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A Big Drop In U.S. Financial Markets Drags Down Others

STEVE INSKEEP, HOST:

For all of the growth of economies around the world, the United States still has the world's largest economy. And the U.S. stock market proved a point yesterday. America still has the ability to drag everybody else down. Yesterday's plunge - 1,175 points, as measured on the Dow Jones Industrial Average - has affected global markets, and NPR's senior business editor, Uri Berliner, is here to tell us how much.

Hi there, Uri.

URI BERLINER, BYLINE: Good morning, Steve.

INSKEEP: So how bad is it around the world?

BERLINER: Not so good. In Asia, stocks are down very sharply - in japan, more than 4 percent; in Hong Kong, more than 5 percent. They're also down in Europe, though not quite as much. But what we're seeing is definitely a global sell-off.

INSKEEP: So it's the kind of thing we saw during the financial crisis, when bad news would go around the world over the course of 24 hours.

BERLINER: Well, bad news is going around the world. It's not necessarily the same as the financial crisis in a lot of ways.

INSKEEP: OK. Let's talk that through. What has triggered this drop - not just on Monday, but last week - given that the economy, up to now, has seemed pretty strong?

BERLINER: Well, it's worth keeping in mind that we've been in a bull market for many years now. Since 2009, stocks have gone up, up, up and up, really, without much of a correction or a bear market. And so by some measures, stocks are overvalued. So you would expect there to be some selling. What's a bit of a puzzle is why there was such a panicky sell-off yesterday, also - and on Friday - why it all happened right now and with such velocity.

INSKEEP: Nobody knows?

BERLINER: Well, you know, there could be a number of reasons. There could be automated trading that happens. You know, if there's a lot of volatility in the market, trades are triggered automatically. And there could just be a sort of growth of fear in the market, as well.

INSKEEP: You know, I'm thinking about the definition of a market correction. Usually, people say if the market is down 10 percent over a short period of time, that's a correction, which is a phrase that's different than a collapse, for example. I'm realizing that in the last few days, we're not down 10 percent, but kind of getting close to that if you combine Monday with last week.

BERLINER: Yeah. We're getting close to a correction, and it wouldn't be surprising if we have one. Corrections are fairly normal over the course of a market.

INSKEEP: Could this simply be investors moving their money elsewhere because interest rates are changing?

BERLINER: Yeah. I mean, it could also be that investors are putting their money in cash because they don't know where anything is going. Stocks are down. Bonds haven't been doing well. So it could just be that investors are seeking some safety for a while while this all shakes out.

INSKEEP: Wow - the investor equivalent of the money in the mattress. Uri, thanks very much.

BERLINER: You're welcome.

INSKEEP: That's NPR's Uri Berliner.

(SOUNDBITE OF CATACOMBE'S "ZENITH") Transcript provided by NPR, Copyright NPR.

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