European Stock Market Crisis to Cause a Setback to the World Economy

In regards to the ongoing European stock market crisis, the Federal Reserve Governor – Daniel Tarullo said that the current problem holds a serious potential of causing a setback to the world economy.

We have tons of incidents to relate to the current fiasco, for example;

- Investors are selling a huge range of assets, fearing that the Europe’s debt crisis will escalate to a higher rate, sooner or later
- Lehman Brothers is one of those many companies who recently went bankrupt directly or indirectly due to the stock market crisis

The risk averse strategies of banks are evident of the seriousness of current situation. No one wants a liability at hand, so there is no room for long term investments, long term loans and extension of any credit system, in fact; credit markets have literally reached a frozen state.

Tarullo said that the U.S. financial institutions are doing slightly better than the European side, but if the European crisis is going to prevail on a bigger scale, then chances are that the spill will also affect the U.S.

The U.S. economy needs to be “protected” or encapsulated for now because the inside situation hasn’t contributed to the full recovery. W still have a high unemployment rate, businesses are now in the habit of preparing balance sheets and T-Ledgers (without flaws) and it is extremely important that the U.S. shouldn’t encounter any external shock.

On top of everything, we have members of the Congress, who don’t want to be seen supporting outside parties in terms of finance. The last thing they want, is people to see them using U.S. taxpayer dollars to assist Europe. In addition, a lot of Republicans have announced plans that’d restrict any kind of financial lending to Europe.