The US markets extended their losses on Monday, continuing the downturn that began last week, while Asian markets also saw significant declines, particularly in Japan, a country with very low interest rates.
The Dow Jones Industrial Average dropped by 1,033 points, or about 2.6 percent, the S&P 500 fell by 3 percent, and the Nasdaq Composite declined by 3.43 percent. These losses added to the declines from last week amid rising unemployment fears.
European markets also fell by around 2 percent.
Japan experienced the steepest decline, with the Nikkei falling by 12.4 percent. The Yen has been depreciating against the US dollar for some time.
US markets have been under pressure, with the broad money supply shrinking and bank credit also declining. Optimism surrounding potential Federal Reserve rate cuts has buoyed markets, despite warnings from classical economists that a recession is likely due to previous rate cuts that spurred artificial demand.
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Classical economists have long argued that “full employment policies” advocated by certain economic theories lead to greater unemployment. As Friedrich Hayek explained in his Nobel Prize-winning speech in 1971, the increase in aggregate demand as a remedy for unemployment has caused a misallocation of resources, making large-scale unemployment inevitable once inflation ceases to accelerate.
Oil prices also fell, despite fears of a war in the Middle East, countering the usual trend of rising prices in such situations.