First the dot coms crashed, and the IPO window on Wall Street closed with a bang. The bond markets now have a massive oversupply of unsavory inventory and no appetite for further issues. And finally, the banks are tightening credit in the wake of weak loans to telephone companies and others. The FDIC warned recently that bad real estate loans are depressing bank earnings, and that lending institutions have hit their lowest level of capitalization since the end of the last economic shock in 1989. After all, Greenspan wanted a slowdown that would reduce overheated valuations and create some slack in the labor market.
Oil is the common factor on everyone's mind.
But the key problem lies in Asia, where energy-dependent countries could precipitate a real downslide. A good example is 1986, when you had the crash in the price of oil and the economy continued to deteriorate before lifting off the next year. In Japan, domestic GDP is virtually zero. The growth in Japan has been in exports, which have been growing at double-digit rates. Lots of those exports are coming to the US, so if Wall Street catches a cold, the Japanese may get pneumonia.