropping followed by a general market capitulation.

"What the markets have woken up to is that, yes, there will be a recession in the US and, no, the rest of the world won't be immune to that slowdown."

Graham Turner of GFC Economics said the gloomy mood in the markets might have been the delayed reaction to news last week of financial troubles for the US companies that insured the bonds linked to subprime mortgages, the value of which has plummeted as a result of falling real estate prices and rising home repossessions.

"The stock market has finally cracked and it has cracked because of all the underlying problems. People are worried about consumer spending going down, and with the stock market going down as well the two factors will start to feed off each other," said Turner.