Since the last hour began in May 2001, we have seen some major financial events:
• The Sept. 11 terrorist attacks are expected to cost $639 billion in total effect.
• Enron collapsed in the largest corporate bankruptcy in U.S. history.
• Argentina defaulted (failed to pay) on its $142 billion foreign debt—the largest default of a country in history. Financial contagion around the world, in combination with this and other collapses, is still a very real possibility.
• Kmart went bankrupt—the largest retailer in U.S. history to go down.
• The U.S. was confirmed in June 2001 to be in recession. Economies of Europe and Japan are also flagging. If the U.S., with renewed deficit spending and mountainous national debt, goes down again in a “double dip” recession, it threatens to contribute to the most severe world recession since the 1930s.
• Thanks to Enron, the U.S. is currently experiencing a sell-off in the corporate bond market which has resulted from investor panic-selling of stocks and bonds of every company with a complex accounting system. This bond shock could lead to financial disaster around the world.
• U.S. corporate debt has hit a record $4.9 trillion and is continuing to rise at a time when the sell-off of corporate bonds is making it more difficult for corporations to sell their bonds and obtain much-needed financing.
• American household debt has also risen to a record $7.5 trillion, which, together with corporate and government debt, could crush America in financial crisis or, at least, severely limit its ability to rise from the current recession.
• Japan’s Nikkei stock index hit an 18-year low on February 1, while at the same time falling below the American Dow Jones Industrial Average for the first time since 1957.
• Japan, the world’s second-largest national economy, is in greater danger than ever of a banking and economic collapse due to staggering financial losses inflicted by Enron and Argentina. Such a collapse, or attempts to stave it off, would do great damage if Japan liquidates its massive holdings of U.S. Treasury bonds to meet such a crisis.