Here’s a fascinating little detail for all of those who insist on pointing to China as the cause of the meltdown earlier this week.
Consider this factoid: The combined value of China’s Shanghai and Shenzhen stock markets — the total market capitalization — was $400 billion at the end of 2005; Over the next 18 months, it nearly tripled, with especially strong gains over the last six months. After this week’s 8.8% plunge, it is a mere $1.4 trillion dollars.
To put that into some context, the New York Stock Exchange (NYSE) has a global capitalization of ~$
26 trillion. The Nasdaq is worth another $ 17 trillion dollars.
Bottom line? By my back of the envelope calculations,
our correction of 3.5% wiped out an estimated trillion dollars in
combined NYSE/Nasdaq 100 value —
more than two thirds of the entire capitalization
of both of China’s exchanged combined.
Hence, why I doubt that China (alone) is responsible for what happened here . . .
UPDATE: March 1, 2007 8:55 am
The "Bloomberg machine" (as one of my early mentors called it) shows the NYSE is $22.3 trillion cap, the Nasdaq comp at $4.19 trillion cap. Add in the Amex and figure the net total cap in the US is between $27 and 28 trillion dollars
Mankiw’s 10 principles of economics, translated for the uninitiated. Presented at the AAAS humor session, February 16, 2007. Transcript and additional details can be found here. Print version: Mankiw’s Principles #1. People face tradeoffs. #2. The cost of something is what you give up to get it. #3. Rational people think at the margin. #4….Read More