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The City Café

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By now I’m sure you are all aware of the Dow dropping over 400 points today, the largest drop since September of 2001. But the question is what does this mean? Are we headed to a recession? Is the economy as strong as we think? Well the way I understand it there were three factors that really contributed to this huge loss:

  • Bomb going off near Vice-President Cheney in Afghanistan (psychological effect)
  • Econ number for durable goods released this week lower than expected, down over 7% (appliances, computers, and large goods like airplanes)
  • 9% drop in the Shanghai Stock Exchange (huge drop…largest in a decade), some analysts are suggesting that maybe this drop is just equalizing the 130% growth the Shanghai market has experienced the past year…others suggesting it is a response to fears of the government is trying to slow down the economy.

Most seem unsure if this massive sell off will continue tomorrow or not (I watched Cramer describe this as a great buy opportunity). I’m not sure if this indicates a looming recession, but two points are interesting here: 1)This shows how closely we are now tied to the Chinese market (at least an appearance of what it might mean for the global economy), and 2)It is ironic this occurs a day after Alan Greenspan talks about a possible recession by the end of 2007. Click here to read this article.

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